The impact of maternal health on child health

A cool paper on the impact of maternal health on child health, by Leah Bevis and Kira Villa, is now forthcoming in the Journal of Human Resources. I’ve had the opportunity to see this paper presented by both Leah and Kira at multiple conferences over the last few years. It really is excellent work by two very talented economists.

The headline result is that a mother’s health impacts their child’s health throughout childhood. Thus, previous estimates of the transmission rate of maternal health on child health at a single point in time underestimate the full effect.

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Export Crops and Extra Conflict

I recently stumbled upon this new(ish) paper, by Benjamin Crost and Joseph Felter published in the June 2020 issue of the Journal of the European Economic Association. This paper shows a plausibly causal link between the export value of agricultural products (e.g. bananas in this case) and violent civil conflict. This is an important and interesting link because decades-old theories of economic development suggest the shift to high-value (and export-oriented) agricultural production is an important mechanism driving economic growth and poverty reduction.

Let’s dig into this bananas paper! (Okay, sorry about that.)

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COVID-19 in Low- and Middle-Income Countries—An (incomplete) Round Up

Simeon Djankov and Ugo Panizza, in partnership with the Center for Economic Policy Research (CEPR) and the International Development Policy Journal, have an edited volume on “COVID-19 in Developing Economies.” Aside from a questionable (at best) cover image, this seems to be a valuable resource. The included essays are short and will likely be helpful for many involved in policy-making or research in low- and middle-income countries. I will highlight a few chapters that I found particularly insightful.

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Two better ways to improve outcomes of small businesses (in Togo and Nigeria)

Two recent and excellent studies offer some important insights into how best to help improve the outcomes of small business owners in developing countries. Both studies evaluate programs motivated by the perception that the traditional way business skills training programs operate could be improved. (For more on this idea, read McKenzie and Woodruff (2013).)

The first study compares two programs, implemented in Togo, against each other (and a comparison group). The “traditional training” simply teaches participants lessons in accounting, management, financial decision making, and marketing. The second training included insights from psychology and aims to not only teach business skills but also to instill a mindset of self-starting behavior and encouraging personal initiative. This strategy behind this second training program acknowledges that simply being trained with the necessary business skills is not sufficient in spurring high-growth small business growth. Entrepreneurship takes a particular penchant for risk, a market opportunity, and a little bit of luck — all things that are typically tough to come by in many developing countries. The impact evaluation of these programs, published in the journal Science, found that the psychology-based training program produced better outcomes compared to the traditional training program. Here a link to the World Bank write up of the study and the abstract of the full study:

Standard business training programs aim to boost the incomes of the millions of self-employed business owners in developing countries by teaching basic financial and marketing practices, yet the impacts of such programs are mixed. We tested whether a psychology-based personal initiative training approach, which teaches a proactive mindset and focuses on entrepreneurial behaviors, could have more success. A randomized controlled trial in Togo assigned microenterprise owners to a control group (n = 500), a leading business training program (n = 500), or a personal initiative training program (n = 500). Four follow-up surveys tracked outcomes for firms over 2 years and showed that personal initiative training increased firm profits by 30%, compared with a statistically insignificant 11% for traditional training. The training is cost-effective, paying for itself within 1 year.

In the second study, after a brief business skills training session, an organization in Nigeria funded a large-scale business plan competition. The winners of the competition, which included over 1,000 business owners from over 24,000 applicants, received a grant of about $50,000 on average. This study aims to answer the very basic but also provocative question, “what would happen if we just gave all the money used to organize and implement business training programs directly to entrepreneurs instead?”

Perhaps unsurprisingly, since I’m blogging about this study, the business plan contribution lead to very positive outcomes. Not only did firms that received a grant show more resiliency to economic ups and downs, but they also significantly expanded employment. A jaw-dropping stat comes from the American Economic Association write up: “Experimental winners were about twenty percentage points more likely to have ten or more workers than their counterparts — a result that is especially significant in Nigeria, where 99.6 percent of companies have fewer than ten employees”. Here is a link to the study, recently published in the American Economic Review, and the abstract:

Almost all firms in developing countries have fewer than ten workers, with a modal size of one. Are there potential high-growth entrepreneurs, and can public policy help identify them and facilitate their growth? A large-scale national business plan competition in Nigeria provides evidence on these questions. Random assignment of US$34 million in grants provided each winner with approximately US$50,000. Surveys tracking applicants over five years show that winning leads to greater firm entry, more survival, higher profits and sales, and higher employment, including increases of over 20 percentage points in the likelihood of a firm having ten or more workers.

Not only are these studies well-executed, but they provide accessible lessons for lots of people working hard to improve outcomes of small businesses around the world. The first study shows that there are potentially huge gains to be realized from experimenting and iterating with the content of business skills training curriculum. The second study shows that reimagining how governments and development donors spend money on small business development can also lead to much needed benefits.

Both of these lessons are important considering that these programs tend to be relatively expensive. For example from 2002 to 2012, the World Bank invested $9 billion dollars across 93 business skills training programs around the world. These studies imply this money could have been spent much better. The good news is we can learn from these studies and do better in the future.

On Sweatshops and Industrial Development (in Ethiopia)

One of the cool things about blogging is it documents how one is thinking (and how these thoughts have changed) over time. Back in 2015 I wrote a post entitled, “So the garment industry makes you uncomfortable…” It was my reaction to a wave of guilt being tossed around about participating in “fast fashion” and buying clothing made in sweatshops. At the time, my thinking was basically, “Well if you think sweatshops are bad, you should see the alternatives – the situations those who willingly accept sweatshop jobs are coming from.”

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Debating the DRC’s Development

I’ve been reading a lot more about the Democratic Republic of Congo (DRC) recently (more on this to come, I hope). To that end, there has been a fascinating debate in Foreign Affairs about the plight of the DRC. It has been a while since the last time I summarized a development debate, but I think it will be helpful to summarize what is going on here.

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[Film Review] Poverty, Inc.

poverty-inchPoverty, Inc. is a new documentary* that draws attention to the flaws in the modern global aid and development industry. The film itself is quite well-made and is high in production value. For a documentary about failed attempts to aid the poor and the development of societies it is actually a remarkably engaging film.

The documentary begins by calling for reform in the US global food aid system. The film demonstrates how food aid is distributed around the world in a way that largely contains the benefits within the United States. We package up our surplus (and subsidized) agricultural products, ship them across the world on US ships, and giving them out for free in countries that are primarily agricultural based economies. As I’ve blogged before, the evidence is clear: the most effective way to help hungry people around the world is by providing cash, electronic transfers, or by purchasing food locally.

The film then moves on to the most common critique of foreign aid: pointing out that aid that goes directly to corrupt governments does very little in the lives of the poor and (perhaps) makes the whole situation worse. By providing governments with revenue, the need for the government to be accountable to its electorate is diminished – causing a weakening of “the social contract” between governments and their people. This may be called the Angus Deaton critique of aid

Next, the film tells the story of the perverse incentives orphanages create for poor families in poor countries. Orphanages are numerous in countries like Haiti and they may be actually pulling families apart. By offering to care for children in poor areas, it may be in the best interest of a poor family to give their child up to the orphanage. This effectively exacerbates the problem those who run orphanages are explicitly trying to help solve. Although this reality is well documented, orphanages continue to be popular among rich “do-gooders”.

Finally, the film stresses that real and meaningful change occurs with the change of existing institutions (i.e. change in the “rules of the game” as Doug North would say). Most who work in development, when they are being most honest, would agree that the primary reason why some countries are rich and others are poor is due to political institutions: i.e. rule of law, authoritarianism vs. democracy, judicial systems, ect. 

By raising awareness of these flaws in the global aid system, I greatly appreciate this documentary, as these issues are presented in a clear and meaningful fashion. I do, however, have two key critiques: First, none of these flaws are all that novel to those who are actually working in the aid and development industry, and they actually fail to mention the flaw that (perhaps) underscores everything that is mentioned above. Second, the film focused only on the flaws of the current system and fails to mention what the aid and development industry (perhaps miraculously) has gotten right over the years.

TOMS Shoes: When Theory Doesn’t Hold in Reality

The film makes the case that aid doesn’t work, and may be hurting those it should be helping. This is a real concern, but the film doesn’t share much in terms of real evidence or rigorous analysis. This lack of empirical evidence allows for mistakes to slip into the film.

For example, the film takes quite a bit of time explaining why TOMS Shoes, while well-intended, actually damages the local economies where the shoes are donated. This explanation uses solid and well-developed theoretical economic logic: local shoe businesses can’t compete with free, so when TOMS Shoes gives away free shoes the local shoe market suffers. Although this theory is solid, it is worth actually performing a study in order to understand if this theory holds up in reality.

Three economists from the University of San Francisco performed such a study and recently published it in the peer-reviewed Journal of Development EffectivenessThe findings of the study are surprising, given the sound logic in the paragraph above. They find no statistically significant effects on the local labor market, in rural El Salvador, due to the donations of TOMS Shoes. There is a small effect, about one fewer pair of shoes demanded and sold locally due to 20 pairs of TOMS Shoes donated, but this effect is so small (and not statistically significant) that it hardly warrants the mass prevention of shoe donations.

The key take-away from this is that shoe donations, specifically, and aid, in general, ought to be targeted to those who actually need it. In the case of shoes, those who donate shoes should be careful not to give shoes to people who would otherwise pay the going market price for shoes. In many communities, however, there are lots of people who both need shoes and can’t pay the market price for shoes that would benefit greatly from the donation of good quality shoe donations.

Foreign Aid: A Simple Cost-Benefits Analysis

Although it may be easy to point out aid and development spending that may have not generated genuine economic growth and poverty reduction, the benefits from aid and development can be so huge, when it is spent well, that the benefits may still outweigh the costs using typical cost-benefit practices.

For example, the eradication of smallpox around the world. (An example brought to my attention by William MacAskill on a recent EconTalk podcast.) Suppose, just for the time being, that all forms of aid had no benefits except for aiding in the eradication of smallpox. Before smallpox was eradicated it killed a recorded 300 million people globally. Since its eradication, in 1973, roughly 100 million lives have been saved. To put that number in perspective, that’s more lives saved than would have been saved if we achieved world peace in 1973. Now, if you crunch the numbers, counting how many lives were saved in terms of how much money has been spent on foreign aid (remember, we are assuming there have been no other benefits of aid since 1973), you’d concluded that it cost roughly $70,000 per life saved. To put this calculation in perspective: standard cost-benefit analysis within the United States government rests on the assumption that a life is “worth” saving if it can be done with a price tag of $7 million or less.

The key take-away from this is there are huge benefits to foreign aid, particularly in the sphere of global health. To make the case against spending foreign aid, it is not a sufficient argument to simply point to projects or policies that seem to have not produced benefits. Like most topics in public policy or business administration, the benefits must be weighed against the costs. In the case of human development and poverty alleviation the potential benefits are so large that the seemingly high costs are often justified.

Innovation in the Aid Industry: Cash Transfers

When the film presents the current reality of the global aid and development industry (pictured below), the newest, and perhaps, most exciting innovation in the last decade is omitted: direct cash transfers.

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Inserted into the figure above, direct cash transfers create a line of little green arrows from the yellow group of people (presumably rich people) directly to the red and orange people (the “people in poverty”). No taxes, no donor nation governments, no developing nation governments, no egotistical NGO development project. Through organizations like Give Directly you can send money from your bank account directly to the mobile money (i.e. MPESA) account of the extreme poor all around the world.

When thinking about the power of direct cash transfers consider the idea of diminishing returns. It seems wellbeing and income are related to each other, approximately, by the logarithmic function. Whereas no matter how much money you have, doubling your income will provide the same amount of gain in welfare. This means that for someone who makes $2 per day, giving this person an extra $2 per day will do approximately as much in terms of wellbeing as giving someone who makes $200 per day an extra $200 every day. 

The most remarkable detail about this omission is that (at least) the director of the film seemed unfamiliar with direct cash transfers when asked about them by Russ Roberts while a guest on the Econ Talk podcast. While this critique borders on ad hominem, this is not my intention. It is rather stunning and relatively disappointing that the director of a documentary about the modern aid and development industry, “hasn’t spent a lot of time thinking [about cash transfers]”. Particularly because talk about cash transfers has been so common in recent years. A couple years ago a large study was done on unconditional cash transfers in Western Kenya – paper here, media coverage here, here, here, here, and here. Additionally, the most famous cash transfer program is Mexico’s school attendance conditional cash transfer program, Progresa/Oportunidades  – one of the many papers here, more information here, here, here, here, and here.

The key take-away is that the aid and development industry is still evolving and improving. In fact, the increased use of direct cash transfers could help improve the flaws in the global food aid system, mentioned above. Some have suggested that direct cash transfers should serve as “index funds” of sorts for the aid and development industry. If your program is not doing as good or better than just giving all the money needed to run the program to the poor then, maybe, it’s time to make some changes to the program.

Conclusion: The Root of the Problem with Aid

To conclude this review, I’d like to highlight what may be the largest and most fundamental flaw in the aid and development industry as it was largely left out of the film: the extreme lack of evidence and rigorous feedback in decision making, program design, and management of NGOs.

The world is a complicated place. As is demonstrated above through the case of TOMS Shoes, well-developed theory and sound logic can only provide so much clarity about what will work and what won’t in various contexts. In order for aid to actually be effective data need to be collected, feedback needs to be heard, and impacts need to be measured. The problem with most NGOs, and the key reason why Haiti remains poor despite the overwhelming number of NGOs, is because these organizations often don’t do anything as far as collecting data, gathering feedback, or rigorously measuring impact.

I understand why very few NGOs spend time and money measuring impacts and collecting evidence. Doing so in any sort of rigorous and honest manor requires a lot of humility and courage. It is perhaps natural for us to want to live a (fictional) world where we know we know how things work. Admitting our own faults is often one of the most difficult challenges we face, but learning from failure and iterating through trial and error is simply the most effective problem solving strategy at our disposal. 

The Poverty, Inc. documentary tried to make the case for so-called market-based or business solutions to poverty around the world. This recommendation glosses over the primary reasoning behind the preference for the private sector over the public sector. The main reason why the private sector drives innovation and progress is because it is constantly receiving feedback vis-a-vis the market. The public sector, on the other hand, has a very slow (and sometimes nonexistent) mechanism for feedback and therefore lacks innovation and progress. Aid in and of itself is not bad or ineffective, it’s the lack of feedback caused by the lack of commitment to evidenced based management that makes much of global aid to be bad and ineffective. The challenge of poverty is that it often rests outside the scope of markets and private sector businesses. The poor can’t “entrepreneur” themselves around bad leadership or bad policies, rather it’s good leadership and politics that needs to create an environment for entrepreneurship to flourish.

In recent years, the idea that aid given to foreign countries is “bad” always seems to gain a lot of traction. I’ve never quite figured out why so many people are set on painting with such broad strokes when it comes to solving one of the world’s most persistent puzzles. The aid and development industry needs more evidence not less financial support. The last thing that is needed would be for public support of foreign aid to wane in years to come. In light of the flaws highlighted by Poverty, Inc. and the key points of this review, perhaps the most concrete task to be done would be to call your member of congress to voice support for the Foreign Aid Transparency and Accountability Act.

* A disclaimer: I personally know many of the people who were interviewed in and who were involved in making this film. While in college and for a year after, my work was affiliated with Partners Worldwide, who assisted film-makers for this project. During this time, I assisted with some preliminary research for a book about Haiti with two administrators, worked for a few months with several of the folks in Ghana (I’ve actually been to the pineapple plant shown in the film), and spent a year in Kenya working with the organization full time. Although I remain friendly with many of my former colleagues, I’ve tried to keep this review as objective as possible.

By not measuring impact, NGOs are abusing their power

That’s the title of a recent article over on The Guardian’s “Secret aid worker” blog.

Needless to say, endless evaluation is an impossible idealism. Funding is tight so why should NGOs invest precious revenue in costly impact evaluation when nobody is paying attention and flimsy statistics can be passed off as watertight findings? Eloquent websites and lengthy annual reports allude to responsible practices but often offer little substance. Many NGOs state a focus on “breaking the cycle of poverty” and report “a lasting impact” on families’ lives without any evidence to back up such claims.

Other NGOs may assert that X% of families have crossed the poverty line over the past couple of years. Often these figures are based on passing the World Bank’s $1.90-a-day threshold or using tools such as the Progress Out of Poverty index (PPI). However, neither NGOs, nor the families they serve, exist in a vacuum. Yes, these families may no longer technically be impoverished, but attributing an extra dollar a day to your NGO’s recent microloan or an extra couple of points on the PPI to your workshops on family planning is inaccurate and unprofessional. Correlation is not causality.

Then there’s this:

Frustratingly, while our own evaluation gap grows, more focus is put on the experience of volunteers. Interestingly, they are surveyed at the end of their placement, unlike the families who leave our programme. Positive feedback provides a flashy quote to excite future volunteers, while negative feedback is largely ignored.

There is no substitute for a robust impact evaluation of your programme. This does not have to be done annually; mixed-methodology research, where you compare a group working with your NGO with a group that is not, can be achieved in a relatively small time frame.

Finally:

None of this is to question the goodwill of many NGOs but goodwill is not, nor will ever be, sufficient. NGOs that are unable or unwilling to provide strong evidence of the impact they are having are, at best, a considerable waste of time and money. What seems a lot more certain is that many NGOs are continuing to provide noble career paths and selfless volunteer placements for the more fortunate, while simultaneously servicing the local population with untested and meagre programmes.

Any change of approach will have to originate from within the international NGO community, otherwise for as long as this status quo rumbles on, so will the ugly questions of neo-colonialism and white privilege that often circulate around this kind of work.

Yikes! As Paul Niehaus said on Twitter, “This took courage to write…“.

But, I have to agree with the point the author is trying to make. The majority of the international NGO industry is built and supported by a system that is devoid of rigorous evaluation. It’s largely predicated on feelings rather than facts, simpleton good intentions, and hubris rather than humility. This is not to say that every NGO or individual who works in the aid and development industry doesn’t care if their work is worth the time or money. I’ve worked with several great individuals who were willing to put the value of their work on the line by measuring impact.

Also, there is change in the wind. A new bill is actually moving through congress (!) that could (maybe) change all this for the better. The Foreign Aid Transparency and Accountability Act would drastically increase the standard of evaluation within the aid industry. (Well, just within USAID, but they are the largest aid and development donor in the world, so it’s a good place to start.)

Additionally, yours truly will be spending this upcoming summer in Washington DC at the U.S. Global Development Lab within USAID working with the Office of Evaluation and Impact Assessment. I’m not sure I’ll have a huge impact, but I’m determined to make it worth the time and money.

Poverty Traps, Real or Imagined?

This past week in my class on Agriculture in Economic Development (taught by Dr. Nicky Mason and Dr. Saweda Liverpool-Tasie) I presented Michelle Adato, Michael Carter, and Julian May’s 2006 paper on poverty traps and social exclusion in South Africa (sorry, it’s gated, but my slides are here) published in The Journal of Development Studies. As part of the discussion following my summary of the article I posed the question to the class, “Are poverty traps in South Africa real or imagined? And does it matter?”

To bring those who are not in the class up to speed, here are some facts and figures (from Adato et al., 2006) about poverty and wealth dynamics in South Africa.

Post-Apartheid South Africa is characterized by extremely high income inequality and extreme social polarization. Importantly, these two realities are (almost perfectly) correlated with each other. As an example of this reality (in 2001, at the time of the study), the HDI (human development index) for black South Africans was roughly that of the HDI of Zimbabwe while the HDI of white South Africans was roughly that of the HDI of Italy. Big difference!

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In this table several points reveal themselves. First, we see from the basic poor/non-poor distinction it seems a greater number of the surveyed population is living in poverty over time (or at least from 1993 to 1998). Digging deeper, we see that 18% of the surveyed population was poor in both 1993 and 1998 while 35% of the surveyed population changed poverty distinctions between 1993 and 1998. Finally, a large share of the “chronically poor” simply don’t have the stocks of assets one would expect is needed to break free from poverty, and those who fell behind over the time period did so because of some sort of lose of productive assets.

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This figure presents the results and implications of the Adato et al., (2006) paper. Here we see the existence of a low-level poverty trap at about 90% of the income (consumption) poverty line. Additionally, there seems to be a Micawber Threshold (named after the Dicken’s character Wilkins Micawber who can never break free from poverty) at about twice the income (consumption) poverty line. What this means is that those who have asset holdings below the “Micawber threshold” can be expected to converge on the poverty trap while those who have asset holdings above the “Micawber threshold” can be expected to converge toward a non-poor equilibrium over time.

What this means in simple terms is that for some people in South Africa, time is on their side. As the days, months, and years go by they will experience an increased and more freeing level of livelihood. For other people in South Africa, time is not on their side. As the days, months, and years go by they will not experience an increased and more freeing level of livelihood.

This analysis seems to be demonstrating that some people in South Africa may be effectively trapped in poverty and that the end of apartheid did not pave the road out of poverty for them. To belabor the point, liberalizing political policies did not bring with it the levels of livelihoods commonly associated with liberal democracies. The question remains, what is causing these people to be trapped in poverty? Why don’t we see time working for them?

In a different paper Michael Carter and Chris Barrett (2006) state that poverty traps can form when there are increasing returns on investments as incomes rise and when credit and insurance markets are out of reach of the poor. Those are certainly very probable causes of the poverty trap in South Africa, but what if returns on investments were not increasing with wealth (what if returns were decreasing!) and what if credit and insurance markets were available and accessible for the poor in South Africa? Could there still be a poverty trap?

A growing number of development economists are saying “yes”.

Consider the case of South Africa a bit more closely. Say I’m a black South African. There are many investment opportunities that I have access to that would most likely improve my future well-being. I still might not actually take up any of these investments. Why? Because the social situation around me has failed to develop and nurture the aspirational hope and human agency necessary for such behavior.

So are poverty traps (in South Africa) real or imagined? Well, it’s been demonstrated how real poverty traps (increasing returns on investments with wealth and limited access to credit and insurance) may significantly determine poverty and wealth dynamics. An emerging literature is forming, however, on how imagined poverty traps may also play an important role.

Reforming Global Food Aid

A small but important slice of the US federal budget contributes to global food aid intended to help the hungry around the world. Recently the House Foreign Affairs Committee held a forum to discuss reforms. The panel of experts included former US Secretary of Agriculture Glickman, former Chief Administrator of USAID Dr. Rajiv Shah, Professor of Applied Economics at Cornell University Dr. Chris Barrett, and President of Bread for the World David Beckmann.

Here’s a brief summary of the points made by each of the panelists:

Mr. Glickman:

  • Providing food to those in humanitarian conflicts is extremely important.
  • The US historically has provided about half of global food aid.
  • The food aid program no longer provides benefits to the American agricultural system as it once did.
  • Therefore reform of US global food aid will not negatively impact US farmers.

Dr. Shah

  • We have evidence that cash vouchers saves more lives and is much more effectives than sending food abroad.
  • US global food aid needs more flexibility to meet the needs of any given humanitarian situation.
  • Our discussion today is possible due to the ability to test and collect data.

Dr. Barrett

  • The current restrictions on US food aid waste tax payer money at a human cost.
  • Inflation adjusted US food aid has decreased by 80% since the 1960s.
  • The evidence is clear: the most effective way to help hungry people around the world is by providing cash, electronic transfers, or by purchasing food locally.
  • Every dollar spent on US food aid generates only 35-40 cents of food purchased. The rest goes to shipping and handling. For sake of comparison Canada gets about 70 cents to the dollar spent on their food aid.
  • This translates to a conservative estimate of 40-45,000 children’s lives lost per year.

Mr. Beckmann

  • The world is experiencing a current surge in humanitarian need and the resources are not keeping up with the need.
  • Food aid is no longer important to American agriculture. What is important to American agriculture is the vast reduction in hunger and poverty
  • The progress we are making globally in reducing hunger and poverty is nothing short of remarkable, but the job is not done.