YOU write the next DV409 final exam!!

Dear ex and soon-to-be-ex DV409 students,

Now that the teaching year is over, revisions complete, and you have seen (and finished!) the exam, we'd like to hear from you what sort of exam questions you would have liked to see or could suggest for future DV409 exams? Give it a go - we will definitely use all usable ideas!!

Malthusian Growth

One of the take-aways from recent growth theory reviewed in DV409 is that modern growth as we experience it (where better technology leads to higher standards of living) is a very recent phenomenon -only from the last several hundred years. Here is another working paper by Ashraf and Galor that again confirms this surprising but profound observation. You can read the paper online and I reproduce the abstract here:

Abstract:

This paper examines the central hypothesis of the influential Malthusian theory, according to which improvements in the technological environment during the pre-industrial era had generated only temporary gains in income per capita, eventually leading to a larger, but not significantly richer, population. Exploiting exogenous sources of cross-country variations in land productivity and the level of technological advancement the analysis demonstrates that, in accordance with the theory, technological superiority and higher land productivity had significant positive effects on population density but insignificant effects on the standard of living, during the time period 1-1500 CE.

Alternative medicine and Statistics

A good article in this week's Economist Magazine summarises the overall results from one Professor Edzard Ernst's career spent testing the efficacy of alternative medical treatments. Overall his team has found statistically significant efficacy for 5% of all treatments studied. This was reported by the Economist as evidence that 5% of alternative medical treatments were "truly" effective.

But is this the correct interpretation of this outcome? Putting on our statistical hats, assume that NO alternative treatments were any better than placebos, and that Prof. Ernst and his team had examined their efficacy using a 95% cut-off for level of statistical significance. In what percentage of the studies would you expect them to (incorrectly) find that the treatment was statistically significant? (i.e. make a type-1 error) Ha ha!! Is that a coincidence??!

Supply and demand policies to improve educational outcomes

Thanks Anita and Linda for suggesting two interesting pieces on the challenges of improving educational outcomes in the developing world, and the relative merits of supply and demand side initiatives.

Albouy vs. AJR

A major aim of DV409 is to show that our understanding of the world is in a constant state of flux and growth, equip students to continue to follow ongoing debates in economic development, and to enable them decide for themselves which arguments have more merit. To that end, here is the latest salvo in an ongoing debate between David Albouy and Acemoglu, Robinson and Johnson (whose 2001 AER paper should be very familiar to all ID students!) ... Will this settle the matter once and for all??

Study hints for exam time

As everyone gets ready for exams, here is an excellent story in the New York Times about the best methods to learn difficult material well.

Are Trills the next big thing in development?

The strategic use of 'Trills', or shares in GDP, is an idea proposed by Mark Kamstra and Robert Shiller that could help re-allign incentives and fight rent seeking in both rich countries and poor. It is getting some excited attention in the blogosphere these days - what do you think?

The women effect redux and other unrelated links

Thanks Anita for finding another interesting article discussing the pitfalls of female centered development projects.

And while we are on the gender topic...here is an interesting new paper on women, transactional sex and social insurance. Using diaries of sex workers in West Kenya, the authors find that regular clients are a main source of insurance against income shocks.

A forthcoming book by Abhijiit Banerjee and Esther Duflo offers some critical insights on the main challenges faced by development policy today. Not sure about the release date but it should be soon...

The definition of 'Irony'

As some of you may be aware, the son of Muammar El-Qaddafi, Saif Al Qaddafi, recently completed a PhD here at the LSE in the Government department. Here is a link to the full text of his PhD dissertation

A review of two weeks of DV409

Thanks Anita for spotting a review of ALL the topics we addressed in DV409 in the last two weeks.
It discusses the impact of microcredit, how supposedly productive loans are used to satisfy consumption needs, on how not everyone wants to become an entrepreneur and on how the poor need access savings instruments and insurance products....all courtesy of the BBC.

Paying to go to the gym and other problems of self control

As we briefly discussed in class today, consumers tend to be farsighted planners but myopic doers, a terminology introduced by one of the leading figures in behavioural economics, Richard Thaler.

Della Vigna and Malmendier find  some evidence for this when they look at patterns of commitment and attendance of 3 large gyms in the US. Gym goers are often overly optimistic about the probability of going to the gym, subscribing to a monthly membership contract that is more costly in the end than any drop in or 10-class pass contract. You can find a summary of these findings here.

Here  and here  are even more extreme and sophisticated versions of commitment devices to address this problem.

Problems of self control go of course, well beyond gym memberships. A recent paper  describes a randomized experiment that investigates whether problems of self control apply to how people choose to be compensated for work. A shorter summary of the paper can be found here.

The number of potential charter cities in perspective....

Success or no Success?

Here is a list with potential to cheer us up...

A good exercise would be to carefully go through this list and identify whether we have reliable empirical evidence to believe any causal relationship between government policy and stated successful outcomes. This is particularly important in case these "success stories" translate into policy recommendations for a powerful and influential agency like the World Bank. For now, beyond the issues around causality and attribution, the most important contribution of this list is to shed light on the positive side of African development in recent years. This is important as general audiences grow ever more disillusioned with African stories of corruption, pervasive poverty and forseeable failures in reaching the Millennium Development goals by 2015...  

The Millenium Villages debate continues...

Suggested reading from Ingrid!

The importance of low discount rates

As DV409 students saw last term, 'high discount rate' behaviour in governance and policy making was a central focus of macro-development economics. However at the macro level, the underlying causes of high discount rate outcomes are still something of a black box (although there is no shortage of theories).

High discount rate behaviour in individuals (or 'self- or impulse- control' problems) provides plenty of handy examples for illustrating the concept, but in the back of my head I have always more or less assumed that high discount rate behaviour of governments should be an instutitional, emergent outcome from the interactions of an array individuals whose issues with self control were no different from those of any other population.

If you beleive that self control problems in individuals are purely genetic (and have little or no epi-genetic or environmental interactions) then that is probably a sensible conclusion. However if high (or low) discount rates in individuals are partially a cultural or learned behaviour, then it is not so clear. At least one recent cultural phenomenon, the Tiger Mother's parenting manifesto, certainly suggests that. Here is another story from NPR on a recent large scale study that illustrates the enormous importance of self control for life success, and how this can be at least partially taught or influenced.

The extent to which low/high discount rate behaviour is genetic, cultural, and/or institutional has important policy implications. We have seen empirical evidence for all three of these mechanisms - what do you think?

Heaven help Economics!

I still can't decide whether this new paper from world famous economist Robert Barro and his wife (abstract copied below) is evidence that economic decision making permeates even the most unlikely reaches of human (and celestial!!) society, or whether it is just a sign of a coming apocalypse of macroeconomics into absurdity. (Related to Sandra's post below this, there may be a cautionary tale about marriage in there somewhere as well!!)

"Saints Marching in, 1590-2009" by Robert Barro and Rachel Mccleary

Abstract: The Catholic Church has been making saints for centuries, typically in a two-stage process featuring beatification and canonization. We analyze determinants of rates of beatification and canonization (for non-martyrs) over time and across six world regions. The research uses a recently assembled data set on numbers and characteristics of beatifieds and saints chosen since 1590. We classify these blessed persons regionally in accordance with residence at death. These data are combined with time-series estimates of regional populations of Catholics, broadly-defined Protestants, Orthodox, and Evangelicals (mostly a sub-set of Protestants). Regression estimates indicate that the canonization rate depends strongly on the number of candidates, gauged by a region’s stock of beatifieds who have not yet been canonized. The beatification rate depends positively on the region’s stock of persons previously canonized. The last two popes, John Paul II and Benedict XVI (the only non-Italians in our sample), are outliers, choosing blessed persons at a much higher rate than that of their predecessors. Since around 1900, the naming of blessed persons seems to reflect a response by the Catholic Church to competition from Protestantism or Evangelicalism. We find no evidence, at least since 1590, of competition between the Catholic and Orthodox Churches.

Intra-household Dynamics Redux

For those who are yet to find the usefulness of economics (despite DV409's best efforts), here is yet another example of how it can change your life...by helping you manage your relationships!

Branko Milanovic on inequality tonight at the LSE

I've seen some of this material before and it is all very thought provoking - highly recommended
Link to the event information here

Ooops...self-inflicted perils in data collection

Evidence on how the very act of conducting a survey can affect our estimates of the impact of a policy. This adds to the list of effects we have to be mindful of when using primary or secondary data on agent behaviour: the Hawthorne Effect (when participants in a study alter their behaviour in response to being part of the study) and the John Henry Effect (when members of the control group perceive to be in competition with members from the treatment group and change their behaviour accordingly)...

Banking on the move

Here is a new paper on the impact of mobile banking...surprisingly, mobile banking hasn't really taken off in the developed world but it offers great promise for a significant segment of the population in the developing world that still lacks access to adequate banking infrastructure.

New trade theory, productivity growth and ...Ann Harrison!

DV409 students will be familiar with the lead author of this new firm-level study on the productivity growth effects of trade liberalisation. What do you think? Should this become the new class paper for trade next year? I reproduce the abstract here:

Learning Versus Stealing: How Important are Market-Share Reallocations to India's Productivity Growth?

The new trade theory emphasizes the role of market-share reallocations across firms ("stealing") in driving productivity growth, while the older literature focused on average productivity improvements ("learning"). We use comprehensive, firm-level data from India's organized manufacturing sector to show that market-share reallocations did play an important role in aggregate productivity gains immediately following the start of India's trade reforms in 1991. However, aggregate productivity gains during the overall 20-year period from 1985 to 2004 were driven largely by improvements in average productivity. By exploiting the variation in reforms across industries, we document that the average productivity increases can be attributed to India's trade liberalization and FDI reforms. Finally, we construct a panel dataset that allows us to track firms during this time period; our results suggest that while within-firm productivity improvements were important, much of the increase in average productivity also occured because of firm entry and exit.

Of Oscars and Marriage Markets

Hmmmm....another unintendend consequence of female-centric programmes? How will the effect of female-centric programmes be determined by the size, segmentation and nature of marriage markets? Is this reason enough to stop focusing on females and prevent them from pricing themselves out of the marriage market? Or is there an alternative and more creative way to design policies that account for these dynamics?

Unintended Consequences and Double Standards in the Girl Effect

Here and here are two interesting blog posts on how girl or female-centric development programmes can go awry. They follow from our discussions in seminar this week on how development policies should be take into consideration household dynamics and how they mediate policy effectiveness. And of course, the Davos comparison is priceless: an example of how conditionality may be needed to nudge people beyond just bringing a child to school.

Natural Experiments with Foreign Aid

Here is an interesting paper on the rebuilding of Somaliland in the absence of any aid programme. One of the biggest problems we discussed about evaluating the impact of aid is that of omitted variables and reverse causality: is Aid going into poorer, more dysfunctional, or more promising countries/regions to begin with? Also, it is hard to think about a counterfactual: what would have happened to this country in the absence of Aid? We want this counterfactual to be determined exogenously though...if the reason why the country is not receiving Aid is because it has an illuminated, proactive leadership that is trying to show that the country can stand on its own two feet, then it is likely that these governance characteristics play a huge role in growth and development outcomes anyway, regardless of Aid.
While the take-away point from the Somaliland's example should not necessarily be to stop all forms of aid - this may be politically and ethically untenable - it does call out our attention on how to think about mitigating the perverse incentives created by foreign aid, about how much of it is needed, about where can it have the biggest impact, about when it should replace a failed government and when it should just create an enabling environment for the government and its people to thrive.

Crowd sourcing event news in real time

When television first appeared it revolutionised news - now people could see events, sometimes live, for themselves, albeit on the small screen. Then came CNN - 24 hours news that also changed the 'news cycle' and the way people consume information. More recently the ubiquitous cell phone video/camera and YouTube has further decentralised news provision. And now, perhaps the ultimate extension of this trend, a number of websites provide real-time crowd sourced information about events unfolding on the ground, with no intermediary (here is an example from ID PhD student Mareike Schomerus today - Jan 30 - on crowd sourced news on demonstrations in Khartoum Sudan). From an econometricians' perspective the possibilities seem endless - what kinds of hypotheses would you test with time and location data on the individual actions that make up mass events?

The Institutionalization of Rigorous Impact Evaluations

Here are interesting updates that reflect the spread of rigorous policy evaluation at all levels: the government, aid agencies, intergovernmental bodies, NGOs...
Thanks Renita for sharing the link!

Just So Stories and Hanging Mechanisms

A pet peeve of mine, which you may have heard me mention once or twice (!), is the prevalence (hopefully not from DV409 though!) of 'just so stories.' Our insistence that for each stated relationship you also have an actual mechanism in mind is related to this (hence my other term for this practice - the 'hanging mechanism' in reference to 'hanging chads' from the infamous Bush election). Stephen Jay Gould has been on a campaign against Just So Stories in his own field for some time. If you just remove the biological references and replace them with development references, the description should sound familiar:

• "Evolutionary biology has been severely hampered by a speculative style of argument that records anatomy and ecology and then tries to construct historical or adaptive explanations for why this bone looked like that or why this creature lived here. These speculations have been charitably called "scenarios"; they are often more contemptuously, and rightly, labeled "stories" (or "just-so stories" if they rely on the fallacious assumption that everything exists for a purpose).

Here is another blog spot on the topic. Although these writers are referring to biology, not economics or development, it is an excellent analytical and critical thinking exercise to try to spot the Just So Stories and hanging mechanisms that abound around International Development...

The Davos Health Effect

(Re-post from last year)


This is perhaps one of the most important pledges coming out of Davos lastyear. http://ibnlive.in.com/news/bill-gates-promises-10-billion-for-vaccines/109406-17.html

This poses an interesting question about markets and how they work to develop public goods like vaccines. For years, pharmaceuticals have had the capacity to develop vaccines that would have prevented millions of deaths in the developing world. So why hasn't this happened?

Pharmaceuticals had little incentive to develop these vaccines as they would be serving a low-income segment of the market that would not be able to afford high-priced preventive care.

This is one area in which the work of economists has been highly influential in policy circles...

Michael Kremer from Harvard University has advocated for years that we need to intervene in this market to align the incentives of pharmaceuticals (profit), with those of policy-makers and donors (promoting well-being in the developing world). Michael has suggested that donors pledge to guarantee the demand for vaccines aimed at "developing country diseases", to create incentives for the pharmaceuticals to develop them. You can check out his work here:

http://www.economics.harvard.edu/faculty/kremer/files/AMCHealthEconomicsFinal.pdf

http://www.economics.harvard.edu/faculty/kremer/files/innovationsFinal.pdf

http://www.bepress.com/ev/vol3/iss3/art1/

Mis-targeting Efforts in the War on AIDS

(Re-post from last year but relevant to this week's discussion!)

A recent article in the Wall Street Journal reports a gloomy view on the war on AIDS. War on AIDS

Several of the arguments used seem straightforward in hindsight: there was way too much emphasis on treatment and very little on prevention. With scarce resources (this includes "celebrity capital" to champion a cause), even if the expansion of treatment manages to slow down growth in prevalence rates, it is not surprising that many poor countries are incapable of providing treatment to all those infected. As treatment expansion rates are lower than the rates of new infections, most countries are now in a difficult position of having to ration life-saving treatments.

Earlier in the term we discussed the political economy of global health policies and how this can distort the allocation of resources both between diseases (eg: malaria, AIDS, diarrhea) and between preventive and curative approaches.

Why has it been so difficult to allocate resources to preventive care in HIV-AIDS in order to address the real source of the problem?

Bribing as a development strategy?

In preparation for this week's class on education, here is the latest data on an alternative strategy to boost demand for education. The heterogeneity in results identified by both studies highlights the importance of replication guided by sensible theoretical priors on how different parameters may affect the impact of the policy...

What is in a number

Following our class discussion about how to come up with an index for poverty, here is an even harder nut to crack. Even if we knew what to measure and how to measure it, we would still be constrained by the politics!