Rising up
A multifaceted program causes lasting progress for the very poor: Evidence from six countries
Abhijit Banerjee et al.
Science, 15 May 2015
Introduction: Working in six countries with an international consortium, we investigate whether a multifaceted Graduation program can help the extreme poor establish sustainable self-employment activities and generate lasting improvements in their well-being. The program targets the poorest members in a village and provides a productive asset grant, training and support, life skills coaching, temporary cash consumption support, and typically access to savings accounts and health information or services. In each country, the program was adjusted to suit different contexts and cultures, while staying true to the same overall principles. This multipronged approach is relatively expensive, but the theory of change is that the combination of these activities is necessary and sufficient to obtain a persistent impact. We do not test whether each of the program dimensions is individually necessary. Instead, we examine the “sufficiency” claim: A year after the conclusion of the program, and 3 years after the asset transfer, are program participants earning more income and achieving stable improvements in their well-being?
Rationale: We conducted six randomized trials in Ethiopia, Ghana, Honduras, India, Pakistan, and Peru with a total of 10,495 participants. In each site, our implementing partners selected eligible villages based on being in geographies associated with extreme poverty, and then identified the poorest of the poor in these villages through a participatory wealth-ranking process. About half the eligible participants were assigned to treatment, and half to control. In three of the sites, to measure within village spillovers, we also randomized half of villages to treatment and half to control. We conducted a baseline survey on all eligible participants, as well as an endline at the end of the intervention (typically 24 months after the start of the intervention) and a second endline 1 year after the first endline. We measure impacts on consumption, food security, productive and household assets, financial inclusion, time use, income and revenues, physical health, mental health, political involvement, and women’s empowerment.
Results: At the end of the intervention, we found statistically significant impacts on all 10 key outcomes or indices. One year after the end of the intervention, 36 months after the productive asset transfer, 8 out of 10 indices still showed statistically significant gains, and there was very little or no decline in the impact of the program on the key variables (consumption, household assets, and food security). Income and revenues were significantly higher in the treatment group in every country. Household consumption was significantly higher in every country except one (Honduras). In most countries, the (discounted) extra earnings exceeded the program cost.
Conclusion: The Graduation program’s primary goal, to substantially increase consumption of the very poor, is achieved by the conclusion of the program and maintained 1 year later. The estimated benefits are higher than the costs in five out of six sites. Although more can be learned about how to optimize the design and implementation of the program, we establish that a multifaceted approach to increasing income and well-being for the ultrapoor is sustainable and cost-effective.
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Family Values and the Regulation of Labor
Alberto Alesina et al.
Journal of the European Economic Association, forthcoming
Abstract:
To be efficient, flexible labor markets require geographically mobile workers. Otherwise firms can take advantage of workers' immobility and extract rents at their expense. In cultures with strong family ties, moving away from home is costly. Thus, to limit the rents of firms and to avoid moving, individuals with strong family ties rationally choose regulated labor markets, even though regulation generates higher unemployment and lower incomes. Empirically, we find that individuals who inherit stronger family ties are less mobile, have lower wages and higher unemployment, and support more stringent labor market regulations. We find a positive association between labor market rigidities at the beginning of the 21st century and family values prevailing before World War II, and between family structures in the Middle Ages and current desire for labor market regulation. Both results suggest that labor market regulations have deep cultural roots.
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The Geography of Development: Evaluating Migration Restrictions and Coastal Flooding
Klaus Desmet, Dávid Krisztián Nagy & Esteban Rossi-Hansberg
NBER Working Paper, April 2015
Abstract:
We study the relationship between geography and growth. To do so, we first develop a dynamic spatial growth theory with realistic geography. We characterize the model and its balanced growth path and propose a methodology to analyze equilibria with different levels of migration frictions. We bring the model to the data for the whole world economy at a 1°×1° geographic resolution. We then use the model to quantify the gains from relaxing migration restrictions as well as to describe the evolution of the distribution of economic activity in the different migration scenarios. Our results indicate that fully liberalizing migration would increase welfare more than three-fold and would significantly affect the evolution of particular regions in the world. We then use the model to study the effect of a spatial shock. We focus on the example of a rise in the sea level and find that coastal flooding can have an important impact on welfare by changing the geographic-dynamic path of the world economy.
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The Resource Curse Exorcised: Evidence from a Panel of Countries
Brock Smith
Journal of Development Economics, September 2015, Pages 57–73
Abstract:
This paper evaluates the impact of major natural resource discoveries since 1950 on GDP per capita. Using panel fixed-effects estimation and resource discoveries in countries that were not previously resource-rich as a plausibly exogenous source of variation, I find a positive effect on GDP per capita levels following resource exploitation that persists in the long term. Results vary significantly between OECD and non-OECD treatment countries, with effects concentrated within the non-OECD group. I further test GDP effects with synthetic control analysis on each individual treated country, yielding results consistent with the average effects found with the fixed-effects model.
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The Aggregate Effect of School Choice: Evidence from a two-stage experiment in India
Karthik Muralidharan & Venkatesh Sundararaman
Quarterly Journal of Economics, forthcoming
Abstract:
We present experimental evidence on the impact of a school choice program in the Indian state of Andhra Pradesh (AP) that provided students with a voucher to finance attending a private school of their choice. The study design featured a unique two-stage lottery-based allocation of vouchers that created both a student-level and a market-level experiment, which allows us to study both the individual and the aggregate effects of school choice (including spillovers). After two and four years of the program, we find no difference between test scores of lottery winners and losers on Telugu (native language), math, English, and science/social studies, suggesting that the large cross-sectional differences in test scores across public and private schools mostly reflect omitted variables. However, private schools also teach Hindi, which is not taught by the public schools, and lottery winners have much higher test scores in Hindi. Further, the mean cost per student in the private schools in our sample was less than one-third of the cost in public schools. Thus, private schools in this setting deliver slightly better test score gains than their public counterparts (better on Hindi and same in other subjects), and do so at a substantially lower cost per student. Finally, we find no evidence of spillovers on public-school students who do not apply for the voucher, or on private school students, suggesting that the positive impacts on voucher winners did not come at the expense of other students.
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Sebastian Galiani, Paul Gertler & Raimundo Undurraga
NBER Working Paper, April 2015
Abstract:
A fundamental question in economics is whether happiness increases pari passu with improvements in material conditions or whether humans grow accustomed to better conditions over time. We rely on a large-scale experiment to examine what kind of impact the provision of housing to extremely poor populations in Latin America has on subjective measures of well-being over time. The objective is to determine whether poor populations exhibit hedonic adaptation in happiness derived from reducing the shortfall in the satisfaction of their basic needs. Our results are conclusive. We find that subjective perceptions of well-being improve substantially for recipients of better housing but that after, on average, eight months, 60% of that gain disappears.
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Harry Wu, Esther Shea & Alice Shiu
Applied Economics, forthcoming
Abstract:
We adopt contemporaneous, nonradial and variable returns to scale assumptions in a data envelopment analysis (DEA) exercise to address the inefficiency problem in Chinese industries in different policy regimes using a newly constructed data set for 24 Chinese manufacturing industries in 1952–2008. While confirming that the central planning period was indeed a ‘graveyard’ for productivity that entailed severe technical regress and efficiency losses, we do not find a steady improvement in efficiency during the reform period despite strong technical progress. We argue that the resurgent prominence of the government and the state sector since the late 1990s, especially following China’s World Trade Organization accession, has obstructed the efficiency improvement.
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Institutionalizing a global anti-corruption regime: Perverse effects on country outcomes, 1984–2012
Wade Cole
International Journal of Comparative Sociology, February 2015, Pages 53-80
Abstract:
A global anti-corruption movement rapidly mobilized and institutionalized during the mid-1990s. Using data for 119 countries between 1984 and 2012, I examine the effects of this movement on rated levels of perceived corruption. Results from multivariate regression analyses show that the global surge in anti-corruption organizing, monitoring, and legalization was paradoxically associated with an increase in rated levels of corruption, over and above a host of political, economic, social, and cultural factors shown in previous research to explain perceived corruption. With the international standardization, scrutinization, and stigmatization of corruption, activities once hidden from view or previously regarded as ‘standard operating procedure’ came to be denominated, detected, and decried as illegitimate. In turn, these processes gave the impression that corruption worsened, when in fact it may have remained stable or even improved. These findings lend support to institutional approaches in sociology and the ‘information paradox’ concept in political science.
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Social Ties and Economic Development
José Anchorena & Fernando Anjos
Journal of Macroeconomics, September 2015, Pages 63–84
Abstract:
We develop a parsimonious general equilibrium model where agents allocate time across three activities: production, trade, and leisure. Leisure includes time spent socializing, which economizes transaction costs. Our framework yields multiple equilibria in terms of the number of social ties and predicts that the number of social ties is positively associated with development. We calibrate our model using an empirical measure of country-level social ties and are able to quantitatively match the cross-country relationship between social ties and income per capita. Our calibration also captures additional dimensions of cross-country data: (i) increasing income inequality, but converging growth rates; (ii) an association between weak social ties and development; and (iii) an association between number of social ties and size of the transaction sector.
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Gold and Silver Mining in the 16th and 17th Centuries, Land Titles and Agricultural Productivity
Rabiul Islam, Jakob Madsen & Paul Raschky
European Journal of Political Economy, forthcoming
Abstract:
Although agricultural productivity is critical for economic development very little is known about the causes of the large dispersion in agricultural productivity across the world. Microeconomic studies increasingly stress the lack of land rights in many poor countries as an important source of low productivity. This paper examines the role played by land titles in explaining differences in agricultural productivity for 93 countries. Using the per capita accumulated value of gold and silver production in the 16th and 17th centuries as instruments for land rights it is shown that enforcement of land titles is a significant source of agricultural productivity inequality across the world.
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Taxes, National Identity, and Nation Building: Evidence from France
Noel Johnson
George Mason University Working Paper, April 2015
Abstract:
What is the relationship between state capacity, national identity, and economic development? This paper argues that increases in state capacity can lower the collective action costs associated with political and economic exchange by encouraging the formation of a common identity. This hypothesis is tested by exploiting the fact that the French Monarchy was more successful in substituting its fiscal and legal institutions for those of the medieval seigneurial regime within an area of the country known as the Cinq Grosses Fermes (CGF). Highly disaggregated data on regional self-identification from the 1789 Cahiers de Doléances confirm that regions just inside the CGF were more likely than regions just outside the CGF to identify themselves with national, as opposed to local, institutions. We also show that regions inside the CGF that affiliated with national identity were more economically developed during the first half of the nineteenth century and more likely to contribute towards local public goods.
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The Persistence of (Subnational) Fortune
William Maloney & Felipe Valencia Caicedo
Economic Journal, forthcoming
Abstract:
Using newly collected subnational data, this paper establishes the within country persistence of economic activity in the New World over the last half millennium, a period including the trauma of European colonization, the decimation of native populations, and the imposition of potentially growth inhibiting institutions. High pre-colonial density areas tend to be denser today due to locational fundamentals and agglomeration effects: colonialists established settlements near existing native populations for reasons of labour, trade, knowledge and defence. These areas, identified with pre-colonial prosperity, also tend to have higher incomes today suggesting that at the subnational level, fortune persists.
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What Underlies Weak States? The Role of Terrain Ruggedness
Pablo Jimenez-Ayora & Mehmet Ali Ulubaşoğlu
European Journal of Political Economy, forthcoming
Abstract:
This article documents terrain ruggedness as an underlying cause of lack of state capacity. The paper contends that rugged topography poses significant costs to cooperation among the constituent groups within the state. This problem then translates into inability to commit to policies and under-provision of public goods, leading to such outcomes as poor protection of rule of law, limited tax revenue, civil violence, and ultimately, a weak state apparatus. Using several indicators capturing different dimensions of state capacity, the paper econometrically tests its argument in a sample of 187 independent countries and finds robust and clear evidence in favor of its reasoning. Further, the paper documents that delayed urbanization constitutes an important transmission mechanism for the significant role of terrain ruggedness in reduced state capacity.
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Does Agricultural Growth Cause Manufacturing Growth?
Abdulaziz Shifa
Economica, forthcoming
Abstract:
The role of agricultural development for industrialization is central to several theories of economic development and policy. However, empirically assessing the impact of agricultural growth on manufacturing growth is challenging because of endogeneity concerns. To address the identification challenge, I use random weather variations to instrument agricultural growth. The instrumental variable estimations show that agricultural growth has a significant positive impact on manufacturing growth. I discuss the empirical implications for efficiency of the manufacturing sector and the role of agriculture in Africa's industrialization.
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Marcel Fafchamps & Simon Quinn
NBER Working Paper, April 2015
Abstract:
We gave US$1,000 cash prizes to winners of a business plan competition in Africa. The competition, entitled ‘Aspire’, was intended to attract young individuals aspiring to become entrepreneurs. Participants were ranked by committees of judges composed of established entrepreneurs. Each committee selected one winner among twelve candidates; that winner was awarded a prize of US$1,000 to spend at his or her discretion. Six months after the competition, we compare winners with the two runners-up in each committee: winners are about 33 percentage points more likely to be self-employed. We estimate an average effect on monthly profits of about US$150: an annual profit of 80% on initial investment. Our findings imply that access to start-up capital constitutes a sizable barrier to entry into entrepreneurship for the kind of young motivated individual most likely to succeed in business.
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Catastrophes and Time Preference: Evidence From the Indian Ocean Earthquake
Michael Callen
Journal of Economic Behavior & Organization, forthcoming
Abstract:
We provide evidence suggesting that exposure to the Indian Ocean Earthquake tsunami increased patience in a sample of Sri Lankan wage workers. We develop a framework to characterize the various channels through which disaster exposure could affect measures of patience. Drawing on this framework, we show that a battery of empirical tests support the argument that the increase in measured patience reflects a change in time preference and not selective exposure to the event, migration related to the tsunami, or other changes in the economic environment which affect experimental patience measures. The results have implications for policies aimed at disaster recovery and for the literature linking life events to economic preferences.
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The Impact of IMF and World Bank Programs on Labor Rights
Robert Blanton, Shannon Lindsey Blanton & Dursun Peksen
Political Research Quarterly, forthcoming
Abstract:
What effect do International Monetary Fund (IMF) and World Bank programs have on collective labor rights? Labor rights advocacy networks and organized labor groups have long been critical of neoliberal policy prescriptions attached to loans by international financial institutions (IFIs), claiming that they harm the interests of workers. IFIs dispute these claims, noting that they work with relevant labor organizations and that many of their arrangements call for compliance with core labor standards. Yet very little research has been devoted to whether IFI programs affect labor laws and the actual labor practices of recipient countries. We argue that IFI programs undermine collective labor rights. Specifically, recommended policy reforms, as well as the broader signals connoted by participation in the programs, undermine labor organizations and the adoption of protective laws. To substantiate these claims, we use time-series cross-national data for a sample of 123 low- and middle-income countries for the years 1985 to 2002. Our findings suggest that programs from both IFIs are negatively and significantly related to labor rights, including laws designed to guarantee basic collective labor rights as well as the protection of these rights in practice.
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The (Non-) Effect of Violence on Education: Evidence from the "War on Drugs" in Mexico
Fernanda Márquez-Padilla, Francisco Pérez-Arce & Carlos Rodríguez-Castelán
World Bank Working Paper, April 2015
Abstract:
This paper studies the sharp increase in violence experienced in Mexico after 2006, known as "The War on Drugs," and its effects on human capital accumulation. The upsurge in violence is expected to have direct effects on individuals'schooling decisions, but not indirect effects, because there was no severe destruction of infrastructure. The fact that the marked increases in violence were concentrated in some municipalities (and not in others) allows for implementation of a fixed-effects methodology to study the effects of violence on educational outcomes. Different from several recent studies that have found significant negative effects of violence on economic outcomes in Mexico, the paper finds evidence that this is not the case, at least for human capital accumulation. The paper uses several sources of data on homicides and educational outcomes and shows that, at most, there are very small effects on total enrollment. These small effects may be driven by some students being displaced from high-violence municipalities to low-violence municipalities; but the education decisions of individuals do not seem to be highly impacted. The analysis discards the possibility that the effects on enrollment of young adults appear small because of a counteracting effect from ex-workers returning to school. The results stand in contrast with recent evidence of the negative effects of violence on short-term economic growth, since minimal to null effects on human capital accumulation today should have little to no adverse effects on long-term growth outcomes in Mexico.
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Education and Human Capital Externalities: Evidence from Colonial Benin
Leonard Wantchekon, Marko Klašnja & Natalija Novta
Quarterly Journal of Economics, May 2015, Pages 703-757
Abstract:
Using a unique data set on students from the first regional schools in colonial Benin, we investigate the effect of education on living standards, occupation, and political participation. Since both school locations and student cohorts were selected with very little information, treatment and control groups are balanced on observables. We can therefore estimate the effect of education by comparing the treated to the untreated living in the same village, as well as those living in villages where no schools were set up. We find a significant positive treatment effect of education for the first generation of students, as well as their descendants: they have higher living standards, are less likely to be farmers, and are more likely to be politically active. We find large village-level externalities — descendants of the uneducated in villages with schools do better than those in control villages. We also find extended family externalities — nephews and nieces directly benefit from their uncle’s education — and show that this represents a “family tax,” as educated uncles transfer resources to the extended family.
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Encouraging sanitation investment in the developing world: A cluster-randomized trial
Raymond Guiteras, James Levinsohn & Ahmed Mushfiq Mobarak
Science, forthcoming
Abstract:
Poor sanitation contributes to morbidity and mortality in the developing world, but there is disagreement on what policies can increase sanitation coverage. To measure the effects of alternative policies on investment in hygienic latrines, we assigned 380 communities in rural Bangladesh to different marketing treatments — community motivation and information; subsidies; a supply-side market access intervention; and a control — in a cluster-randomized trial. Community motivation alone did not increase hygienic latrine ownership (+1.6 percentage points, p=0.43), nor did the supply-side intervention (+0.3 percentage points, p=.90). Subsidies to the majority of the landless poor increased ownership among subsidized households (+22.0 percentage points, p<.001) and their unsubsidized neighbors (+8.5 percentage points, p=.001), which suggests investment decisions are interlinked across neighbors. Subsidies also reduced open defecation by 14 percentage points (p<.001).
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Fiscal Incentives and Policy Choices of Local Governments: Evidence from China
Li Han & James Kai-Sing Kung
Journal of Development Economics, September 2015, Pages 89–104
Abstract:
This paper examines how fiscal incentives affect the policy choices of local governments in the context of China. Based on exogenous changes in the intergovernmental revenue-sharing scheme, we construct a simulated instrumental variable to resolve the endogeneity problem. We find evidence that local governments shifted their efforts from fostering industrial growth to “urbanizing” China, i.e., to developing the real estate and construction sectors, when their retention rate of enterprise tax revenue was reduced. The increase from the new revenue source compensated for half of the losses in revenue that resulted from the reassignment of fiscal rights. The reassignment had also the effect of retarding the industrial growth of domestically-owned firms in particular.
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Living standards and plague in London, 1560–1665
Neil Cummins, Morgan Kelly & Cormac Ó Gráda
Economic History Review, forthcoming
Abstract:
This article uses individual records of 930,000 burials and 630,000 baptisms to reconstruct the spatial and temporal patterns of birth and death in London from 1560 to 1665, a period dominated by recurrent plague. The plagues of 1563, 1603, 1625, and 1665 appear of roughly equal magnitude, with deaths running at five to six times their usual rate, but the impact on wealthier central parishes falls markedly through time. Tracking the weekly spread of plague, we find no evidence that plague emerged first in the docks, and in many cases elevated mortality emerges first in the poor northern suburbs. Looking at the seasonal pattern of mortality, we find that the characteristic autumn spike associated with plague continued into the early 1700s. Natural increase improved as smaller crises disappeared after 1590, but fewer than half of those born survived childhood.