Is Poverty in (2/3 of) Africa Mostly Chronic or Transient?

A lot has been said recently about the reduction in global poverty over the past few decades. Although the positive coverage of these encouraging statistics is certainly justified, important questions still remain. Many of these questions relate to the dynamics of poverty, rather than simply snapshots of static poverty. In short, static poverty measurements (which are used when estimating global poverty at given points in time) cannot distinguish between people who have been in poverty their entire life and people who happen to have had an unfortunate circumstance in the year the poverty data was collected.

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Top Posts from 2015

Another year has gone by and I’m still blogging. Here are a list of the top posts from the past year, listed in order of popularity.

1. 7 Thoughts on Syrian Refugees

2. Poor Behavior: 3 Myths about Behavioral Economics

3. [Book Review] Africa: Why Economists Get it Wrong

4. The Economics of Climate Change and Water in Kenya

5. Scarcity, Hope, and the Psychology of Poverty

AAEA 2015 Recap

This past week I was able to attend the Agricultural & Applied Economics Association Annual Meeting in San Fransisco. It was a fun event with lots of good discussion. In this post I’ll highlight a few of the most interesting sessions I attended. Unfortunately due to the nature of these sort of events, I was only able to attend a small fraction of the available sessions. I know I missed an excellent session on Incorporating Ethics in Economic Analysis with Paul Thompson, Jayson Lusk, David Just, and Harvey James Jr.

Agriculture in Africa: Telling Myths from Facts

The first session I went to summarized a large research project aiming to close the data (and knowledge) gap about agriculture in Africa by implementing nationally representative household surveys in six African countries. Here is a short intro video:

The research aims to confirm or deny the validity of several commonly perceived wisdoms about agriculture in Africa such as:

  1. The use of modern inputs, like chemical fertilizer, remains dismally low.
  2. Land, labor, and capital markets remain largely incomplete and imperfect.
  3. Agricultural labor productivity is low.
  4. Land is abundant and land markets are poorly developed.
  5. Access to credit remains low.
  6. African youth are leaving agriculture en mass.
  7. Trees on farms are negligible.
  8. African agriculture is intensifying.
  9. Women perform the bulk of Africa’s agricultural tasks.
  10. Seasonality continues to permeate rural livelihoods.
  11. Smallholder market participation remains limited.
  12. Post-harvest losses are large.
  13. Droughts dominate Africa’s risk environment.
  14. African farmers are increasingly diversifying their incomes.
  15. Agricultural commercialization and diversification improves nutritional outcomes.

I think this is a great list of “perceived wisdoms” because looking it over, I have a vague feeling or opinion about each one of these items, yet I have no data or evidence to back up this belief.

Aspirations, Social Networks, and Economic Behavior

As readers of this blog will know I’m thinking a lot about aspirations (or hope) as it relates to economic behavior. Some great new research as presented by a PhD candidate from the University of Georgia on this broad topic from work in Nepal.

Here’s the working paper: Social Drivers of Aspirations Formations and Failure in Rural Nepal.

I think this is an important research area and this paper makes a great contribution. The authors measure the association between individual’s aspirations for income and assets and the income and assets of people in their social network. This is important as it provides evidence of the theoretical work of Debraj Ray and Arjun Appadurai – saying that people’s hopes and aspirations for the future( which probably determine future-oriented decisions) is influenced by the relative levels of income and assets of others who have similar characteristics to them.

Agricultural Commercialization in the Developing World

There are two papers that deserve a mention under this topic. The first is a study on the welfare impacts of rising quinoa prices. Basically, should consumers in the developed world continue to consume quinoa at the rate we currently do? In short (and at risk of oversimplification) YES! It actually helps people in Peru. Read more from Marc Bellemare’s blog on Quinoa Nonsense, or Why the World Still Needs Agricultural Economists.

The second is a presentation on a replication study of Dean Karlan’s study on the impacts of export crop adoption in Kenya. In light of all the drama about the de-worming paper this past week, it was super interesting to see first-hand how a real replication study actually works. I’m still not sure what the term ‘replication study’ actually means, but I enjoyed this presentation and its implications for the rigor of the scientific process.

Here’s the replication paper: Recalling Extra Data: A Replication Study of Finding Missing Markets.

Applying Behavioral and Experimental Economics

I was also able to attend and participate in a post-conference workshop on behavioral and experimental economics. Part of this workshop was a great “mini-mentoring” lunch were I was able to discuss some research ideas with some very insightful folks. Most of the workshop was presentations by established researchers who are applying behavioral and experimental methods to their research on food policy, nutrition, and environmental policy. It was fascinating!

The highlight presentation discussed a recently published paper by David Just and Andrew Hanks on the Hidden Cost of Regulation: Emotional Responses to Command and Control.

There were certainly other excellent presentations, I just didn’t have a chance to see them. If you attended the conference, feel free to complete the list in the comments below.

[Book Review] Africa: Why Economists Get it Wrong

Morten Jerven strikes again! Back by popular demand (or due to a lack of a supply of good economic research about ‘Africa’).

51oNbFt0MmL._SY344_BO1,204,203,200_In 2000 The Economist ran a cover page with a headline calling Africa a hopeless continent. In the cover article of that issue The Economist asked the question: “Does Africa have some inherent character flaw that keeps it backward and incapable of development?” In 2011 The Economist had changed it’s tune with a cover page singing the song of Africa rising. In his newest book, Morten Jerven asks the provocative question: “Do economists have a character flaw that makes them incapable of doing good scholarly work on Africa?

The book is short and approachable by all who are really interested in economic growth and poverty reduction on the African continent. I urge my non-academic friends and readers to pick up this book. One of the objectives is to equip non-economists to read economics more critically.

The first book I read about development economics was Paul Collier’s “Bottom Billion”. In it Collier made the claim that almost a billion people live in countries that do not experience economic growth. He coined the term “Africa+” which identified over 60 countries that do not grow and experience various poverty traps: the conflict trap, the natural resource trap, the being landlocked with bad neighbors trap, and the bad governance in a small country trap.

Morten’s point is that their is no such thing as the “Bottom Billion” and this notion that Africa is a place experiencing chronic failure is misleading and outdated.

The Subtraction Strategy

A substantial pile of literature in development economics regards trying to understand the lack of economic growth in Africa. This leads to study after study trying to find variables and characteristics that explain why Africa has experienced slow economic growth. Jerven sites a study that reviews this literature and reports that 145 variables have been found to be statistically significant explanatory variables for Africa’s low growth rate.

Not only has this approach failed to provide informative information, Jerven calls this approach the “Subtraction Approach” – where the characteristics of a developed country are compared with the characteristics of an underdeveloped and the differences are taken to explain the lack of economic prosperity. In this approach the lack of growth is explained by the lack of something else. This leads to statements that sound very tautological: Underdeveloped counties are underdeveloped because they are underdeveloped.

This search for “why Africa is so poor” has missed the critical nuances of the diversity of a continent of 54 countries. Since independence some countries on the continent have experienced periods of growth, some countries have experienced periods of negative growth, and many countries have experienced both. Averaging all of these experiences together causes us to ask wrong and uninteresting questions about Africa as a whole.

Africa Rising

If there is no “Bottom Billion” then surely the “Africa Rising” trope must jive with reality. Jerven, however, isn’t hot on the idea of “Africa Rising” either.

Jerven points out the recent experiences of Ghana and Nigeria when they updated the base year for the GDP calculation. In the case of Ghana this statistical maneuver made them a middle-income country overnight. But, it didn’t happen overnight in the lives of those living in Ghana. It happened slowly over the course of many years. And that’s Jerven’s point, we don’t have good enough economic data in many countries in Africa to make broad statements such as ‘Africa is rising’.

In 2011 Jerven surveyed the state of the GDP calculations among countries in Africa. He collected information on 34 of 54 countries. Only ten of those countries had a base year that was within the last ten years. In seven countries the base year was over twenty years old. Only six countries had a base year within the last five years. This brings up several important points to keep in mind:

  1. The ‘Africa Rising’ trope makes claims based on information on just over half of the countries on the African continent (the other 20 countries were not currently calculating annual GDP statistics.)
  2. Many of those countries are calculating their economic activity through a grossly outdated market basket of goods and services. In Nigeria for example, before they rebased in 2013, they were not including cell phones into their GDP calculation.
  3. GDP is a remarkably rough measurement of wellbeing. For example: if you marry your cook, GDP decreases. If your country is rebuilding after a natural disaster, that activity counts as GDP (see post-2010 Haiti earthquake for a recent example).

Additionally we need to be careful with statements like “seven out of the 10 fastest growing countries in the world are in Africa”. While this statement may not technically be wrong, it presents a misleading realty. To make this statement one must do the following calculations: Countries with less than 10 million people are excluded, which leaves 81 countries, 28 of which are in Africa. If OECD countries are omitted because it is unlikely that these countries are going to be growing at a rate greater that 7 percent per year, then half of the remaining countries are in Africa. A less misleading statement could be “on average some African countries are expected to grow slightly faster than other non-OECD countries”, but that is boring.

Economies not Economics

I hope I’ve demonstrated some of the important contributions this book makes. I strongly recommend anyone to read it.

In summary, the book reminds us to study economies not economics. While this may seem like a meaningless statement, there has been an unfortunate trend toward cross-country studies based on macro-analysis and away from country-level studies that embrace the nuances of the local context. This is a welcome critique, because books like Collapse, Why Nations Fail, and The End of Poverty have all been popular and influential books in their time.

Morten Jerven has been a guest on two great podcasts. So along with reading the book, give these a listen:

Development Drums with Owen Barder and Econ Talk with Russ Roberts.

Africa’s Grand Narratives

As if peace, prosperity, and progress can be wished into being with scented narratives, Afro-optimist narratives such as the “Africa Rising” stories have been zeitgeist in the last few years. A simple Google search of the phrase “Africa Rising”, at the time of writing this article in November 2014, turns up over 21 million references. But irrespective of la chanson du jour, Africa is neither hopeless nor hopeful. It simultaneously carries potential for hopelessness and hopefulness. When it comes to the task of building strong states, citizens and leaders of African countries have a choice to make, of what to carry into the future and what to leave in the dump of history.

A great excerpt from a great piece by Atta Addo over at the London School of Economics. I hesitate to call this a ‘must read’ as it is simply necessary for anyone interested in doing any work “in Africa”.

For more on re-writing the grand narrative of Africa, see a previous post: “How (not) to Write about Africa

Why is Africa’s Middle Missing?

Alan Gelb, Christian Meyer, and Vijaya Ramachandran, all from the Center for Global Development, have recently finished a working paper with the ever-so-sexy title: Development as Diffusion: Manufacturing Productivity and Sub-Saharan Africa’s Missing Middle. The paper asks a question I know you all have been asking – Why have areas of high productivity (which the paper calls “productivity enclaves”) not diffused more rapidly to areas of low productivity in most parts of Africa?

Gelb, Meyer and Ramachandran point to three major reasons:

1. A poor business climate

Constraints imposed by the business climate, such as power outages and the burden ofregulation, are recognized as ‘major’ or ‘serious’ by most SSA firms. Self-reported lossesassociated with power outages can amount to more than 10 per cent of sales in somecountries. Concern over power supply is no less in larger firms because of the very high cost of self-generated power. Behind power, bad transport networks emerge as a secondinfrastructure concern. Around one-third of firms cite transportation as a major or severeconstraint. Firms also report having to pay bribes to get things done. On average across firmsurveys in SSA, around 40 per cent of firms confirmed that these practices were common,with fewer in South SSA and more in other countries, including Kenya where the shareexceeded 60 per cent.


2. A complex political economy of business-government relations
(a point I’ve written about before)

These studies suggest that many countries have been locked into a low-level business climate equilibrium sustained by the incentives faced by key participants. On the side of firms, small markets and monopoly rents confer an additional advantage on the big players, with bargaining power reinforcing the asymmetry of the business climate. ‘Influential’ firms,including many that have benefitted from decades of import substitution policy, are more prone to lobby governments, including preserving local market power. Larger firms also have rents to share between owners, employees, and public officials. Even apparently profitable larger firms will not grow rapidly in small markets and they may find it hard to surmount the ‘export productivity hurdle’ because measures of their productivity are exaggerated by monopoly profits on domestic sales (van Biesebroeck 2005).

On the side of governments, as explained below, in many countries the business sector does not have strong natural political constituencies. Emery (2003) notes that the regulatory system is often used to control the productive sectors and is structured to ensure that most firms are in violation of at least some regulation. Nugent (1995) describes the example of successive Ghanaian regimes that were open to foreign investment but significantly less enthusiastic about the creation of a broad-based, indigenous private sector because wealthy indigenous businessmen were viewed as potential political rivals. The government’s ambiguity about private sector development was also reflected in public opinion polls that showed Ghanaians to be enthusiastic about democracy but less positive on market-based reforms (Bratton et al. 2001). Business has thus been left more vulnerable to swings in public policy and dependent on maintaining close relationships with government, eroding the impact of already weak competition policy.


3. An unequal and asymmetric distribution of firm capabilities 

Several factors make it less likely that poorly managed firms will be forced out of business.Low levels of competition, measured economy-wide as well as reported by firm managers,are associated with poorer management practices. More restrictive labor market practicesaffect management quality by placing constraints on human resource management as well asby causing frictions in the hiring and firing of managers themselves. Government-ownedfirms are poorly managed, often being shielded from competitive pressures throughsubsidies, preferential regulatory treatment, or preferential access to value chains. Family,rather than professional, management also plays a role in reducing management quality andproductivity, even for family-owned firms. Weak rule of law makes it less likely thatmanagerial positions will be given to non-family members, effectively limiting the span ofmanagement control. This in turn constrains the expansion of productive firms and allowslow-productivity firms to survive. These factors, as set out by Bloom and van Reenen (2007),are all relevant for most SSA economies.

This paper deserves a home in an academic journal, I have no doubt it will eventually find one.

 

How [not] to Write About Africa

Many countries in sub-Saharan Africa are growing at a phenomenal clip. Nigeria’s economy grew by 6.7 percent in 2012. Mozambique’s grew by 7.4 percent, Ghana’s by 7.9 percent. Economic growth in sub-Saharan Africa as a whole is predicted to reach 5.2 percent this year. Investment funds are starting up by the dozen, finding local entrepreneurs.

In 2011, roughly 60 million African households earned at least $3,000 a year. By next year, more than 100 million households will make that much. Trade between Africa and the rest of the world has increased by 200 percent since 2000. Since 1996, the poverty rate has fallen by 1 percent per year. Life expectancies are shooting up.

Only about a third of this new wealth is because of commodities. Nations like Ethiopia and Rwanda, which have no oil wealth, are growing phenomenally. The bulk is because of economic reforms, increased productivity, increased urbanization and the fact that in many countries political systems are becoming marginally less dysfunctional.

Africa should not be seen as merely the basket case continent where students, mission trips and celebrities can go to do good work. It has become the test case of 21st-century modernity. It is the place where the pace of modernization is fast, and where the forces that resist modernization are mounting a daring reaction.

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Links I Like [Warlord Edition]

1. Remember Invisible Children? That organization you either heard about in college or heard about from your college aged relative. Their impact may be unmatched among college students. In fact, a few friends and I founded a student organization in the wake of a failed Invisible Children rally at our college. Their impact on the ground in Northern Uganda, however, is ambiguous and contentious. The following article by Buzzfeed (!) is actually really great! It summarizes the rise and fall of an organization and its leader while wading through the hailstorm that was the aftermath of IC’s most popular viral video. Has Invisible Children Grown Up

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Links I Like [2.14]

1. Did you know that the ICC (International Criminal Court)—a court that is designed to uphold the (agreed upon) global standards for human rights—has only indicted African leaders in its 11-year history? What should we think if this? Is the ICC simply doing its job or is this just another atrocity? Africa Attacks the International Criminal Court is a fantastic analysis of the African Union’s flight against the ICC’s “African witch hunts” by the Executive Director of Human Rights Watch, Kenneth Roth published in the New York Review of Books.

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Cautious Optimism

Harvard Business Review recently posted a summary of a new book which outlines the Seven Reasons Why Africa’s Time is Now. The book looks to be good and is a must read for anyone who is interested in the topic of global business, worldwide development, or, like a former professor of mine, just generally interested in stuff. Each of these seven points, listed below, are extremely valid and well informed. There is however always more to the story.

Harry Truman, the 33rd president of the United States once said, “Give me a one handed economist! All my economists say, ‘On the one hand… on the other…'” The purpose of this post is to provide the other hand to these seven points. To present the data in an alternative perspective. To broaden our gaze onto Africa’s horizon. My goal is not to discredit the optimism for the future but simply to raise some areas of caution to keep in mind. So, here are some notes and thoughts from a young development economist (not yet) on the work of a much anticipated new book and a recent HBR blog post, consider the following at what it is worth.

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