Missing links, missing markets: The transformation process of rural societies

This weekend I will be going for first time to the NEUDC conference, to be held at Dartmouth College this year. I am excited, because this is probably the biggest development economics conference in the USA and I will have the opportunity to present my favorite outcome from the Gambian networks project, a paper called  "Missing links, missing markets: Internal exchanges, reciprocity and external connections in the economic networks of Gambian villages". 

The transition from primitive economic activities  to more complex exchanges that eventually lead to market economies or alternative modern economic systems was a relevant element in the structure of theories of the classic economic authors and a key issue for the early economic sociologists like Thorsten Veblen, Max Weber and, in particular, Karl Polanyi. In Polanyi's  great transformation, modern societies are shaped in the transition from a network of communitarian reciprocal exchanges  to institutionalized market interactions. The concept of primitive economies as reciprocal exchanges is largely based on Malinowski's  influential description of the production system of the Trobriand islanders, that is also the foundation for Mauss' analysis of a gift economy.

The transformation process  was formalized by Rachel Kranton (AER, 1996). In her model, agents can choose either reciprocal exchanges with other agents whose preferences, production costs and other relevant characteristics are known, or  market transactions with anonymous agents, using money as medium of exchange. If the cost of searching for trading partners is higher than the benefit obtained from consumption diversification offered by markets, then agents will prefer reciprocal exchanges. One of her main results is that reciprocity can be enforced even if markets exist as an alternative for transactions. 

The aim of the paper is to contribute to the empirical analysis of the process of transformation in traditional rural societies using a network perspective. A unique database on economic networks (land, labor, inputs and credit) collected in 60 villages of rural Gambia, where traditional non-monetary economic exchanges -gift economy- prevail, is used to study  the  behavior of  households involved in market transactions. 

The network of economic exchanges in one village

As can be seen in the figure above, most of the households in the village are connected with a link in one or more economic exchanges. And many of these exchanges are reciprocated (the link is bidirectional). If the transformation process is true, household with connections to the market will tend to abandon transactions inside the village and particularly those that imply reciprocation. Given the Gambian network data have information regarding the existence of links external to the village in each of the networks, I can compare if households with links to the market (that are very few, around 10% of all the households in the village) behave differently. 

The empirical analysis is conducted at both household- and link-level, using propensity score matching techniques, OLS linear models and dyadic regressions.  In all the econometric specifications I find support for the two main hypotheses: (i) Substitutability between internal and external exchanges, i.e. households with external economic links are less likely to be involved in economic interactions within the village; and (ii) Reciprocation  versus market, i.e. households with external economic links are less likely to be involved in reciprocated exchanges with fellow villagers.

In the paper I discuss the assumptions required for a causal interpretation of the results, basically that unobservable characteristics determining the creation of internal links affect the the formation of external links in the same direction. I argue that this is plausible, but the potential bias remains as a not fully solved issue to be addressed in future research. 

Even if taken as partial correlations, there are relevant policy implications related to the findings. Rural development programs that aim to increase market integration of isolated villages can have undesired effects, such as the reduction in community interactions and destruction of the gift exchanging system. Therefore, it is necessary to consider the complexities of community exchanges in order to understand the effects of market-oriented interventions. For instance, Von Braun and Webb (1989) and Carney and Watts (1990) have shown how in The Gambia programs that attempted to increase agricultural productivity and cash crops production failed because the traditional economic system was not considered in the design. 

Village gathering where the data about network of economic exchanges was collected 

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The power of WE in Chile

This post is a contribution to the Blog Action Day, centered in the topic "the power of WE". 

It looks to me that Chileans have only realize about the power of WE after two decades of the return of the democracy in our country. Maybe I was too young, but I could see that at the beginning the hopes and expectations were all concentrated in the possibility to elect our president, MPs and other authorities. The spell was short lasting, given soon we realized about the pitfalls of democracy. Most of us, and in particular the youth, quickly understood that most politicians were rent-seekers and puppets of obscure  influence groups, including many directly related to the former dictator.

System disappointment is a karma for most new democracies, as have been seen in the countries that succeeded in change regime after the fall of the Berlin wall and, recently, the Arab spring. The lost of hopes produces alienated and nihilistic citizens, that forget the power of WE. In economically successful Chile of the last years, many of the energies were concentrated in consumerist compulsion and empty nationalism, arrogance and arrivism.

While I have been living outside Chile for almost 8 years, every time I was back I was shocked by these symptoms.  What happened with the free society for which so many have fought, even with their lives? What happened with all the illusions of my generation, the first to live in democracy after so many years of tyranny?  Was all lost in the shopping center?

But in the last couple of years a ray of hope has struck Chilean society. Maybe the earthquake in 2010 shacked also our conscience.

It was something I discovered in my years as student at Universidad de Chile, when we denied to be involved in the elections of the students center and instead used the power of WE to independently create our institutions: the students' radio, the social action group, the cinema group, the futbol club... this was something called civil society!!! You don't need to wait for politicians and other authorities to do the actions, you have to do it yourself, in association with people that share your motivations and interests.

And looks like many in Chile discovered the power of WE through civil society. While we had economic growth, the system promoted a deepening of inequalities that eventually exploded. Indebted and marginalized students, impoverished workers and pensioners, environmentalists, ethnic and social minorities, isolated regions, they all started the movement that seems to be taking place now with the participation of the Chilean 99%. Sometimes it takes the form of massive pacific rallies and actions, sometimes, unfortunately, violence and  destruction, particularly when confronted with the brutal repression of the police forces that follows the command of politicians that have  lost the track of what is happening in society.

This movements is not just in the streets. It is getting institutionalized in many groups that represent the interests of groups of citizens that try to organize themselves to fight for what they think is right, sometimes at the community-level, sometimes at a national or international level. This is the real democracy.

I may be naive, and my analysis can be overconfident given I live abroad, but I have the hope that in Chile we are going to be capable to harness the power of WE for a better society.

German aid transparency - 2012 edition

Last year I called the attention about the unsurprisingly low ranking of German organizations in charge of foreign assistance programs in the ranking of the Aid Transparency Index developed by Publish What You Fund (PWYF). Well, this year the output looks ugly again, but there are sharp differences between organizations.

In last years's edition, KfW was 21st among 58 donors, with 38% score.... not too bad. But in the new release (with improved measures for the score, which make comparison across years a little tricky) KfW ranks 50th over 72 donors, with 26% score!

KfW performed poorly, ranking 50th overall and 6th of seven development finance institutions. KfW also performed significantly worse than GIZ, due to the fact that no activity level information is published systematically; nor is there a public database where such information can be accessed. KfW performs relatively well on the organisation and country level, and is the highest ranking donor that scores 0% at the activity level. KfW does publish project level information for a small number of projects.

Better news for GIZ. Still in the 39th place, but now with more organizations in the ranking, improved from 25% score to 40%:

GIZ performed moderately, ranking 39th and scoring just over the overall average score. It scores below average at both the country and activity levels, though it performs well at the organisation level, where it ranks 19th overall. GIZ’s increased score is almost entirely due to its performance on newly added indicators; it performed very consistently with the 2011 score when controlling for methodological changes, suggesting limited new activity. Most information can be found in a database that publishes basic information for all projects in both English and German, but no financial data is provided — not even the overall financial cost for individual activities. It is also difficult to find and interpret aggregate data.

The lack of transparency is married to the problem of almost nonexistence rigorous impact evaluation of the projects carried out by these institutions, where millions in tax payers money (me included!) are spent without the possibility of surveillance from civil society.

A big challenge ahead for KfW, GIZ, the Ministry for Economic Cooperation and Development (BMZ) and the brand new German Institute for Development Evaluation (that needs to work in its web page before anything).

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