MDG Strategy Analysis: MDG Strategy Analysis: Issues, Methods and Issues, Methods and

Agenda for Future WorkAgenda for Future Work

FranFranççois Bourguignonois BourguignonChief Economist, World BankChief Economist, World Bank

Presentation for meeting on Approaches to MDG AnalysisPresentation for meeting on Approaches to MDG AnalysisOrganized by the Poverty Group, Bureau for Development Policy, Organized by the Poverty Group, Bureau for Development Policy,

UNDP, August 15, 2006UNDP, August 15, 2006

IntroductionIntroduction

Outline of presentationOutline of presentation1.1. Issues in MDG strategy analysis Issues in MDG strategy analysis ––

what an analytical framework should what an analytical framework should considerconsider

2.2. MAMSMAMS3.3. Ethiopia applicationEthiopia application4.4. Research agenda / conclusionsResearch agenda / conclusions

1. Issues in MDG strategy analysis1. Issues in MDG strategy analysis

Context:Context:

Scope: Scope: The MDGs are broad, providing targets The MDGs are broad, providing targets related to most aspects of development: poverty, related to most aspects of development: poverty, education, health, and the environment. education, health, and the environment.

Time frame: Time frame: The MDGs apply to 2015. However, The MDGs apply to 2015. However, what happens before and after this year is also what happens before and after this year is also important.important.

Institutional complexity: Institutional complexity: Reaching the MDGs Reaching the MDGs requires effective government functioning (spending requires effective government functioning (spending allocation, program design, service delivery, etc.)allocation, program design, service delivery, etc.)

Methodology: Methodology: The development of methods that The development of methods that can answer these questions is a huge challenge can answer these questions is a huge challenge

Features of an MDG analytic frameworkFeatures of an MDG analytic framework

A framework for analysis of MDG strategies should A framework for analysis of MDG strategies should consider the following factors:consider the following factors:

1.1. Synergies between different Synergies between different MDGsMDGs

2.2. Role of nonRole of non--government service providersgovernment service providers

3.3. DemandDemand--side conditions (incentives, infrastructure, side conditions (incentives, infrastructure, incomes)incomes)

4.4. Role of economic growthRole of economic growth

5.5. Macro consequences of increased public spending Macro consequences of increased public spending and/or foreign aidand/or foreign aid

6.6. Increasing marginal costIncreasing marginal cost

7.7. Unit service costs may rise with inputs costs (wages)Unit service costs may rise with inputs costs (wages)

Inherent complexityInherent complexity

MultiMulti--sectoral economysectoral economy--wide nature of wide nature of MDG challenge implies MDG challenge implies inherently complexinherently complexexex--ante evaluation and strategic ante evaluation and strategic frameworks frameworks

A simple first approach establishes A simple first approach establishes feasible strategies and evaluate costs in feasible strategies and evaluate costs in an fixedan fixed--coefficient fixedcoefficient fixed--price framework price framework (UNMP)(UNMP)

More More elaborateelaborate approachesapproaches suggestsuggest thisthisframeworkframework isis limitedlimited andand possiblypossiblymisleadingmisleading

2. MAMS2. MAMS

The World Bank has developed MAMS (Maquette The World Bank has developed MAMS (Maquette for MDG Simulations) for MDG Simulations) –– an an extendedextended, dynamic, dynamic--recursive computable general equilibrium (CGE) recursive computable general equilibrium (CGE) model designed for MDG analysis.model designed for MDG analysis.

MAMS is complementary to and draws extensively MAMS is complementary to and draws extensively on on sector and econometric research on MDGssector and econometric research on MDGs..

Motivation behind the design of MAMS: Motivation behind the design of MAMS: –– An economywide, intertemporal, flexibleAn economywide, intertemporal, flexible--price model price model

–– Standard, dynamicStandard, dynamic--recursive CGE models provide a good recursive CGE models provide a good starting point starting point

–– But CGE But CGE approachapproach must must bebe complementedcomplemented by by andandarticulatedarticulated withwith a a satisfactorysatisfactory representationrepresentation ofof 'social 'social sectorssectors'. '.

"GDP", distribution

Non-income MDG sectors

Physical assetsPrivate and public capital in private and public sectors

Human assetsVarious skills of labor, health status,

Intermediate inputs(private/public)

Policy instruments:- changes in public assets, infrastructure, human assets, investment climate, trade policies, conservation policies

Macro Framework

(CGE)

Capital flows / foreign aid

Governance assets

Architecture of the MAMS integrative Architecture of the MAMS integrative approach to the MDGs approach to the MDGs

Income poverty

Environmental assets

Features of MAMSFeatures of MAMS

Features:Features:Most features are familiar from standard openMost features are familiar from standard open--economy, dynamiceconomy, dynamic--recursive CGE models.recursive CGE models.Extensions introduced to capture the processes Extensions introduced to capture the processes that generate MDG outcomes.that generate MDG outcomes.MAMS typically covers MDGs 1 (poverty), 2 MAMS typically covers MDGs 1 (poverty), 2 (primary school completion), 4 (under(primary school completion), 4 (under--five five mortality rate), 5 (maternal mortality rate), 7a mortality rate), 5 (maternal mortality rate), 7a (water access), and 7b (sanitation access).(water access), and 7b (sanitation access).

GovernmentGovernment

Treatment of government in MAMS:Treatment of government in MAMS:–– MAMS'sMAMS's main originality in comparison with standard main originality in comparison with standard

CGEsCGEs is the inclusion of (MDGis the inclusion of (MDG--related) related) social servicessocial servicesand their impact on the rest of the economy. and their impact on the rest of the economy.

–– These services are produced using labor, intermediate These services are produced using labor, intermediate inputs, and capital (fixed coefficients for capital and inputs, and capital (fixed coefficients for capital and intermediate inputs).intermediate inputs).

–– Together with other determinants, they determine the Together with other determinants, they determine the ""production" of production" of MDGsMDGs

–– Model tracks government domestic and foreign debt Model tracks government domestic and foreign debt stocks (including foreign debt relief) and related interest stocks (including foreign debt relief) and related interest payments. payments.

MDG MDG ““productionproduction””

MDGs are modeled as being MDGs are modeled as being ““producedproduced”” by a by a combination of factors or determinants (table combination of factors or determinants (table following) using a (reduced) functional form that following) using a (reduced) functional form that permits:permits:

–– Imposition of limits (maximum or minimum) given by Imposition of limits (maximum or minimum) given by logic or country experienceslogic or country experiences

–– Replication of baseReplication of base--year values and elasticitiesyear values and elasticities

–– Calibration of a reference time path for the provision of Calibration of a reference time path for the provision of services needed to achieve services needed to achieve MDGsMDGs

–– Diminishing marginal returns to the inputsDiminishing marginal returns to the inputs

Determinants of MDG outcomesDeterminants of MDG outcomes

44XXXXXXXX22––Primary Primary schoolingschooling

2,5,7a,7b2,5,7a,7bXXXXXX44--UnderUnder--fivefivemortalitymortality

2,4,7a,7b2,4,7a,7bXXXXXX55--Maternal Maternal mortalitymortality

XXXXXX7a7a--WaterWater

XXXXXX7b7b--SanitationSanitation

Other Other MDGsMDGs

Public Public infrainfra--

structurestructure

WageWageincenincen--tivestives

ConsumpConsump--tion pertion perCapitaCapita

ServiceServiceper capita per capita or studentor studentMDGMDG

Modeling education in MAMSModeling education in MAMS

Service measured per student in each teaching Service measured per student in each teaching cycle (primary, secondary, tertiary).cycle (primary, secondary, tertiary).

Model tracks evolution of enrollment in each cycleModel tracks evolution of enrollment in each cycle

Educational outcomes (entry, retention, pass, Educational outcomes (entry, retention, pass, repeat, drop out rates by level) as functions of a repeat, drop out rates by level) as functions of a set of determinantsset of determinants

MDG 2 (net primary completion rate) computed as MDG 2 (net primary completion rate) computed as product of 1product of 1stst grade entry rate and primary cycle grade entry rate and primary cycle pass rates for the relevant series of years.pass rates for the relevant series of years.

Intertemporal behaviorIntertemporal behavior

Dynamics:Dynamics:Updating of stocks of factors (different types of labor and Updating of stocks of factors (different types of labor and capital, other factors) and debt (domestic and foreign)capital, other factors) and debt (domestic and foreign)

TFP growth by production sector depending on TFP growth by production sector depending on

–– Growth in selected capital stocks (general or sector Growth in selected capital stocks (general or sector ––specific infrastructure) specific infrastructure)

–– Openness (trade share in GDP)Openness (trade share in GDP)

Key feature of scenarios: budget balance obtained Key feature of scenarios: budget balance obtained alternatively by: foreign grants, domestic borrowing or alternatively by: foreign grants, domestic borrowing or domestic taxesdomestic taxes

Flexible modeling frameworkFlexible modeling framework

MAMS has evolved from an EthiopiaMAMS has evolved from an Ethiopia--specific pilot version to specific pilot version to one that is more widely applicable, and includes:one that is more widely applicable, and includes:–– multiple sectors multiple sectors –– multiple householdsmultiple households–– wide range of taxeswide range of taxes–– NGO + private MDG/HD servicesNGO + private MDG/HD services–– specialspecial--case sectors (resourcecase sectors (resource--based export sectors, regulated based export sectors, regulated

utilities)utilities)

MAMS works with standard approaches to poverty and MAMS works with standard approaches to poverty and inequality analysis: inequality analysis: –– aggregate poverty elasticityaggregate poverty elasticity–– representative householdrepresentative household–– microsimulation (integrated, topmicrosimulation (integrated, top--down)down)

Data requirementsData requirements

Basic data needs are similar to other CGE Basic data needs are similar to other CGE models (SAM; physical labor data; elasticities in models (SAM; physical labor data; elasticities in trade, production, and consumption)trade, production, and consumption)Data (and model) disaggregation highly flexible Data (and model) disaggregation highly flexible outside the government and the labor marketoutside the government and the labor marketData requirements specific to MAMS:Data requirements specific to MAMS:

–– SAM: government consumption and investment SAM: government consumption and investment disaggregated by MDGdisaggregated by MDG--related functions; labor related functions; labor disaggregated by educational achievement;disaggregated by educational achievement;

–– Stocks of students by cycle; population data with Stocks of students by cycle; population data with some disaggregation by age;some disaggregation by age;

–– Data from sector studies on MDGs and education: Data from sector studies on MDGs and education: basebase--year indicators, elasticities, service expansion year indicators, elasticities, service expansion required to reach MDGs.required to reach MDGs.

Applications of MAMSApplications of MAMS

MAMS is being applied in numerous countries:MAMS is being applied in numerous countries:

–– 19 in Latin America and the Caribbean (in collaboration 19 in Latin America and the Caribbean (in collaboration with the UNDP) with the UNDP)

–– 5 in Sub5 in Sub--Saharan Africa Saharan Africa

In Ethiopia (the pilot country), MAMS has been In Ethiopia (the pilot country), MAMS has been extensively used by government and the World Bank extensively used by government and the World Bank in the analysis of MDG and Poverty Reduction in the analysis of MDG and Poverty Reduction Strategies, as well as independent studies on Strategies, as well as independent studies on demography, labor market, and aid/budget policy.demography, labor market, and aid/budget policy.

3. Ethiopia application3. Ethiopia application

Base scenario calibrated around current Base scenario calibrated around current resource availabilityresource availabilityAlternative MDGAlternative MDG--base scenario in which: base scenario in which:

–– foreign grants adjust to meet the foreign grants adjust to meet the government financing gapgovernment financing gap

–– the MDGs that are covered (1, 2, 4, 5, 7a, the MDGs that are covered (1, 2, 4, 5, 7a, 7b) are all achieved by 20157b) are all achieved by 2015

Following graphs show illustrative results Following graphs show illustrative results from MDG strategy simulationsfrom MDG strategy simulations

Foreign aid per capita (US$)Foreign aid per capita (US$)

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Real exchange rateReal exchange rate

Note: Indexed at 100 in 2005

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Wages for workers with secondary schoolingWages for workers with secondary schooling

Unit: Ethiopian 2005 Birr

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Aid needs and the timing of scaling upAid needs and the timing of scaling up

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5 15 25 35 45 55

Share of extra MDG grants 2003-2009 (%)

PV

of

extr

a M

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Without productivity gain

With government productivity gain

TradeTrade--offs between human offs between human development (HD) and poverty MDGsdevelopment (HD) and poverty MDGs

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70 80 90 100

100%

90%

80%

75%

PV of Aid:

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Share of Poverty Target (%)

MAMS Ethiopia findingsMAMS Ethiopia findings

Key results: Key results: –– Foreign aid per capita increases fiveForeign aid per capita increases five--fold to fold to

US$79 in 2015 as compared to 2005.US$79 in 2015 as compared to 2005.–– Heavy reliance on foreign aid appreciates the Heavy reliance on foreign aid appreciates the

real exchange rate and skews production real exchange rate and skews production toward nontoward non--tradables.tradables.

–– In the educated part of the labor market, wage In the educated part of the labor market, wage increases are initially rapid but later slow down increases are initially rapid but later slow down when labor supplies increase and the scalingwhen labor supplies increase and the scaling--up period is concluded.up period is concluded.

–– A human development focus puts the economy A human development focus puts the economy on a slower growth track then a focus on on a slower growth track then a focus on infrastructure (with equal spending)infrastructure (with equal spending)

4. 4. Research agenda / conclusionsResearch agenda / conclusions

What we have done so far points to what we need to understand better:

• Determinants of MDG and education outcomes (single-and cross-country econometric work)

• Effects of alternative (micro) targeting policies for health and education (extended micro-simulation analysis)

• Optimizing and taking into account the path towards the MDGs

• Incorporating information on success of MDG interventions (from impact evaluation, etc.)

• Explicit links between short-term (IMF), medium-term (PRSP) and long-term (to 2015 and beyond) ) frameworks

MDG strategy analysis is a serious challenge for economists and others – need for analysis using a variety of approaches (sectoral, econometric, economywide modeling).

MAMS has been designed with this end in mind

4. 4. Research agenda / conclusionsResearch agenda / conclusions

ReferencesReferences

Bourguignon, FranBourguignon, Franççois. 2006. Aid, service delivery and the ois. 2006. Aid, service delivery and the MDGs in an economyMDGs in an economy--wide framework. Mimeo. World Bank.wide framework. Mimeo. World Bank.Lofgren, Hans and Carolina DiazLofgren, Hans and Carolina Diaz--Bonilla. 2006. Bonilla. 2006. ““Economywide Simulations of Ethiopian MDG Strategies.Economywide Simulations of Ethiopian MDG Strategies.””Paper presented at the Ninth Annual Conference on Global Paper presented at the Ninth Annual Conference on Global Economic Analysis, Addis Ababa. June.Economic Analysis, Addis Ababa. June.Lofgren, Hans and Carolina DiazLofgren, Hans and Carolina Diaz--Bonilla. 2006. Bonilla. 2006. ““MAMS: An MAMS: An Economywide Model for Analysis of MDG Country Economywide Model for Analysis of MDG Country Strategies: Technical Documentation.Strategies: Technical Documentation.”” Paper presented at Paper presented at the Ninth Annual Conference on Global Economic Analysis, the Ninth Annual Conference on Global Economic Analysis, Addis Ababa. June.Addis Ababa. June.

REMAINING SLIDES FOR REMAINING SLIDES FOR INTEGRATION OR DELETIONINTEGRATION OR DELETION

Evolution over Time for MDG 2Evolution over Time for MDG 2Net Primary School Completion Rate (%)Net Primary School Completion Rate (%)

(By Simulation)(By Simulation)

Note: 2015 target for MDG 2 = 100%

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