Links round-up

So, you’d think a switch to the ivory towers of the academic establishment would mean more time for all the reading that goes into the links and hence an earlier dispatch? Not a bit of it. I’ve discovered that the art of tortured bureaucracy is not one that the hallowed halls of Whitehall has garnered a monopoly on, but it takes different forms and is masked by different norms everywhere. I’ve spent part of the week having fascinating conversations with eminent and brilliant thinkers and part of it doing mind-numbing bureaucracy and screaming inwardly when my university card doesn’t let me in my home department. It’s pretty much exactly like my last week in the civil service. As ever, the links provide my succour.

  1. This one feels appropriate, given that I’ve spent my week surrounded by experts and budding experts: Simon Kuper in the FT on how experts can win over the general public again. One of the problems the experts have is that the non-experts who peddle ill-informed rubbish aren’t always wrong (experts are just more likely to be right, and more likely to be wrong for reasons that are consistent with good scientific inquiry); and even if they are wrong, it won’t be obvious for some time, if ever. Essentially, it’s a competition to convince the public that cannot be won by the evidence of who is right; it will be won by who is better able to convey the impression of being right. This worries me deeply.
  2. Speaking of experts not always being right, how often do you read an article that opens with an award-winning economist apologising for being wrong (well, so far)? That’s what Nick Bloom does here, as he presents evidence from firm-level surveys on the effect of Brexit. An important point that he hints at here but doesn’t fully go into: the average effect on firms will be quite different to the average effect on the economy, as some firms are systematically more important for generating the value-added that powers the non-tradable sector of the economy, where most people are employed. So read these surveys thinking about which firms are the ones that have the most general importance to the economy.
  3. Probably my favourite thing about Dietrich Vollrath is that he’s not afraid of detailed explanation. He takes us through the impact of different kinds of tax cuts on growth to explain why ‘cutting taxes’ in the way most politicians conceive of it probably won’t do much good (for growth). Essentially, the main problem is that for capital and labour, we’re just not that sensitive to marginal tax rates: we work and invest more or less the same amount either way. Innovation operates differently, but is rarely the subject of tax cuts.
  4. This week in questioning my priors: Markus Goldstein on rigourous evidence for the value of vocational training. But read it all the way through – this paper goes against a lot of the rest of the literature, and the reasons for this need to be considered.
  5. And this week in losing my faith in humanity: students taught by women do just as well as those taught by men for the same amount of effort, but nevertheless rate the men as better teachers. This happens for both male and female students. This paper and the Woodruff paper on female garment factory managers both work with fairly old people – young adults at least. Is this replicated among children? If so, exactly how early are we screwing up the way we construct our worldviews?
  6. I loved this: “evidence-informed policymaking is about truth, justice, equality, creativity, and love of others.” Ruth Levine on the moral case for evidence.
  7. And finally, last year the Nobel committee decided to irritate the piss out of me by giving their prize for literature to Bob Dylan; this year they’ve returned to giving it to a y’know writer in Kazuo Ishiguro. Here he is on songs, writing and films, from 2005.

Have a great weekend, everyone!

R

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Beyond the Breakpoint: Can Cross-Country Regressions Still Guide Development Policy?

Much influential research on the relation between economic growth and the income of the poor has relied on the unstated assumption that positive and negative growth rates are equivalent in their effect on the poor. As I show in the CSAE Working Paper “Breaking Up The Relationship – Dichotomous Effects of Positive and Negative Growth on the Income of the Poor”, this assumption is easily refuted. Positive and negative growth rates correlate differently with the income growth of the poor. This finding becomes all the more powerful as it is produced using the same data and the same methodology, cross-country regressions, as one of the most influential papers based on the assumption that the effect is equal: “Growth is Good for the Poor” by Dollar and Kraay (2002). In this blog post, I would like to discuss not only the results of my paper but also how they reflect on cross-country regressions as a research tool and guideline for policy.

“Growth is Good for the Poor” by Dollar and Kraay (2002) established a one-to-one relationship between economic growth and the income growth of the poor. This implies that the poorest quintile in a country benefit to the same extent from economic growth as every other income segment of society. According to the authors, the rate of economic growth of a country over five years and the growth rate of the income of the poorest quintile of the country’s population are equal on average. Below is a replication of their central scatter plot. It shows a panel of 92 countries over four decades. The compilation of this data set alone was a noteworthy contribution of the authors. Along the 45° line, an increase in a country’s growth rate of one percentage point coincides with a one percentage point increase in the income growth rate of the poor. The authors fail to reject the hypothesis that the regression line’s coefficient is indeed one.

The notion that growth benefits all members of society alike quickly gained traction and remains influential to this day. The Dollar and Kraay (2002) paper has an impressive track record. With over 4,500 citations on Google Scholar and positioned roughly among the top 0.02% of RePEc IDEAS research items, the paper has left its mark (I heard reference to it at last year’s CSAE Conference as well). For the World Bank, findings like this meant that its focus of growth promotion was sufficient to fulfill its mandate of the reduction of poverty. It has even trickled all the way down into introductory development economics text books. Their result is simple but compelling. Neither the original nor my paper use particularly involved econometric methods. It is the simplicity of the original result that made it so appealing – as well as catchy – and the simplicity of the critique I bring forward that, as I hope, makes it hard to ignore. While the strength of my paper is pointing out flaws using the original data and methodology, this means that my paper inherits the flaws of cross-country regressions. I state my estimated results regardless – to be consumed with a pinch of salt – to counter the catchiness of a one-to-one growth relationship that “Growth is Good for the Poor” has so skillfully created. Or, if nothing else, as ammunition for the next time you stumble into a cross-country regression seminar.

In my paper, I estimate the coefficient to correspond to around 0.75 percentage points income growth for the poor for every 1 percentage point of economic growth, while the effect of negative growth is found to be as high as 1.6 percentage points. While the statistical significance of the difference between my findings and the original is beyond doubt, it is the economic significance that is striking. The figure below illustrates the extent to which the poor are estimated to be worse off, both under positive and negative growth rates, than what the authors claimed to have found. To be clear, even when approaching this result in the same mind set as Dollar and Kraay did, this does not mean that growth is bad for the poor. It is simply not as good as they thought (though significantly less so). The correlational evidence that I offer suggests that especially the starkly negative growth rates of long-lasting recessions are detrimental for the poor. In this light, radical liberalization and deregulation that promise high positive growth rates at the cost of an increased risk of volatility and recession should be viewed with much greater caution than if the Dollar and Kraay (2002) result holds. I thereby refute the assumption of homogeneity in the relationship between the growth rates. The conventional wisdom that the poor benefit as much from growth as everybody else is losing ground – and with it the research methodology that brought it about.

There are three fundamental flaws in using cross-country regressions as a research tool in development economics. First, causality is tremendously hard to establish. Second, the estimates hardly ever translate into actionable policy. Third, estimation results can be very fragile. “Growth is Good for the Poor” illustrates all three of these flaws. The authors’ analysis is purely correlational as they themselves admit. Even if we take their results (or mine for that matter) at face value, they will not offer us much insight into how to alleviate poverty. The variance around the 45° line (or whatever shape the relationship may have) is simply too large for a government or development actor to base its poverty alleviation policy on. Cross-country regressions also cannot tell us how poor people benefit from growth. Finally, and this is where my paper comes in, modest alterations to the regression specification turn the narrative of growth being equally good for you no matter where you are in the income distribution on its head. My take-away from working on this topic is that cross-country regressions are certainly interesting for preliminary analyses. They can provide new research ideas as well as catchy facts to start a conference presentation. To guide policy-making, they prove to be a bit thin.

I would like to thank Thomas Ziesemer for his support in making this project happen and Simon Quinn for an enlightening discussion that put my thoughts on this in order and context.

References

Dollar, D., and A. Kraay (2002), “Growth Is Good for the Poor” Journal of Economic Growth, 7(3), 195-225

Poll, M. (2017), “Breaking Up The Relationship: Dichotomous Effects of Positive and Negative Growth on the Income of the Poor” CSAE Working Paper Number WPS2017-12, University of Oxford

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Links round-up

It seems like a lot of goodbyes have accumulated in the two weeks since the last e-mail. Harry Dean Stanton (watch Repo Man), Bobby “The Brain” Heenan, and the Screaming Eagle of Soul, Charles Bradley (listen to Ain’t it a Sin) all died. Kumar Sangakkara retired from first-class cricket, and I’m (temporarily) leaving DFID. But, unlike the others, I’ll be back, and in the meantime I will be continuing to send these links out every week, since the good people in the admin department are letting me hold on to this machine until I return. So, with a minimum of fuss, on to the links.

  1. Last week, I talked a bit about Stefan Dercon’s habit of blockbuster presentations at the DFID Economics Conference. This year his presentation covered, among other things, the importance of the mental models we have for determining our action. The role of human aspirations in our decisions is increasingly the subject of research in international development, and this excellent paper by Emma Riley demonstrates why: kids who watched a movie about someone like them overcoming difficulty and making something of themselves did better in school – an effect that was strongest for those in the worst schools and at the worst starting position. David Evans also discusses the paper here.
  2. So, Emma’s study involved showing kids movies, which sounds a lot more fun than the average research project. But there’s a place for more prosaic research that confirms what we already guessed – like this VoxDev write-up of research by Davids Atkin and Donaldson on trade costs in Africa, demonstrating that the costs of moving goods around within Africa are around five times greater than those in the US. While this remains the case, any country not on the coast will struggle to reap the gains of globalisation.
  3. “No one can understand the economic consequences of large migrations without careful economic research on the ripple effects—which are subtle, invisible, delayed. When politicians brush this aside they are being duplicitous, or at least disingenuous.” When Michael Clemens writes about migration, everyone should listen – because amidst the duplicity and disingenuity, integrity and clarity and rigour become ever more important.
  4. My normal reaction to anything Alex Tabarrok says is to look for the reset button, and hope when he starts up, the empathy module will have installed. But in this case I’m simply admiring: his response to David Roodman’s replication of one of his papers is superb, and shows real integrity.
  5. Branko in unusually personal form: about growing up in Yugoslavia and the absence of anything resembling his past in the official histories of the end of Communism.
  6. This week in absolutely stunning headlines: The media is really, really bad at dealing with probabilities, and this makes for bad coverage of an uncertain world.
  7. And lastly, the NBA season is nearly upon us, so thank god LeBron James and Gregg Poppovich are there to talk some sense.

Right, I’ve got to pack my stuff and leave the building, but the links will be back next week. Have a great weekend, everyone!

R

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Links round-up

Hi all,

Sorry this one is so late (and verbose)! I’ve been at DFID’s economics conference for the last few days, and have just dealt with the annual nightmare journey back home. As a result, I’ve had very little time to really keep my usual eagle eye on the rumblings of the internet, so this week’s links are a bit more sparse and tired than they usually are. But your loss was my gain: lots of phenomenal speakers, new ideas and a lot of argument that we’ll take back to our jobs.

It was also Stefan Dercon’s last appearance there as DFID’s Chief Economist. Over the years he’s given some absolute blockbuster talks, incorporating Asterix, lions and peacocks, and minor Asian fish. But as was noted in an appreciation given by Nick Lea, his deputy, the real measure of his influence is that DFID’s take on virtually every substantive topic we covered in this conference and those of recent years have been fundamentally shaped by his thinking and influence on the corps of economists which he leads; and collectively they represent the vast majority of what we do. He’s been totally inspirational, and we’ve been lucky to have him.

  1. We’re also really lucky to have appointed Rachel Glennerster as our new Chief Economist (from January). She opened the conference, and one of Rachel’s points was that the experimental revolution has created a channel through which research is effectively being translated into policy and doing a tremendous amount of good in the world. But should this evidence of scaling up really be the measure of their worth? In an article which Rachel would probably agree with, Alejandro Ganiman suggests that the contribution to what we know about development that RCTs have achieved has been far greater than scale-up estimates would suggest.
  2. We also had noted contrarian Lant Pritchett at the conference, and Lant likes to blow things up. His own aversion to the kinds of questions that RCTs ask is well documented, and he indulged in it in his keynote address (a barn-burner, complete with tears over the genius of Bill Russell, balloons, sacred cows being taken to the slaughterhouse and a reassessment of Allen Iverson). One of his concerns is that especially as we start working in harder and harder environments, research effort will be devoted to smaller questions that feel easier to answer, not the really big ones that will determine the ultimate success or failure of development in these places. He must be glad for people like Daron Acemoglu, here talking about Colombia as an example of how not to build a state, even if he probably doesn’t agree with all his conclusions.
  3. It was kind of amazing to have three such brilliant and different thinkers giving their ‘state of the discipline’ addresses to us. But not everyone is going to be so lucky – and for the rest of us, there is a new economics core curriculum available online and free. New Yorker review here.
  4. Tim Harford would have been the icing on the cake, but sadly no dice this year. He talks about disaster preparedness here, but from the perspective of individual biases. Again, his ability to explain so much of the discipline so clearly amazes me.

And that’s all from me today. I’m off on leave next week so no links again until the end of September. That might actually be the last links e-mail for a while: I’m taking a short career break to study again (apparently, I don’t feel like I spend enough time reading research). I’m planning to keep these links going while I’m on my break, but it might require a bit of negotiation to keep this laptop, and hence my contact book!

Have a great weekend, everyone!

R

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Links round-up

Hi all,

This week’s links are a bit short as I’m off work and spending the day (Friday) at Lord’s to watch the England-West Indies test, a match beautifully poised for an exciting result which is now, inevitably, looking like it will be spent sitting in the rain and hoping for fifteen minutes of play. Oh joy. Anyway, before giving my raincoat a workout, here are the links, with apologies for any morning-brain-syndrome in evidence.

  1. The Economist rehabilitates the Ponzi scheme. The idea of a Ponzi scheme is that you promise investors an exceedingly high return, and pay them by constantly inducing new entrants to the scheme, paying existing investors with money raised from the new ones. It works only as long as there is a stream of new entrants: as soon as it dries up it falls apart. It has the reputation of being a particularly unscrupulous scam, but the Economist makes the point that this is basically how pensions work; and to some extent the London housing market. This doesn’t make them a complete scam (well, London housing might be): they might have found a context in which Ponzi schemes work – when new entrants are always possible. Of course, an aging population and a desire to hermetically seal the country from them might undermine that case…
  2. Long-time readers will know that my favourite paper of the last few years was Nick Bloom’s Firming Up Inequality. In it, he points out that most of the observed increase in inequality in the US comes between firms, rather than within them, which I have long thought was driven by outsourcing and specialisation – consider that while Wall Street firms employed cleaners directly in the 1950s, they now contract cleaning out to firm of cleaners with much lower profitability. Neil Irwin at the NYT takes this example to investigate inequality and mobility in the workforce by comparing a cleaner from Apple today with one from Kodak in the 1980s. The latter is now one of their Executives, while the former has virtually no chance of achieving the same. A fantastic read.
  3. So, it appears that Chris Blattman is writing a book. And that someone should tell him about The Old Reader.
  4. Lee makes the case for low-bar education interventions: in contexts where virtually no-one learns, we should be happy with any interventions that work, even if they have a low ceiling on what they achieve. That’s how the development sector treats poverty, so why is it so resistant to the idea for education?
  5. One of my friends insists that I have more in common with Tyler Cowen than I am willing to admit, a charge I absolutely dispute. The only thing worse would be if he insisted I had much in common with Tyler’s co-blogger, Alex Tabarrok, which is why I reacted with fear and horror when he released a teaching video using my favourite example for explaining the Balassa-Samuelson effect, haircuts. It’s really good though.
  6. Right, time for me to cut this short, as the cricket (or, more accurately, the rain delays) are calling. But before I go, The Ringer has an appreciation of MTV Unplugged. Virtually every member of my generation with a functioning eardrum has heard Kurt Cobain howling the last lines of Where Did You Sleep Last Night?, so we have a lot to thank Unplugged for.

Have a great weekend, everyone!

R

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Links round-up

Hi all,

Well, that was an eventful week of cricket, wasn’t it? Shortly after the West Indies finished their glorious chase against England (a triumph of Hope over expectation, as Vic Marks noted), Bangladesh gave Australia a huge – and hilarious – kick in the pants over in Dhaka. I was late to the office that morning, giggling uncontrollably as the wickets fell in procession, thinking about the delicious irony that Australia virtually excluded Bangladesh from their test cricket schedule because they weren’t competitive enough, only to run into the best all-rounder in cricket since Jacques Kallis. Combined with the welcome news that the greatest boxer of his generation was, in fact, good enough to soundly thrash a man who had never boxed before, it’s been a pretty good week for sport (here is the tale told in Emoji, the most appropriate medium).

  1. If only everything was so easy to separate into good news and bad news: is the news that the Supreme Court has nullified Kenya’s election result good or bad? One view expressed in this FT article is that “it has restored the integrity and credibility of the judiciary and taken our electoral democracy a notch higher”; another describes it as “a punch in the solar plexus” for an economy already on the ropes. Clearly, it’s great that the Supreme Court has the independence to issue such a verdict, but then we’re left with the conclusion that the first go round was compromised or they got it wrong. Neither one should make you happy.
  2. Brilliant VoxDev write-up of Dan Rogger’s work on developing country civil services. It’s structure closely mirrors the excellent talk he gave at DFID a couple of months ago, and if you missed it I strongly recommend that you catch up. Particularly useful for those of us who regularly engage with developing country bureaucrats and bureaucracies.
  3. Related: last week, I linked to some research on how giving evidence to Danish politicians doesn’t necessarily improve their decisions. Adnan Khan and co report on related (DFID-funded) research which sets out the limits to how civil servants use evidence, starting with their deeply inadequate ability to read even simple summaries of it and the non-existent interest of the political class in getting it right.
  4. Nice write up of research that investigates how training can reduce the ‘occupational segregation’ that drives so much of the gender pay gap (put simply, women don’t enter the most productive fields and as a result earn less – often due to forms of discrimination much more pernicious and harder to pin down than outright favouritism of males). A big chunk of this is down to aspirations, as previous work by Markus Goldstein also alludes to: women don’t enter typically ‘male’ jobs unless they have a male role model or mentor to encourage them. Related: Tyler Cowen comments on how little feminist economics is used by the mainstream, finding (implicitly) merit in the argument that the discipline is structurally biased against women (my own view is that like most of the rest of economics, it contains equal proportions sensible ideas and Beetlejuice-level crazy). And a huge reading list on gender and economics.
  5. Last week, I said competition matters. This week, a new paper attempting to find out how much you need for it to work.
  6. So, recently I’ve been thinking about our tendency to let the most attention-grabbing characteristic of a place dominate the way we think about them, even to the point of absurdity. The point was reinforced when I read this fascinating Al-Jazeera piece on the music of Somalia – I remember feeling briefly surprised that there was Somalian music, which is an absurd reaction.
  7. LitHub on some of the most beautiful bookstores in the world. One of my favourites, Daunt in Marylebone, is on the list, but nothing beats Livraria Lello.

Hope you had a great weekend, everyone!

R

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Links round-up

Hi all,

So, it is possible to make lemonade after all. With the NBA season fast approaching and my heart rate correspondingly beginning to creep up, Cleveland and Boston pulled off a monster trade that should shine a light in darkness everywhere: even when your luck bottoms out, and a man capable of this tells you he wants out, you can come up smelling like roses. And on that inspirational message, I’ll get on to all the depressing economics of the week.

  1. There was a lot of cool trade stuff published this week, including this twoparter by William Norhaus. It’s ostensibly about (against) Trump’s view of global trade, but it’s worth reading by all for a clear and wide-ranging exposition of the economic orthodoxy on trade. Whether or not you agree with it, it’s important to understand it. One line leapt out at me: “In a well-functioning society, the status of a fact is decided by evidence and experiment.” I’m not sure whether I can think of a society that meets that test, honestly – not even mini-societies like our own bureaucracy here.  Another point to make: of course trade affects the composition of jobs. Trade is a means through which we can specialise more. Specialisation means doing less of some things and more of others. Policy makers and economists need to be straight and open about this. More on how people adjust to that here.
  2. Speaking of well-functioning societies, lots of people think Scandinavia comes closer than most to fitting the bill, but it’s not quite that simple: this paper finds that among Danish politicians, the provision of more evidence makes decision-making worse, not better, as it simply strengthens the existing prior beliefs they hold. It’s always nice to be presented with evidence suggesting your entire raison d’etre could be a chimera.
  3. Maya Forstater probably has much experience of people well-versed in ignoring inconvenient evidence. She seems to be the lone voice pointing out that there isn’t some magical tax that is suddenly going to quintuple the revenue raised by developing countries. This week she points out that transfer pricing isn’t the multi-billion dollar prize that many believe it to be.
  4. This is totally incredible: a video demonstrating the endowment effect. In it, a reporter stands next to the kiosk selling lottery tickets and asks everyone there if she can buy the ticket they just bought – for more than they paid for it. Almost everyone says no, despite the fact that they could turn around and buy more tickets in a matter of seconds. Even if they edited the hell out of this, it’s still incredible.
  5. Geek out on discount rates: a VoxEU article about the impact of using demographically-adjusted discount rates on rates of time preference. This is something DFID has grappled with a bit in the past, too. Recommended, if only to introduce you to the basics. Also demography related: Lagos cannot stop growing.
  6. Competition matters (a huge amount of economics could be distilled into those two words).
  7. Lastly, one for the birdwatchers: an analysis of the economic value of birds. I don’t doubt the validity of any of this, but it’s depressing to me that so much of what should have inherent value now needs to be translated into impacts on the economy. And if that doesn’t depress you, check out this timeline of the far future – you can always anchor whatever you’re doing now against the last entry: earth dies.

Have a great long weekend, everyone!

R

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Links round-up

Hi all,

I’ve had to link to this brilliant piece by Tim Harford, about the effects of terrorism, far too often. Terrorists seek an over-reaction, and the best thing that we can do is refuse them that. So instead, I’m going to talk about the Day-Night test, and Alistair Cook’s inevitable quintuple century (assuming England don’t declare, it certainly doesn’t look like the Windies have a chance of getting him out); about this brilliant long article by Rob Smyth about Patrick Patterson’s finest moment, and about this terribly sad article about his life since then. And about the idiocy of the man who got arrested after accidentally firing a gun while taking a selfie. In a strip club. And, of course, I’ll talk far too much about economics.

  1. One of the things about new technologies and innovation is that their contribution to the world is often under-counted: because many innovations operate by rendering old technologies obsolete, their effect on overall GDP (and inflation, since indices will be slow to respond) isn’t representative of their real world effect. Phillippe Aghion and friends have made a valiant attempt at measuring this effect, for the US at least, and have good news and bad news. The good news is that roughly half a percentage point of ‘actual growth’ is missed out by the statistics each year. The bad news is that this number seems pretty constant over time, and so Robert Gordon’s thesis that we’re entering a productivity slowdown isn’t affected by it.
  2. Of course, another effect of technological change is that it makes it easier for us to dodge work (I say, as I check Instagram and read tweets that make me despair of humanity). Tim Harford has a good piece here about how we work and the value of working. A passage I particularly liked: “Work that matters is often difficult. It can be absorbing in mid-flow and satisfying in retrospect, but it is intimidating and headache-inducing and full of false starts.”
  3. I’m a big fan of Chris Woodruff’s work that shows that perceived gender productivity gaps in Bangladesh seem to arise from men and women overestimating men. This nifty paper provides some (admittedly fairly weak, and slightly esoteric) evidence that it also arises from people underestimating women. The paper looks at betting odds on female jockeys over a large dataset and finds that on average, women win slightly more races than the betting markets predict (0.3%, to be precise), and that this is exacerbated where female participation is less common. Please excuse me if I don’t rush down to Paddy Power and start a new lifetime gambling strategy.
  4. Noah Smith’s piece on specialisation and international trade suggests that countries that produce more different kinds of things (typically those with greater economic complexity) wind up doing better out of trade, based on research by Ricardo Hausmann and co. I take a slightly different reading. Specialisation doesn’t mean you produce few things. It means you produce lots of those things that take advantage of your endowments and skills, and your produce virtually nothing of those things that don’t. So a country that exports lots of goods and has high economic complexity hasn’t necessarily foregone specialisation – it’s just specialised in skills and processes, rather than goods.
  5. I found this fascinating: Prashant Bharadwaj and Saumitra Jha on the effects of the partition of India. Hard to summarise, but much to learn.
  6. This has nothing to do with economics, but it concerns another dear love of mine, noodles (they sit alongside birdwatching, cricket and LeBron James in my affections). A man in Chongqing has bought noodles for every patron of a shop where someone returned an engagement ring he misplaced. The article makes the terrible error of focusing on his act of goodwill and not on the noodles – what kind were they? How spicy?
  7. Lastly, the two best things I’ve read all week: the absolutely hilarious proceedings of the jury selection for Martin Shkreli (“He disrespected the Wu-Tang Clan”), and a definitive typology of the ways in which Samuel L. Jackson uses his favourite word – you know the one, it’s four syllables of incestuous obscenity. It’s most definitely not safe for work, which is all sorts of awkward, because I just read it at work, and then watched a tutorial from him about how to use the word.

Have a great weekend, everyone!

R

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Financial Literacy and Parenting in South Africa

By Janina Steinert – University of Oxford.

Living in poverty is not only a shortfall of money but also a daily struggle for securing food and basic needs.  The “one dollar a day” analogy is delusive in that the dollar is not available every single day.  Saving and careful financial planning thus become essential tools for addressing income volatility and smoothing consumption over time. Accordingly, empirical evidence shows that the financial portfolios of the poor go beyond mere hand-to-mouth survival and unfold in complex systems of spending, saving, and borrowing (Collins et al. 2009).

Acknowledging the importance of healthy money management, previous interventions have focused on building financial literacy and promoting savings. Proponents have described these programmes as cost-effective and empowering (compared to cash transfer programmes) and as low-risk and sustainable (compared to microcredit programmes). Their prominence – both in development practice and research – is emphasised by 115 experimental and quasi-experimental impact evaluations of financial education programmes identified in a recent meta-analysis (Kaiser & Menkhoff 2016). However, synthesised evidence from this meta-analysis reveals that financial literacy programmes remain far less beneficial than they promise, and particularly so for low-income populations.

In our recent CSAE working paper we therefore set out to examine how the effectiveness of financial literacy programmes can be increased. For this, we draw on emerging evidence from a range of projects that integrate poverty alleviation strategies with psychosocial programme components. Examples are the Becoming a Man (BAM) programme for economically disadvantaged youth in Chicago that features both behavioural therapy and financial literacy training (Heller et al. 2017) or the Sustainable Transformation of Youth in Liberia (STYL) programme which offers behavioural therapy and unconditional cash grants (Blattman et al. 2017). Motivated by the success of these previous programmes, we test the effectiveness of a group-based parenting and financial literacy training for poor families in the Eastern Cape, South Africa’s most deprived province.

Our programme, named Sinovuyo Teen, is composed of 14 weekly sessions that are delivered by community social workers to small groups of around 15 adolescent-caregiver pairs. 12 of these sessions are built on evidence-based parenting principles, including modelling of positive behaviour, anger and stress management, promotion of praise and self-worth, as well as establishing rules and routines in a household. The economic part of the programme is covered in two sessions focused on budgeting and saving training as well as commitments for family saving goals.

Photo of group session in treatment village (Source: Sinovuyo Teen Project)

Figure 1: Group session in treatment village (Source: Sinovuyo Teen Project)

 

To evaluate the impact of the programme, we ran a field experiment with 552 families from 40 village clusters. 20 villages were randomly selected to receive the Sinovuyo Teen programme and the remaining 20 to receive a one-day hand washing intervention (serving as our control group). At 5-9 months post-intervention, we find that participants from the treatment group have significantly changed their financial behaviours: They save more and borrow less, particularly so from moneylenders. We also observe significant decreases in financial distress, improved resilience to income shocks, and better access to a range of basic necessities, including education, medical care, and clothing.

Graph showing standardised intent-to-treat effect sizes at post-test (adult report)

Figure 2. Standardised intent-to-treat effect sizes at post-test (adult report)

 

Our results compare favourably to previous financial literacy programmes. We draw on qualitative evidence from in-depth interviews with programme participants to understand how the programme’s success might be explained. The data reveals four possible channels of programme effects: First, budgeting and saving training has likely increased financial self-efficacy and consequently helped to materialise pre-existing saving intentions. Second, commitments to saving goals and adoption of new rules and routines have likely helped prioritise essential expenses over others and reduce impulsive decision making. Third, promotion of praise, positive communication, and self-esteem can counter procrastination and hopelessness and thus motivate future aspirations in terms of investments in education and family business. Fourth, endorsed financial behaviours have likely been reinforced through peer pressure both in group-based sessions and in participants’ homes.

Based on our findings we contend that “hybrid” programme curricula that embed financial literacy training into wider psychosocial interventions are likely more successful than stand-alone financial literacy training.

References

Blattman, C., Jamison, J. C., & Sheridan, M. (2017). Reducing Crime and Violence: Exper-imental Evidence from Cognitive Behavioral Therapy in Liberia. The American Econom-ic Review, 107(4), 1165–1206.

Collins, D., Morduch, J., Rutherford, S., & Ruthven, O. (2009). Portfolios of the poor: how the world’s poor live on $2 a day. Princeton: Princeton University Press.

Heller, S. B., Shah, A. K., Guryan, J., Ludwig, J., Mullainathan, S., & Pollack, H. A. (2017). Thinking, Fast and Slow? Some Field Experiments to Reduce Crime and Dropout in Chi-cago. The Quarterly Journal of Economics, 132(1), 1–54.

Kaiser, T. & Menkhoff, L. (2016). Does Financial Education Impact Financial Behavior, and if So, When? DIW Discussion Papers 1562.

Steinert, J.I., Cluver, L.D., Meinck, F., Doubt, J., Vollmer, S. (2017). Household Economic Strengthening through Saving and Budgeting: Evidence from a Field Experiment in South Africa. CSAE Working Paper WPS/2017-11.

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Links round-up

Hi all,

I feel like I should be doing something more productive with my time, given the apparent imminence of a nuclear showdown, but I still find myself reading random econogeekery and statistics, watching cricket and searching the term ‘Shawn Kemp dunks Alton Lister’s face off’. I take this to be a sign that my life is well-lived. It’s important to start on an optimistic note, because…

  1. There’s an animated graph in this NYT piece on income inequality that has to be seen to be believed. It’s based on data from Emmanuel Saez, Gabriel Zucman and Thomas Piketty, and it shows how increases in income were distributed across the entire income spectrum in each year from 1980 to 2014 in the US. Long story short: in the 1980s, the poor and the middle classes saw their incomes rise more quickly than most of the rest of the population, a situation which has been entirely reversed over time – to the extent that the closer you are to the bottom of the income distribution, the closer your income gains are to zero. The message is much the same of Branko Milanovic’s famous elephant (now tortoise) graph, and the implications remain troubling.
  2. Speaking of inequality, this triggered a discussion with a colleague much more interesting than the original article, but I can only share the article, sadly. A café in Melbourne has instituted a ‘man tax’ in response to the gender pay gap there. The tax is economic madness (in that it does literally nothing about the underlying economic problem it’s aimed at), but is possibly far more astute politically, as my colleague pointed out. It’s a useful publicity stunt so long as people keep sharing the actually good research when the topic comes up. Related, and incredibly depressing: the timing of welfare payments relative to the exam cycle in the US has a material effect on the attainment of poor students. It made me think of Sir James Munby’s recent rant.
  3. Tim Harford consistently takes topics that others have wrung dry and finds new life in them, this time looking at the gig economy and the changing nature of work. Harford’s key points are firstly that a subset of workers will be potentially so empowered by the same forces that reduce the agency of the less-skilled that inequality may be sharpened; and that the machinery for organising much of our social protection (the firm/corporation) may become increasingly ill-suited to the task.
  4. The primary challenges of automation and robotics are likely to be institutional (how we respond to new phenomena and ways of organising work), and South Korea seem to be ahead of the curve. They’re considering a tax on income generated by robots.
  5. A new AEA paper has prompted me to suggest an alternative tagline for the movie Wall Street: “Investors – they get the price right, but only after being wrong for most of the time, and with sometimes catastrophic consequences.”
  6. I’m not sure how much I like this article, but it makes one point that really resonated with me: “It takes an astonishing amount of effort to get people to hear a thing… John Lilly’s rule was that he had to say a thing three times more often than he thought he should… [and] I suspect he’d agree that number’s still low.”
  7. And lastly, The Undefeated teamed up with Survey Monkey to rank the fifty greatest black athletes of all time, generating a substantial amount of data with which to speculate about our biases (the Undefeated’s take is here). It’s amazing how split people were on Serena Williams (objectively surely one of the greatest athletes ever). The skew towards US sports also left out some who would have featured in my own list, not least Sir Isaac Vivian Alexander

Have a great weekend, everyone!

R

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