The parable of uneven growth

You’re in a multi-lane tunnel, all lanes in the same direction, and you’re caught in a serious traffic jam.  After a while, the cars in the other lane begin to move. Do you feel better or worse?

Though it may sound like a description of New York traffic after last night's snow storm, this is in fact NYU Economics Professor Debraj Ray’s analogy (adapted from Albert Hirschman’s early work on economic development) about the response to uneven growth in unequal societies:

At first, movement in the other lane may seem like a good sign: you hope that your turn to move will come soon, and indeed that might happen. You might contemplate an orderly move into the moving lane, looking for suitable gaps in the traffic. However, if the other lane keeps whizzing by, with no gaps to enter and with no change on your lane, your reactions may well become quite negative. Unevenness without corresponding redistribution can be tolerated or even welcomed if it raises expectations everywhere, but it will be tolerated for only so long.  Thus, uneven growth will set forces in motion to restore a greater degree of balance, even (in some cases) actions that may thwart the growth process itself.

In this same paper, Professor Ray argues that economic growth in developing countries has recently been “fundamentally uneven”:  some sectors in an economy initially grow more quickly than others, which allows some groups in society to benefit while others lose out.  When, where, and why uneven growth leads (destructively) to frustration or (constructively) to higher aspiration is a puzzle whose answer determines how well societies will adapt to change and sustain growth.

His tunnel parable made me think of Andy Sumner’s recent finding that three-quarters of the world’s poor now live in middle-income countries, a big change from 30 years ago, when 90 percent of the poor lived in very poor countries. This means that far more of the people stuck in the slow lane may now also be watching their neighbors break free of the gridlock and cruise away.

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See also: Development is uneven, Get over it.

Cool maps: Measuring growth from outer space

For many of the world's poorest countries, figures measuring economic growth are unreliable, and in some cases they don't exist at all.  In an NBER working paper, Brown University professors J. Vernon Henderson, Adam Storeygard, and David N. Weil came up with an interesting proxy for GDP growth: the amount of light that can be seen from outer space.

Of course, the light intensities pictured in this world map reflect both income and population density. The authors explain:

In the United States, where living standards are fairly uniform nationally, the higher concentration of lights in coastal areas and around the Great Lakes reflects the higher population densities there. The comparison of lights in Western Europe and India reflects huge differences in per capita income, as does the comparison between Brazil and the Democratic Republic of Congo.

While GDP figures are almost always reported at the national level, the night lights allow us to see the growth of cities and regions too. The lights may be better able to show activity in the informal economy, and can be captured far more frequently, and with less of a time lag, than GDP figures.

Growth in light intensity not only "gives a very useful proxy for GDP growth over the long term;" the authors also found that it "tracks short term fluctuations in growth." One example shows the dramatic contrast in long term growth between North and South Korea, and gives a picture of how quickly South Korea has developed over the last two decades:

Another example illustrates how genocide literally darkened Rwanda in 1994:

What’s it like to live in a Millennium Village?

In Mayange, a cluster of villages about an hour’s drive south of Kigali, Rwanda, interventions by the Millennium Village Project across all sectors (in seeds, fertilizer, malaria nets, health clinics, vaccines, ambulances, water sources, classrooms, computers, cell towers, microloans and lots more) aim to lift villagers out of poverty within five to ten years. What do we know about the effects of such ambitious projects on the lives of the people living in these impoverished, rural communities? A qualitative study by Elisabeth King, a post-doctoral fellow with Columbia’s Earth Institute, produces a fascinating if limited* “snapshot” of social impacts of the Millennium Village Project in Mayange. A few observations:

The villagers King talked to were reluctant to bare all to a foreigner asking questions about delicate social topics. Her questions about quality of life, trust, and social exclusion elicited some contradictory and evasive answers: “Life in Mayange…In general it is not bad, it is not good, it’s in between.” “I know people well. But then, people are private and one only knows one’s own problems.” “There are no problems. But there are always some small problems between people though.”  King explained that in her previous research she found that Rwandans “downplayed negative aspects of social life and tended to embed negative reflections within positive pro-government ‘bookends.’”

MVP has good brand recognition and outreach; cooperatives sometimes increase cooperation. King found that the project was well-known among villagers, and almost all could name a change that had resulted from the project. Most were members of some kind of cooperative (farming, basket-weaving, bee-keeping) created by the project, and some described these groups as strengthening social bonds in the community or increasing women’s confidence by helping them provide income for their families.

Villagers thought that benefits from the project were unevenly distributed. In response to “Who gained the most from the project?” villagers answered most frequently “MV staff,” followed by “local leaders,” and villagers most willing to adopt new practices suggested by the project.

MVP may not be doing so well on the most basic thing – letting people say what THEY want. The most common suggestion was that the project should consult more with people in the community about what they want. One woman told King: “The MV has to meet with local community to learn more about what people really want because sometimes the MV brings things that the community doesn’t need or want. People may have good ideas.”

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*King’s study is limited in several ways beyond lack of statistical significance (she spoke with 35 individuals and 8 focus groups in a population of 25,000 people). One, as a visiting Westerner asking questions about MVP, she can’t avoid being seen as tied with the project. Whether this makes her interviewees more timid in voicing complaints (for fear of losing some project benefit or subsidy), or more bold (in the hopes of gaining resources to address their troubles) is hard to say. Two, the Rwandan ban on talking about ethnic divisions prevents people from speaking candidly about this obvious issue in a place where resettled genocide survivors and released prisoners now live side by side. Three, King has no baseline data, so she can’t talk about changes in quality of life or social cohesion based on statements from before the project vs. during/after the project (see also: Clemens and Demombynes).

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Thanks to Michael Clemens for the tweet that sent this study our way.

Read previous posts on the Millennium Villages here.

Culture matters

My wonderful NYU Economics colleague Raquel Fernandez has been carrying out a fascinating research program on the effect of culture on development outcomes. The academic literature on this is exploding, and Raquel surveys it in a recent paper. A simple yet powerful methodology for exploring the role of culture is to study differences in behavior among second-generation immigrants to the U.S. The idea is that all of them face a similar environment in the US, yet bring with them the cultural differences of their parents' country of origin. So differences in immigrant behavior could be attributed to culture (with a large number of caveats that Raquel addresses in her paper).

The figure below shows the association between attitudes about "trust" in the country of origin and "trust" in immigrants to the US from that country.

A second figure shows the association between female labor force participation in the country of origin and how many women work among immigrant groups.

Researching culture used to be taboo in economics; thank goodness that has changed. The finding that "culture matters" reinforces the recent general finding in academic development research that very long-run factors matter more in development than we used to think.

Sudan isn’t the only one: the Artificial States problem

In an article newly published in the Journal of the European Economic Association ( just in time for the South Sudan referendum!),  Alberto Alesina, Janina Matuszeski and I look at the general problem of "artificial states." (Ungated working paper here.) We have one conventional and one unconventional definition of artificial states, both of them continuous measures of "artificiality." The conventional one measures the frequency of ethnic groups split in two by a border (usually one that colonizers had mindlessly created).  The unconventional one measures the "squiggliness" of country borders, on the theory that colonizers drawing artificial borders were prone to drawing straight lines (see Sudan in picture), while" natural" states rarely had straight borders (see France).

We identified countries that were "most artificial" on both measures:

Chad, Ecuador, Equatorial Guinea, Eritrea, Guatemala, Jordan, Mali, Morocco, Namibia, Niger, Pakistan,Sudan, and Zimbabwe.

We also described some illustrative country cases:

Pakistan wound up as a collection of Balochistan, NWFP, Sindh (all of whom entertained secession at various times), East Bengal (which successfully seceded in 1971 to become Bangladesh, although only after a genocidal repression by West Pakistani troops), Mohajir migrants from India (many of whom regretted the whole thing), and West Punjab (which had its own micro-secessionist movement by the Seraiki linguistic minority).

Both measures predict that more artificial states are prone to worse development outcomes than less artifical ones, although the conventional measure is much more statistically robust as a development determinant than the "squiggliness" measure.

We don't draw any policy conclusions in the paper, nor will I do so in this blog post... but you can if you want.

Substitutability: there is no substitute for learning this wonky concept if you want your project to succeed

The debate we had on the HDI brought up the seemingly drop-dead boring jargon “substitutability.” Surprise! This actually turns out to be a USEFUL concept. Consider two extremes in an everyday example.  For producing the output: “weird music that Bill listens to,” my iPod and my iPhone are perfect substitutes, so one is redundant for this purpose (forget about other purposes for now). For producing this same output, headphones and the iPod are NOT substitutes, they are BOTH required in the proportions: 1 set of headphones for every 1 iPod. So headphones and iPods have zero substitutability.

The exact opposite concept to substitutability is complementarity. Headphones and iPods are perfect complements (you can’t use one unit of either without one unit of the other). At the other extreme, iPods and iPhones have zero complementarity (you CAN use one without the other). This is just a description of technology as it is at the moment, that we might have to take as given (but maybe not, see below).

So why does this matter for, say, aid projects? Aid projects often run into trouble because one of the essential inputs (one of the “complements”) for the desired project output goes missing. So for example, the supply of clean water breaks down because one small part fails on the water pump at the well. None of the other components of the water supply are worth anything as long as the one part of the pump stays broken.

This is a common problem. Indeed, many disasters are caused by the failure of one (sometimes very small) complementary input, like the malfunctioning O-ring that caused the 1986 Challenger Shuttle explosion.{{1}}

Yet the idea of complementary inputs over-predicts the likelihood of disaster – there are so many different parts that could fail, any one of which would be fatal, you would expect MOST Shuttles to fail. Or you would expect a lot more airline disasters than actually happen, since airplanes are subject to the same problem.

So why are more airplanes not falling out of the sky? Airplane designers do not passively accept perfect complements, they add many backup (redundant) systems in case one part fails. In other words, they deal with a complementary (essential) input by creating a perfect substitute for it in case it fails. I follow the same principle when I carry around both my iPod and my iPhone, to avoid the catastrophe in which the battery runs out on one and I can’t listen to my eccentric music.

The lesson for aid projects is to also build in redundancy for the essential complementary inputs. Make sure you have a good backup system of repairmen and spare parts in case the water pump breaks down. This seemingly obvious advice is often not followed–for example in Malawi, between 30 and 40 percent of all waterpoints don’t work.

Oh, and a final word on the HDI debate. Under their old method, UNDP assumed that inputs into the index (like income and life expectancy) were perfect substitutes, so the amount you have of one doesn’t affect the usefulness of the other. This means that even if, say, Zimbabwe has almost no income, it still gets some credit if life expectancy rises.

The new HDI method instead treats these inputs as complements, meaning that a missing input (or an income level very close to zero) would produce the catastrophe of zero overall human development, just as an iPhone with no headphones nets us no music at all.

In our critiques of the HDI, Martin Ravallion, Laura Freschi, and I thought this was way too extreme. People are resourceful enough to “produce” human development even if their income is extremely low, when they will find back-up substitutes for “low material income.”

An important part of development in general is developing systems that provide back-up redundancies for any essential input into production. Development is also the growth of resourcefulness to work around bottlenecks of any one particular scarce input.

And so, class, today’s lesson is: Aid project managers should imitate this resourcefulness. Whenever you get stuck by complements, look for substitutes.

[[1]]In fact, Michael Kremer used this as an analogy for development failures in his classic paper “The O-ring Theory of Economic Development”[[1]]

African export success: finding the needle when you're not sure which haystack

Export success in Africa is a matter of finding a rare Big Hit, with the added complication that it won't stay a hit, and that in a few years you will need a new Big Hit.

This from a new NBER working paper by Ariell Reshef (U. Va.) and myself. We also tell some stories of the individual successes, some of which involve the local government.

The news is not that Africa is different from the rest of the world in this, but that it's the same.

This unstable uncertainty holds regardless of whether you include or exclude oil, minerals, and other export commodities. And so does the concentration of success -- the top-ranked non-commodity export is 23 times larger than the 10th ranked export.

The stereotype of African countries as unchanging mono-exporters based on some unchanging natural endowment just turns out to be...wrong.

Coping with such remarkably high and unstable uncertainty (the "unknown unknowns") as to what will be a hit seems like an a priori case for a lot of decentralized, highly motivated seekers and experimenters. We don't exclude ANY possible government involvement -- at the very least, governments need to be nimble to adjust regulations and infrastructure to support any new success that comes along from private entrepreneurs.

In sum, we think there is just as much a role for entrepreneurs in Africa, and just as little role for centralized and systematic government industrial policy, as in the rest of the world.

Human Development Index Debate Round 2: UNDP, you're still wrong

by Martin Ravallion, Director of the Development Research Group at the World Bank

Francisco Rodriguez has defended the HDI against recent criticisms by Bill Easterly and Laura Freschi, who drew in part on my new paper, “Troubling Tradeoffs in the Human Development Index.”

Francisco would make a good lawyer, since he defends his case vigorously on multiple fronts. But this leaves a puzzle about his true position. On the one hand he claims that tradeoffs—including the implied monetary valuations of extra longevity and schooling—are not relevant to the HDI, and that it is even “incorrect” to calculate them. But (on the other hand) he agrees that the old HDI was deficient because it assumed constant tradeoffs (perfect substitution). If he does not care about the HDI’s tradeoffs then why does he care about how much substitution is built into the index, which is all about its tradeoffs?

The tradeoff built into any composite index is just the ratio of the (marginal) weight on one of its underlying variables (such as longevity in the HDI) to another (such as income). There is nothing “incorrect” in wanting to know the HDI’s weights and implied tradeoffs. These are key properties for understanding and assessing any composite index.

And the implicit weights and tradeoffs in the new HDI are questionable. I find that the HDI’s valuations of longevity in the new HDI vary from an astonishingly low $0.51 for one extra year of life expectancy in Zimbabwe to $8,800 in Qatar. The valuations are lower than for the old HDI, especially in poor countries.

And this striking devaluation of longevity is not just due to the fact that the HDI puts declining marginal weight on income, as Francisco suggests. As my paper shows, the weight on longevity itself has declined due to the change in methodology, and substantially so in poor countries.

Francisco defends the new HDI on the grounds that it allows imperfect substitution between its components. This is a non sequitur. One can introduce imperfect substitution without the questionable features of the new index. Indeed, I showed in my paper that if the HDI had used instead the Chakravarty index—a simple generalization of the old HDI, with a number of appealing properties—it could have relaxed perfect substitution in a less objectionable and more transparent way.

I agree with Francisco that perfect substitutability was a dubious feature of the old HDI, and (as he points out) the index was criticized from the outset for this feature. It is a shame that it took 20 years for the Human Development Report to fix the problem. And it is an even bigger shame that the proposed solution brought with it new concerns.

One such concern is the substantial downward revision to the HDI for many countries in Sub-Saharan Africa (SSA), which Easterly and Freschi pointed out. Francisco questions their claim, but the data are not on his side. The graph shows the pure effect of the change in the HDI’s aggregation method. (I have held everything else constant, at the same data used by the 2010 HDI.) Switching to the geometric mean involves a sizeable downward revision for countries with low HDIs, and these are disproportionately found in SSA.

This is not to deny that much of SSA is lagging in key dimensions of development, as Francisco notes. The point here is to separate the role played by the questionable new methodology used by the HDI.

Maybe it is time to go back to the drawing board with the HDI. Deeper consideration of what properties the index should have—especially its tradeoffs—would be a good way to start.

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Related posts: The First Law of Development Stats: Whatever our Bizarre Methodology, We make Africa look Worse What the New HDI tells us about Africa Human Development Index Debate Round 2: UNDP, you’re still wrong

The secret to fighting poverty is New Zealand

In a new World Bank blog post (h/t @poverty_action), economist David McKenzie explains why he thinks facilitating international migration should be at the top of everyone’s list of effective development interventions. Compared to microfinance, conditional cash transfer programs and cash grants to microentrepreneurs, a seasonal migration program in New Zealand produced WAY larger gains in annual income for program beneficiaries.

The good news doesn’t stop there. The usual fears for or about migrants—that they would be vulnerable to poor treatment, or that they would take advantage of the program to over stay their visas—don’t seem have materialized:

In addition to estimating per-capita income gains of 30-40%, we find that participating in the RSE leads to greater subjective well-being, more durable asset purchases, housing improvements, and in Tonga, a large increase in secondary schooling. Moreover, as a recent evaluation by New Zealand’s labor department found, these gains came with minimal displacement of native workers, and overstay rates of less than 1%.

Previously on this blog, Michael Clemens wrote that the development program known as leaving Haiti has pulled far more Haitians out of poverty than anything else that has ever been tried.

The plough and the veil

Why do some cultures encourage women to work, while others prefer they stay secluded in the home? Why do women in Africa command a bride price for their hand in marriage, while in northern India it is the bride’s family who must pay a dowry to the groom? Why are women secluded in the home in many Islamic countries, but not in Africa? Why is there the same contrast between female seclusion in northern India and not in southern India? Why are sons so intensely preferred to daughters in China?

It’s all about the plough.

A new paper presented yesterday at NYU by Alberto Alesina, Paola Giuliano and Nathan Nunn:

…[S]ocieties with a tradition of plough agriculture tend to have the belief that the natural place for women is inside the home and the natural place for me is outside the home. Looking across countries, subnational districts, ethnic groups and individuals, we identify a link between historic plough-use and a number of outcomes today, including female labor force participation, female participation in politics, female ownership of firms, the sex ratio and self-expressed attitudes about the role of women in society.

The idea orginates with Ester Boserup (who wrote a book with the same title as this post), who hypothesized that the way people farm influenced gendered division of labor and attitudes about women’s roles that persist to today.

She observed that in societies that didn’t rely on the plough to till the land—the case in most of Sub-Saharan Africa, and southern India—farming was largely done by women. By contrast, in societies that did use the plough—including North Africa, the Middle East, and northern India—men strong enough to do the plowing dominated agriculture, while women, sometimes veiled, were restricted to duties in the home. Their labor valued less, women in plough societies paid dowries rather than receiving a bride price. This distinction persisted in contemporary labor force participation, Boserup thought, for example in southern India where women were more likely to leave the home for jobs in factories than their contemporaries in the north.

Alesina et. al. have now confirmed Boserup’s findings with a variety of cross-country and within-country data. They find these effects even persist among second-generation US immigrant women, who work outside the home more when they are from non-plough cultures compared to plough cultures.

Obviously, cultures do evolve. This 1917 recruitment poster for British women to take up the plow while their menfolk are away at war reminds us how disruptions like war can help to shift gender roles relatively quickly—in the US, too, droves of women entering the workforce during World War II irrevocably altered American attitudes towards women working outside the home.

This paper is part of two separate kinds of studies now enjoying a vogue in economics: (1) ancient history matters, and (2) culture matters. The authors interpret their findings as suggesting “a very long persistence of cultural traits.”

-- Top photocredit: flickr user Bindaas Madhavi

Is there evidence for the absence of an aid effect, or is there just absence of evidence?

Aid policy was based on the premise that aid raises growth, but …{a major} study of this question was saying that this premise was false.

This quote refers to the Rajan-Subramanian paper (later published in a peer-reviewed journal) that was unable to reject the hypothesis of a zero effect of aid on growth. As I never tire of pointing out, we often get our conditional probabilities mixed up. Based on standard statistical methodology, the (1) probability of failing to reject the zero effect hypothesis is high when the effect is indeed zero. Unfortunately, the author of the quote incorrectly thinks this implies the opposite probability is high -- (2) the  likelihood that the effect is indeed zero when you fail to reject the hypothesis of zero. This likelihood can actually be quite low even if the first probability is high. Absence of Evidence does not constitute Evidence for Absence.

Who is this nincompoop?

This 2006 quote is from  William Easterly. Oops. Those cognitive biases are even stronger than I thought.

In a desperate bid to save face, there is SOMETHING defensible you can say about the growth effect of aid based on the Rajan and Subramanian paper. They report the standard error of the estimated coefficient of growth regressed on aid (addressing causality), which implies we can say with 95% confidence that the effect lies between -.06 and .18. So we CAN reject the hypothesis that one percentage point of additional aid to GDP raises growth by anything more than 0.18 percentage points.

As it happens, the standard model of aid, investment, and growth (old-fashioned but still in use today in the World Bank, IMF, and UN Millennium Project) implies that aid goes into investment one for one, and then this investment raises growth. With the usual parameters, this would imply an aid effect on growth of 0.2 or higher. THAT model we can reject.

The most honest statement about the modest growth effects is that they are more difficult to discern in the data ONE WAY OR THE OTHER.

Let us all now feel suitably chastened and humbled.

Donors seem to think Democracy is Only for Rich, Not for Poor

The international aid system has a dirty secret. Despite much rhetoric to the contrary, the nations and organizations that donate and distribute aid do not care much about democracy and they still actively support dictators. The conventional narrative is that donors supported dictators only during the cold war and ever since have promoted democracy. This is wrong.

Mo Ibrahim said:

All Africans have a right to live in freedom and prosperity and to select their leaders through fair and democratic elections, and the time has come when Africans are no longer willing to accept lower standards of governance than those in the rest of the world.

He knows that recognition of democratic values eventually leads to their realization; lack of recognition continues the subjugation of the poor.

See my whole article at the New York Review of Books

Succeed in Kindergarten, and You're Set for Life

UPDATE: links to studies on pre-school in developing countries (end of post)

This blog has discussed how ancient history of countries and peoples affects development today. Now a new paper shows that your own ancient history also matters: your scores on Kindergarten tests are a good predictor of your earnings as an adult, along with other good adult outcomes.

Raj Chetty presented this paper at NYU on Tuesday: How Does Your Kindergarten Classroom Affect Your Earnings? Evidence from Project Star, written with John N. Friedman, Nathaniel Hilger, Emmanuel Saez, Diane Whitmore Schanzenbach, and Danny Yagan.

Under the project studied, there were random assignments of teachers and students to classes. The striking thing in the findings is the identification of  "Good" and "Bad" kindergarten classes, as shown by more variation in the Kindergarten test scores than would occur with random variation. The "Goodness" of  the classes then have significant effects on their members for all those later life outcomes.

This finding was intrinsically fascinating in itself.  It reinforces a lot of other research about the importance of early childhood for later outcomes, which deserves a lot more attention in development.

The paper has gotten a lot of media attention for something a little different: as showing that "A Good Kindergarten Teacher is worth $320,000."

Actually, Professor Chetty was very careful in the seminar to say that there was no decisive evidence that it was the teacher who was the cause of the "Good" classes (and he never actually presented the $320,000 figure that the media has publicized).

It is certainly plausible that the teacher contributed to good kindergarten outcomes (and Professor Chetty  had some indirect but far from decisive evidence that contributed to the plausibility a little). But as with other groups of individuals: firms, cities, sports teams, book groups, societies ... and now Kindergarten classes ... some of the success and failure is just a mystery. Attributing it all to the "leader" (like the teacher) could be suspiciously close to one of those Fundamental Attribution Errors -- we want to identify group success with one Brilliant Good Person -- but sometimes it just ain't so. So the policy implications of this finding are ................................................. still a bit unclear.

UPDATE: An alert reader sent links to two more papers about early childhood and later outcomes. The sender happened to be the author, but that's OK, please feel free to send links to your own work when it relates to a post! The effect of pre-primary education on primary school performance

(ungated here)

Giving children a better start: Preschool attendance and school-age profiles

(ungated)

When the brain drain is healthy for democracy

The endurance of Indian democracy is one of the great Indian puzzles. How has a population so large, so ethnically and linguistically fragmented, and so economically unequal managed to sustain a participatory democracy since 1947? What forces have kept the country politically stable, enabling the rapid economic growth of the past two decades? One intriguing answer comes from political scientist Devesh Kapur, who studies the political effects of skilled migration (the so-called brain drain) on migrants’ home countries (we’ve blogged before about the positive economic effects of the brain drain). In a new book presented yesterday at the Center for Global Development, Kapur finds:

[T]he positive selection of Indian migrants through education has strengthened India's democracy by creating a political space for previously excluded social groups. Because older Indian elites have an exit option, they are less likely to resist the loss of political power at home.

Governments have historically used emigration as a pressure valve, to rid themselves of political dissidents and other undesirables, and preserve stability at home. After the Paris-wide workers riots of 1848, the French government tried shaking their “subversive elements” by offering them land grants in Algeria. Kapur also cites the examples of Cuba and Zimbabwe, where leaders allowed the periodic exodus of discontented citizens as a deliberate strategy to keep their hold on political power while migrants’ remittances helped keep things going economically.

In the decades following independence in India, Kapur argues, the migration of India’s high caste, highly-educated elite allowed more middle and lower caste Indians empowered by new voting rights to seek more political power and a bigger share of economic pie. In the 1990s, as affirmative action threatened elite privileges, the rich let them go with less of a struggle because emigration to Europe or the US gave them other, attractive options. At the same time, though, Kapur says that members of the upper class that chose exit have still retained their voice: their continuing influence in Indian politics perpetuates social inequalities.

Tobias Pfutze (formerly one of our own at DRI) has also worked on this relatively neglected aspect of the brain drain, studying Mexican immigrants to the US and their influence on politics back home. In local elections in 2000 to 2002, Pfutze found that places in Mexico that sent more immigrants to the US were more likely to vote to boot out the authoritarian Institutional Revolutionary Party (PRI), which had dominated Mexican politics since 1929. His work suggests that the influence of Mexican immigrants to the US actually helped facilitate the Mexican transition from a one-party system to democracy.

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photo credit

Technology history don't lie

Yours truly has a crazy new article in the latest issue of Foreign Policy on why no-tech ancient civilizations still can't catch up, based on my published research with Diego Comin and Erick Gong. But all is not doom and gloom, you just have to learn the right lessons from technology history:

As China's history has shown, when governments stop killing innovation, good things happen. Technological change has also dramatically speeded up, and lower communication and transportation costs make it cheaper and easier to borrow advanced technologies from other countries -- allowing societies to leap forward....The explosive growth in cell phones in Africa, skipping the intermediate step of land lines, is a promising sign of what Africa's tech future could look like -- if it weren't for its plague of poor governments.

Former World Bank chief economist Stanley Fischer used to joke about a new grammatical tense he called the "World Bank imperative form": Country reports were long lists of things that "must be done" by the authorities, ranging from grandiose infrastructure projects to implementing detailed plans to meet health, nutrition, sanitation, and education needs.

But our research shows that development is not about what you dictate, but what you discover. Little penicillin did far more to improve the world's lot than big plans conceived around a conference table.

...If there's anything that "must be done" to spur future development, it's to create the conditions necessary to empower the ordinary individuals who will create new and unforeseen technologies out of old ones. There's a Thomas Edison born every minute. We just have to help them turn the lights on.

Read the whole article here.

World Bank President starts brawl about development economics research

UPDATE 4:30 PM, Sept 30 -- debating Ravallion about World Bank censorship (see end of post) World Bank President Robert Zoellick gave a speech at Georgetown University today calling for the "democratizing" of development research.  Bob Davis at The Wall Street Journal reports some reactions:

Nobel Prize-winning economist Michael Spence, who led a commission on economic growth, said Mr. Zoellick's comments are "generally not only in the right direction, but very useful." Harvard economist Dani Rodrik.... also praised the World Bank president. "The speech hits all the right notes: the need for economists to demonstrate humility, eschew blueprints...and focus on evaluation but not at the expense of the big questions," Mr. Rodrik said.

But the reaction wasn't unanimous. New York University economist William Easterly...called Mr. Zoellick's comments "amazingly presumptuous." He says the current system of economic research, where ideas are picked apart by other economists, works well. If anything, he says World Bank economists are often the exception because their bosses pressure them "to reach the 'right' conclusions," Mr. Easterly said—meaning that World Bank loans are useful and foreign aid is productive.

The World Bank's chief of research, Martin Ravallion, responded, "I have never been told what conclusions I should reach, and I doubt very much that anyone told Bill Easterly what conclusions he should reach in his many years working for the Bank's research department."

That's OK, Martin, you must have been on vacation when the World Bank pushed me out the back door for not reaching the right conclusions on aid.

Mr. Zoellick, a moderate Republican who pushed for trade expansion as U.S. Trade Representative, also said that researchers should keep an open mind about whether countries can benefit from heavy doses of industrial policy.

That won praise from Mr. Rodrik, who has long pushed that view, and opposition from Mr. Easterly. "The most extreme advocates of industrial policy have lost the argument in the free and fair competition of ideas" Mr. Easterly argued. "Zoellick is trying to politicize it" by making it a bigger part of a World Bank research agenda.

UPDATE: see Martin Ravallion's comment below denying World Bank censorship, here is my response.

Martin, you are being disingenuous in what you do NOT say. Yes, I agree that if any given World Bank researcher sticks to publishing in academic journals, the findings do not spread to general public awareness, and, most importantly, the researchers themselves make no attempt to publicize their findings, then the researchers can say (ALMOST) anything they want (ALMOST because even then there have been exceptions and SOME politically sensitive findings would still be out of bounds). I myself did this for many years.

But once a researcher makes an effort to communicate with a broader audience beyond the tiny number who read academic journals, then any such statements are subject to censorship, as I found in my own experience personally, and others with whom I have communicated (unfortunately, they will not allow me to use their names) have verified similar experiences. So the World Bank researchers' participation in the "democraticized" debate, which President  Zoellick says he wants, is still subject to censorship. I can't believe you can really claim to deny this.

Moreover, the World Bank produces many public non-academic reports itself based on research findings. These reports' conclusions are politically influenced and censored. Again I cannot believe you would deny this.

But thank you, Martin, for taking the time to engage in a dialogue on this. I do believe the research done for academic journals in the World Bank has generally been of high quality and meets standards of academic rigor.

best, Bill

Brain circulation not brain drain

NYU economist Yaw Nyarko discusses his work on the so-called African brain drain with World Vision Report. Click here to listen to the interview (12 minutes).

Solving the mystery of the benevolent autocrat

UPDATE 4PM: RESPONSE TO COMMENTS (SEE END OF POST) Step 1: You're right, almost all of the biggest growth success stories are autocracies! Step 2: Wait a second, all of the worst growth failures are also autocracies! Step 3: Solving mystery: autocracies have much higher variance of growth rates, so they have both best and worst growth rates

Wonky Moral of the story: focusing on success only in Step 1 created a selection bias that led to the erroneous conclusion that autocracy was good for growth.

Plain English Moral of the Story: autocracy is extremely risky: it could result in high growth, but it could just as well result in a growth collapse -- for every Lee Kuan Yew, there is a Jean-Bédel Bokassa.

Extra credit question: why would arguing that the autocrats under Step 1 are benevolent while Step 2 autocrats are malevolent be logically fallacious?

RESPONSE TO COMMENTS 4PM To answer some questions, the growth rate is the geometric average 1960-2008 of per capita growth per annum. The source is WDI.

The source for the democracy data is Polity IV, which has some problems, but is enough for the kind of illustration here.

The point about causality is well taken, I am just making a point about how what for these data is actually a POSITIVE and SIGNIFICANT correlation between democracy and growth is turned into an apparent NEGATIVE association in Step 1, which is where the "benevolent autocrat" discussion usually stops.

(FOR WONKS ONLY) When I write this up more fully in an eventual paper, I will explain also some exploration of different functional forms for transforming the original POLITY index from -10 to 10, which is an arbitrary scale (autocracy being the negative direction). To illustrate the strongest possible POSITIVE correlation, I chose from 3 alternatives the one with the strongest statistical significance , which was the following function: POLITY/(11-POLITY). I would normally NOT like this kind of "data mining" among several different functions, but again the point of the exercise is to show the fallacy by which a STRONG POSITIVE association appears to be a STRONG NEGATIVE ASSOCIATION.

Maybe this is why accountability for Millennium Development Goals did not work out that well

IAD on A-i-d

This post is by Claudia Williamson, a post-doctoral fellow at DRI. In The Samaritan’s Dilemma: The Political Economy of Development Aid, Elinor Ostrom and other members of the Workshop in Political Theory and Policy Analysis at Indiana University apply Ostrom’s Nobel Prize-winning Institutional Analysis and Development (IAD) theoretical framework to development aid, specifically examining Sweden’s development agency, SIDA.

The IAD framework begins by analyzing the local context governing individual decision-making and scales up this analysis to include all types of rules that provide various incentive structures. This model presents the process of development as a series of collective action problems, analyzing the incentives for the provision of public goods and managing common pool resources.

Applying IAD to aid means that donors must first consider why there are development failures to begin with before they can accurately access whether intervention is an appropriate solution. This means investigating the underlying institutional arrangements structuring the incentives that produce collective action failures. If donors do not address these fundamental institutional failures, then any aid program is unlikely to be sustainable. Most donors pay lip service to these insights, but Ostrom and her colleagues find that their concern for the problems they entail is more rhetoric than reality.

The IAD framework views aid as a nested game, not a chain of delivery, between a variety of actors across different countries – including donor and recipient governments, contractors, civil society, NGOs, etc. These interrelationships create the incentive structure that will ultimately determine the likelihood of success from foreign intervention; therefore, the sustainability of a project and the achievement of long run development goals depends on the complex structure of incentives faced by all actors involved.

Given how complicated of a task this can become - e.g., dealing with the presence of multiple donors, special interest groups, the addition of new rules introduced by donors, and the possibility of corruption- it’s no wonder that donors may not be able to achieve their stated ends. In fact, donors often face perverse incentives that hinder sustainability and project success.

The title 'The Samaritan’s Dilemma’ stems from an article by James Buchanan (more on which here), another Nobel Laureate. Buchanan explains how donors' willingness to be charitable incentivizes recipients to alter their behavior in counterproductive ways. Recipients may, for example, reduce the amount of resources they themselves devote to the problem at hand. The original problem worsens and donors feel even more compelled to continue support, establishing a cycle of interventionism and reducing the chances of sustainability.

Ostrom’s approach to understanding development is to shift our focus towards the underlying incentives surrounding collection action problems. The traditional solution to such problems is central planning and government regulation, including the use of foreign aid. Ostrom argues, however, that expanding centralized bureaucracies is often counterproductive and may create additional unintended consequences. Instead, we should focus on individuals at the local level who are better equipped to develop solutions that are responsive to the complex local conditions generating these problems in the first place.