NEUDC 2012: Papers I liked

A lot of fun and a lot of jet lag. Short but meaningful. It was a great pleasure to participate for first time at the NEUDC conference last weekend. Many papers blew up my mind and gave me good new ideas, here a selection of my favorites (at least from the presentations I assisted):


"Aid Under Fire: Development Projects and Civil Conflict"
Presented by: Benjamin Crost (University of Colorado Denver).
Main message: Elegible munipalities for a CDD program in Phillipines experienced a large increase in conflict casualties compared. This is likely to be related with rebel groups trying to impede increase for government support in these areas.

"Preferences over leisure and consumption of siblings and intra-household allocation"
Presented by: Martina Kirchberger (University of Oxford)
Main message: While most models consider children as passive agents, they are agents with their own preferences over leisure and consumption. A model of Bart versus Lisa is presented and supported with data from many countries.

"Violence, Emotional Distress, and Induced Changes in Risk Attitudes Among the Displaced Population in Colombia"
Presented by: Andres Moya (UC Davis)
Main message: Data collected in a group of internally displaced rural households and a group of non-displaced rural households in Colombia provide evidence that more severe and more recent episodes of violence and the incidence of anxiety disorders induce higher levels of risk aversion.

"Water Supply and Water handling-Complements or Substitutes"
Presented by: Elena Gross (University of Göttingen)
Main message: Households in rural Benin consider improved water supply and water handling as substitutes of water provision. This implies a neutralization of the effects of public water infrastructure programs, given households reduce water filtration and disinfection.

"The Value of Advice: Evidence from Mobile Phone-Based Agricultural Extension"
Presented by: A. Nilesh Fernando (Harvard University)
Main message: Indian farmers that received the option to get assistance of a call center and receive other information related to agricultural information in their cell phones changed their behavior, adopting more effective and less hazardous pesticides.

"The Effect of Financial Access on Networks: Evidence from a Field Experiment in Nepal"
Presented by: Margherita Comola (Paris School of Economics)
Main message: Using panel data on the network of financial transactions before and after a field experiment in rural Nepal, evidence of the endogeneity of the networks is provided and estimates of the bias of the exogenous assumption are provided.

And finally, two nice RCTs in Chilito:

"Micro Entrepreneurship Training and Assets Transfers: Short Term Impact on the Poor"
Presented by: Claudia Martinez (University of Chile)
Main message: Business training and asset transfers to micro-entrepreneurs increase significantly employment and income in the short term.

"Savings as Insurance: Evidence from a Randomized Field Experiment among Low-Income Micro-Entrepreneurs in Chile"
Presented by: Dina Pomeranz (Harvard University)
Main message: Women micro-entrepreneurs significantly increase savings when a free saving account is offered. Some of the main effects come from helping the women to confront the hostile environment of a banking institution.

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

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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German aid transparency 

Trade and Development at ETSG

Last week I had the pleasure of assisting for first time to the annual conference organized by the European Trade Study Group (ETSG) in Leuven. Apart from the possibility to taste the lovely Belgian beers offered in the bars of Old Market Square (including a quadruple trappiste!), there were many development-related papers presented that I enjoyed. Here my selection:

• Routes, exports, and employment in developing countries (Christian Volpe, Jerónimo Carballo and Ana Cusolito)
• There goes gravity: how eBay reduces trade costs (Pierre-Louis Vezina, Andreas Lendle, Marcelo Olarreaga and Simon Schropp)
• Intellectual property rights protection in developing countries (Rodrigo Paillacar, Emmanuelle Auriol and Sara Biancin) 
• Trade liberalization and export prices: the case of China (Vanessa Strauss-Kahn and Maria Bas)

La (ir)relevancia del salario mínimo en Chile

"Con un sueldo mínimo de $250 mil la cesantía pasaría del 6,7% al 8,6%" son las muy académicas estimaciones de la Ministra del Trabajo respecto al reajuste exigido por algunos sectores.... de adonde viene esa cifra? cuales son los supuestos y la metodología empleada? Seria mejor sincerarse y decir que esta cifra es producto derechamente de alguna aritmética simplista basada básicamente en argumentos ideológicos.

La verdad es que estimaciones exactas del impacto del salario mínimo son imposibles, y las que existen deben tener un intervalo de confianza muy amplio, el que, claramente no es informado en las estimaciones de la Ministra. Tal como lo señalan economistas del CEA, las estimaciones para Estados Unidos (donde están los mejores datos y un ejercito de los mejores economistas y asistentes de investigación), son muchas veces contradictorias, y en general encuentran que el salario mínimo no tiene efectos en empleo, o incluso tiene efectos positivos!  (el estudio mas conocido es este, en que un aumento del 20% del salario mínimo por hora en locales fast food incrementó el empleo en 13%)

Yendo un poco más allá de la simplista visión de equilibrio parcial, hay varios argumentos que explican que aumentos del salario mínimo en realidad pueden generar incrementos en el empleo. Uno muy reciente e innovador es de un profesor de Berkeley que invoca la teoría del "big push": al tener mayores salarios, los trabajadores demandan más y por lo tanto generan mayor producción interna, creado un aumento en empleo (muy creíble evidencia para Indonesia es presentada). 

Esta claro que los efectos del salario mínimo no son obvios, y son difíciles de estimar empíricamente. Pero quizás la pregunta relevante es.... es el salario mínimo realmente importante? En todo el mundo es una política que general gran debate y polarizaciones entre sectores. Como indicador, el piso legal de salarios tiene la virtud de ser fácil de entender para todos (y también de prestarse para malabarismo de cifras por cualquiera), pero su impacto real es muy discutible. 

Los que piensan que al aumentarlo automáticamente incrementa el bienestar de los más pobres pecan de inocentes. En particular, dada la informalidad en ciertos sectores y las varias triquiñuelas legales de los empresarios chilenos, es posible que mayores salarios de piso simplemente impliquen empeoramiento de las condiciones de trabajo, ya sea sin contratos formales, con más "horas extra voluntarias" o "favorcitos al jefe". Si bien este estudio dice que no hay efectos en cuanto a la formalidad del empleo en Chile, los resultados no son totalmente robustos. Sin duda es tema para mas investigación (pero de la seria, no la de la Ministra....)

Bueno o malo? ético o inmoral? es muy difícil saber si alzas del salario mínimo realmente mejoran la calidad de vida de los trabajadores peor remunerados..... al final, creo que lo relevante en Chile es no desviarse de los debates sociales centrales: leyes laborales que se cumplan, estándares de seguridad y calidad en el trabajo, pensiones dignas, etc... hay que ir más allá de un numerito que no es muy (ir)relevante. 

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A new player in the international development community? Chile as an emerging donor

A new player in the international development community? Chile as an emerging donor

Last week I assisted to ENCUENTROS 2012, a conference for Chilean scholars working abroad in different disciplines.  For first time social sciences were included, and I have to say that the level of the presentations was generally very good, both from Chilean and international speakers (including Fosu and Klasen). On the bad side, too much emphasis was giving to things like networking and entrepreneurship, leaving aside some other important issues. 

My presentation was about a policy paper I am writing with Alexis Guitierrez about Chilean international aid (a draft version can be found here). My compatriots were actually very surprised to hear that Chile is providing ODA, and that at the Latin American level the amount given is not neglectable...  is Chile a new emerging donor? 

The world is experiencing the fall in relevance of the traditional powers and the irruption of emerging countries. One of the topics that have made these countries prominent is the involvement in provision of international aid. The “South-South” collaborations are on the rise. China is the better known case, but the other BRICS countries (Brazil, Russia, India and South Africa) and oil rich Venezuela and Arab countries are also part of the group of emerging donors.

Is Chile part of that group? As happens with most non-DAC  countries, it is not easy to quantify Chile’s foreign aid. No consolidated data exists and many different Government institutions independently undertake international cooperation actions. Collecting data from different sources, we have estimated that total international assistance is on the order of $16.4 million, therefore ODA/GDP is around 0.0075%. This is not only very far from the 0.7% UN target, but it is also well below the contribution of countries with similar levels of income per capita:

Source: Gutierrez and Jaimovich (2012)

Nonetheless, at the regional level Chile’s foreign aid is relatively important. According to SEGIB, in 2010 Chile participated in 5% of the bilateral cooperation projects among Latin-American countries. Given the size of Chilean projects was bigger than the average, the country is the third most important donor (far behind Brazil and Venezuela). The SEGIB also highlights the importance of Chile in the triangular cooperation inside the region, participating in 27 of the 42 projects carried out in 2010.

Most of the ODA provided by Chile is channeled thought contribution to IOs. Roughly 80% of the international aid between 2006 and 2011 is multilateral:

Source: Gutierrez and Jaimovich (2012)

The bilateral aid is mainly provided by the Chilean International Cooperation Agency(AGCI), an agency created in 1990 with the dual mission to act as recipient and donor of foreign assistance. Given the increasing importance of the latter role, the agency was moved from the Ministry of Planning and Cooperation to the Ministry of Foreign Relations in 2005.

AGCI's action is organized into: Triangular Cooperation (with agencies like GIZ, JICA and the WFP) and South-South Cooperation (Horizontal Cooperation), that takes the form of technical assistance and scholarships:

Source: Gutierrez and Jaimovich (2012)

The single most important recipient of Chilean aid is Haiti, followed by Bolivia, Paraguay, El Salvador and Ecuador.

It looks like Chile is an emerging donor... is this good or bad? Chilean society and its politicians need to define what kind of donor the country wants to be: altruistic, opportunistic and extractive? Given there is no public awareness of AGCI's work, this public debate is nonexistent, and the decisions are basically subordinated to the interests of the Ministry of Foreign Relations. Needless to say, there is not such a thing as impact evaluation of the projects, and the transparency in terms of project assignment is not exactly pristine.

Even full member of the OECD since 2010, Chile has kept its status as solely an observer of the DAC and has made no progresses towards full membership. The reason for this attitude is not clear, but there are elements to interpret it not as a strategic behavior, but probably more related to lack of capacity and budget of AGCI and other government organisms. Even tough, it might be possible that ODA is not reported to DAC in order to still be eligible for some programs in which official donors are not considered or simple because the flexibility of non-DAC donors is preferred.

The major challenges for AGCI are the adaptation to the new scenario for international cooperation, with the disappearance of the received foreign development assistance and the potential increasing role of Chile as emerging donor. AGCI has to strength its institutional capacity oriented towards the provision of international assistance in many ways. In the short and medium term: improve the report of aid statistics using international standards, transparency in the use of resources and project assignation, public awareness of activities, integration to international instances. In the long term: implement project impact evaluation, adaptation to the procyclicality of budget allocation and broader independence of the decision making process from the Ministry of Foreign Affairs.

To sum up, if Chile wants to play in the league of developed nations, its foreign assistance strategy needs to be defined, and it is better to start early enough and learn from the experiences of the 60 years of attempts from the international development community to improve people’s lives in other countries.

References
Gutierrez, Alexis and Dany Jaimovich (2012). "A new player in the international development community? Chile as an emerging donor". Manuscript, Goethe University Frankfurt.

In memoriam

Elinor Ostrom (1933-June 12, 2012)

ht: Marc F. Bellemare

If people don't go to the lab, the lab goes to the people

While it has been more than a decade since behavioral experiments are conducted on the field in developing countries, it is usually very difficult to find established facilities for this kind of research. This is why the BUSARA CENTER FOR BEHAVIORAL ECONOMICS is a very welcomed contribution.

The Center is a state-of-the-art facility for experimental studies in behavioral economics located right outside the Kibera slums in Nairobi. They have a pool of participants from the area, that are recruited via SMS and then receive the payments using MPesa (then dismissing the problem of lack of credibly in the experimenter). 

Busara seems to be very open to receive researchers interested in using their facilities, and the contact with them can be via email or even facebook.

ht: poverty-action

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Chapter II : Is Jeffrey Sachs in a highway to hell?

The road to hell is paved with good intentions....

Now he is really loosing completely his scientific reputation. The recently published "evaluation" of the MVP  has mistakes that are high school level.

Here Gabriel Demombynes shows a very crude analysis, including links to other (even more severe) critiques. This is a complement to this paper that already revealed many of the problems.

At least we have good material to teach our students how not do an evaluation.

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Is Jeffrey Sachs in a highway to hell?