Poli-Econ Final

Resources and Dictatorships

'No Taxation, no representation' Revenue from natural resource exports mean that countries don't need to tax income (seen in Saudi Arabia or Qatar) Not being taxed means citizens do not demand representation - your connection to politics is severed which gives you less interest in the government Immobile asset effect (agriculture or resource wealth) Cannot be easily hidden, and is more easily taxed/expropriated than mobile assets Because natural resources are easily taxed, the assed holders engage in preemptive actions like: Capturing state institutions to protect their goods Crush any democratic movement that threatens to redistribute wealth Evidence: 80% of countries with a GDP per-capita above $8000/year that DO NOT EXPORT oil are democratic, whereas 20% of oil exporters are democratic

Criticisms to Staple Theory of Growth

'Structuralists' such as Singer and Prebisch claimed that a decline in the terms of trade would widen the wealth gap between the rich and the poor - the rich have access to land and so can better benefit from the exports and eventually the loss of beneficial terms of trade with fully developed goods would lead to an increased gap between rich and poor Primary product prices would fluctuate widely because they are more dependent on environmental factors - this leads to surpluses or shortages for things like food and agriculture This isn't as true for things like oil and gas, but these are also highly volatile because consumption of it is very sensitive to price - you will buy less gas when it costs more - plus there are issues with exhausting resources, new inputs, and environmental effects Finally, the resource sector is highly dependent on multicultural corporations which are unlikely to promote growth if these corporations were able to repatriate profits instead of investing - this makes these countries very dependent on other countries for investment flow (and if not investment, then lending) - and makes them dependent on the U.S. as a provider of capital goods instead of developed goods This led to import substitution in Latin America based on borrowed capital

Two Parts of Dutch Disease

1) Direct effect A resource boom shifts investment capital towards the booming (resource) sector Workers move from manufacturing to resource extraction Note: Some kinds of extraction employ few people 2) Indirect effect: Extra revenue is generated from the booming sector which increases domestic demand and this leads to an increase in the domestic price level Capital flows into a booming sector leads to a depreciation of the countries currencies When the currencies are appreciated the result is the exported manufactured goods become more expensive and thus less competitive

Hawthorne and John Henry Effects

1) Hawthorne effect = evaluation causes treatment group to change behavior - if you know you are being monitored you will say different things - those in the treatment group will change their behavior 2) John Henry effect = evaluation causes control group to change behavior Suppose in treatment village, knowing they are being 'monitored' the villages begin to save more, work harder, start more businesses. Etc? Could happen in Control group too Solutions? Limit the physical presence of program staff to avoid the outsider effect

3 Methods of Evaluation

1) Non-experimental Pre and post survey - a retrospective survey - how are you doing now? 2) Quasi-Experimental Trying to control for selection and creating counterfactuals - matched comparisons, natural experiments, controlled case studies, cohort studies, etc. 3) Experimental methods Require randomized trials If this is done well it can be quite simple since it is just looking at averages

Threats to Validity for RCT's

1) Problem of non-random assignment 2) Non-compliance 3) Unstable control conditions 4) Attrition 5) Behavioral Effects

Critiques of RCTs

1) They have a strong bias against finding 'zero effects' Managers and agencies avoid these evaluations Publication bias against zero effects 2) Randomization always involves 'pre-selection' (what about those who do not choose to participate?) and only really investigates two effects 3) Policymakers care about much more than ITT and ATT Did the program roll out as expected? Did things change if/when the program was 'scaled' up? How did the program affect the broader economy? 4) Some things vital for development cannot be 'randomized' Infrastructure Policy reforms

How to conduct absolute poverty measure

1) choose a global poverty line threshold 2) Convert this into a national poverty line (need data on prices relative to a base year to update for each year) 3) Rank surveyed households by income or consumption 4) Perform a headcount to measure the poverty gap

The Green Revolution

1940s - Rockefeller Foundation launches research to help improve agricultural yields in Mexico Led Normal Borlaug to create a pest and disease resistant version of the wheat crop He spreads this in Mexico and increases yields and then in the 1960s, he joins in a joint effort in Asia through hybrid sees, fertilizers, and pesticides And this led to faster growing, high yield crop varieties that were pest and disease resistant This led agricultural yields to take off This has lead to a dramatic drop in famine deaths in terms of annual rates of deaths

Aid Allocation

A lot of it isn't going to the country itself, but instead is going into technical cooperation, debt relief (which is important but doesn't go to a beneficiary), emergency aid, and administrative costs, along with food aid So once you remove all these types of aid spending, you are allocating 40% less over the last 5 years Of the amount actually targeted to aid-funded projects, another 30% is spent on overhead costs, due to corruption and leakage So out of the $120 billion of aid disbursed per year, less than $40 billion actually went to projects

Relative vs. Absolute measures of inequality

Absolute or relative? - Relative inequality is all about ratios - Absolute inequality is about differences - Period 1: Two incomes: $1,000 and $10,000 per year - Period 2: these rise to $2,000 and $20,000 - Here relative inequality (10:1) is unchanged - Absolute inequality has doubles ($9000 → $18,000 gap)

Why Sharecropping Persists

Agriculture is less about utility maximization and more about stability seeking behavior - people in agriculture tend to be very risk averse This is because there is such a lack of diversification in farming which means any loss to the system can't be easily made up for with other industries - all of the eggs are in one basket and so any increased risk to that 'basket' is avoided So sharecropping is a compromise where the landlord assumes some of the production risk whereas with a rented plot of land all of the risk is on the shoulders of the tenant farmer Agricultural production is risk so behavior in this field is much more risk averse This risk comes from weather risks; attacks from pests; other random factors like fire and wind; price volatility Under a fixed-rent contract, there is a serious risk of losing the entire rent amount But in sharecropping, however, both parties win or lose if there is an agricultural shock So both parties could do better but they are willing to tradeoff profit for a reduction of risk

Argument for Aid Helping Growth

Aid can also increase worker productivity Aid can be used to improve technical abilities, education, and improve health (these are direct effects) It can create technology transfers (these are indirect effects) If you are moving from using labor intensive methods for construction to capital-intensive types of construction this will presumably involve technology transfers This can be seen in things like the Green Revolution - the provision of high yield seeds for agriculture Along with the import of capital goods Aid can help transfer knowledge from richer to poorer countries too

Argument for Aid Having a Conditional Effect on Growth

Aid helps growth, but only under some conditions It requires that the recipient country maintain certain characteristics: 1) good policies (Burnside-Dollar) - Good fiscal policies (budget balances) - Price stability (low inflation) - And Openness to trade Countries with these policies have seen benefits from aid, while other have seen negative effects 2) Better protection of civil liberties (although this data is limited so doesn't seem at true) 3) Other characteristics - how vulnerable the country is to climatic shocks, terms of trade shocks, trade policies, types of government, etc.

Negative Aid Shocks

Aid isn't generally a source of conflict (although it has been diverted for military sues in some countries), BUT negative aid shocks (decreases in aid) can shift the balance of power in favor of insurgency groups, AND democratizing states which are receiving democracy aid are less likely to undergo conflict

Argument for Aid Harming Growth

Aid recipients cannot 'absorb' aid: These are small economies without institutional capacities to manage and monitor aid domestically - too much aid to be used effectively - like drinking from a fire hose Do not have the infrastructure or delivery systems (schools, clinics) needed to utilize aid Much aid will 'leak' out in the form of corruption and waste Effect on investment: Aid finances inefficient public investments (white elephants) Reduces private incentives to improve productivity Savings: Reduces domestic private savings by lowering interest rates Reduces public savings by encouraging government consumption Aid can create economic imbalances: Dutch disease due to currency appreciation - aid can create an 'artificial natural resource advantage' Food aid can reduce prices and hurt farmers - the way that most donor countries deliver food aid is by bringing sacks of food - but this has horrible effects on domestic food markets because in poorer, heavily agricultural economies suffering from food shortages prices get significantly reduced which harms farmers and thus harms efforts to revive domestic agricultural systems Thus, food aid would be more effective if it was delivered in the form of cash, instead of in the form of actual food That way people can buy food instead of suppressing weak agricultural markets There is a political reason why we would prefer to provide food because it subsidizes farmers - it gives money to domestic farmers instead of farmers in the starving countries As a result of all of this, aid makes governments 'aid dependent': This happens over the course of decades as these harms accumulate - governments becomes incapable of mobilizing their domestic resources

General Principles of Inequality Measures

Anonymity principle - If two people swap incomes income inequality should be unchanged - Population principle - If population doubles, income inequality should be unchanged - Relative income principle: - If everyone's income doubles, inequality should remain unchanged - The Dalton Principle: - If a transfer is made from a relatively poor to a relatively rich person, inequality should increase

Effect of different poverty reduction approaches

Anti-poverty programs that have a lot of different fascets show a positive net poverty reduction and a value of impact that is substantially more than the cost Subsidy and fee waiver programs tend to be the worst for poverty reduction because they incentivise over consumption Unconditional cash transfers seem to leak to the non-poor Public works programs can be very inefficient - digging a hole and then filling it in - giving people income but not helping anything Conditional cash transfers have shown tremendous benefits, along with asset programs (which increase savings but not income)

Arguments Against Dutch Disease

Assumptions of Dutch Disease: In order for resources to be diverted, the quantities of labor and capital have to be fixed (forcing the shift from one industry to another) But in reality, resource booms usually draw in new foreign capital and migrant workers Domestic and foreign manufactured goods are perfect substitutes But in reality manufacturing in poorer countries are different than those in richer countries They rely more on intermediate goods, not finished goods And intermediate goods become cheaper as the exchange rate appreciates - importing inputs to industries can be easier with appreciating exchange rates

ATE

Average Treatment Effect - the Difference between the treatment for control and treatment for treated If there is full randomization and full compliance then: ATT = ITT = ATE

ATT

Average Treatment on the Treated The effect of intervention on those who actually receive treatment If there is perfect randomization ATT = ATE

Bates Urban Bias Thesis

Bates took Lipton's more naive Urban Bias thesis, and added a political-economic layer Food production problems (especially in sub-saharan africa) were the result of discrimination against small holders This was aimed not at industrialization but at preventing unrest in towns and cities Farmers, being rational, would respond by under-producing; and governments compensated by subsidizing farms or taking over agro-business or importing food This functioned through marketing boards and state revenue Traditionally, agricultural production in PPEs was managed through state-owned marketing boards These boards tend to have Monopolies in domestic markets Monopolies in commodity exports Local producer prices and usually kept well below international prices; crops sold at over-valued exchange rates → allowed governments to pocket the difference → thus governments were able to pocket the difference while giving very little profit to poor farmers → marketing board is purchasing things for much less than they are worth, and selling them for more they are worth, and so are able to make profits from the management of the export industry This system was very popular in the 1960s but by the 1970s subsidies in commodity production + heavy overhead + administrative costs + transport /storage = huge tax burden, which marketing boards had a harder time covering Thus, even though these boards started as very profitable, all of the additional costs that had to be paid to maintain this ended up decreasing the profits (as aided by falling prices at times, which also decreased levels of profit) Marketing boards responded by trying to increase producer prices, but keeping consumer prices low, which reduced their revenues

Two Approaches to International Poverty Measures

Benchmark Dollar Line: Comprehensive and global and consistent and comparable The $1/line began as a mean of national lines, but there is nothing wrong with countries changing in calculation Also, India and China will distort global picture In all cases we need to revise measures based on data Relative Poor-country line: Global line should be based on the mean national lines in the poorest countries, weighted by population A poor-country line will have better continuity with past measure since it would be insulated from PPP revisions For whom are these numbers intended? For Developing countries themselves or global help groups?

Problem With Burnside Dollar Finding

But when Rudman and Easterly tried it with more data, the effect disappeared - they conducted a robustness effect - when you added more data, the correlation didn't work, which means the evidence is weaker

Poverty Reduction and Growth

Change in poverty can be both to growth or just from redistribution - either you income is growing through growth in the economy or it can just be transfers of wealth (including things like remittances) Inclusive growth = the goal of poor countries is poverty reduction + growth In other words, relationship between poverty reduction and growth depends on redistribution (and therefore initial inequality) Dollar and Kraay (2002), 'Growth is Good for the Poor' - idea that growth will take care of the poor - created a push to let the poor help themselves through the benefits of international growth Unfortunately, evidence doesn't support this There is no clear relationship between growth and changes in inequality

'South-South' Assistance

China, India, Venezuela, Russia, Saudia Arabia They 'do aid differently' More 'programmable' aid - not budget support but usually money for project and programs Mostly foreign and commercial policy driven - providing aid to countries with geostrategic importance, or allies) More tied aid without budget support Less conditionality (very little interference - no requirement to show audits or demonstrate viability, etc.) China as donors Does not publish ODA Grant aid is likely around 2 billion a year But we have no information on concessional loans (which may not qualify as ODA) Estimates are about 4-5 billion in total aid (ODA plus non-ODA) Main focus: Construction, agriculture, education, health Aid is usually tied to Chinese contractors Principle of 'non-interference' which restricts conditionality Donors behave differently to this different provisions of aid -- generally the U.S. and west have been upset by these new approaches But it means countries have way more choices in terms of which countries they go to get aid, along with massive private organizations like the Gates foundation

Resources and Civil War

Collier - Resource wealth can contribute to the conflict trap Resource rents can finance rebel groups, criminal gangs, militias, etc. Conflict diamonds - rebel groups using resources and their revenue to fund insurgencies In settings where the rule of law is weak, resource wealth creates the opportunity for extortion and for 'protection rents' If you don't have the police there to enforce order, you rely on 'private' protection mechanisms, which can be facilitated by resource revenues Thus, only those who can pay have the safety of quasi-legal systems If these groups enrich themselves while the state's capacity to govern is limited, the resource curse can turn violent Evidence: Civil wars last a lot longer in countries with resource wealth - link is to the length of the war, not to the start of it

Two Requirements of Evaluation

Common challenge: Identifying causality - the direct impact of the program on participant outcomes Two things needed for good evaluation: 1) a well-defined counterfactual - what would have happened if the individual hadn't participated in the program - we need to study the outcomes for individuals that would have prevailed had the program not taken place (but where all other conditions were maintained). 2) minimal selection bias - i.e., when the selection of candidates for a program means that participants differ from non-participants in ways in which are not observable

Steps Governments Take to Avoid Exchange Rate Appreciation from Natural Resource Curse

Countries try to avoid this in many ways 1) Sterilizing currency inflow → for every dollar that comes in you can take a dollar out of circulation You can take a dollar out of circulation by using it to buy bonds or using sovereign wealth funds to reinvest capital abroad (building shopping centers, investing in sports teams, whatever) Then, when the economy tanks, they will liquidate their funds abroad and bring them home 2) Also work to encourage more investment in manufacturing 3) Protectionism - kind of the last option available in trying to control exchange rates

Arguments for Inequality not being harmful

Creates incentives for productivity - Implies opportunity in a global economy - opportunity for wealth gains - The rich are getting richer because they provide something of value - they are benefiting everyone else's lives - Inequality can increase if there are new technologies, inventions, resources, etc.

Causes of Famine

Crop failures, but this is a small part of the explanation Low agricultural productivity is a necessary but not sufficient condition Environmental degradation or shock Poor households are forced to overharvest if they are farming, which is destructive for the agricultural economy Lack of non-farm alternative sources of income All of these conditions are exacerbated by BUT MOST IMPORTANTLY BAD POLICY: Collectivization Exchange-rate regulations (marketing boards) Export taxes (excessive taxing) War and armed conflict Even during some of the worst famines there was plenty of food Starvation is an issue of not having enough food to eat, not of not having enough food period

Risk with High Yield Crops

Crops and Risk - moving to high yield crops increase risk variance in production which increases risk (even though the mean of production goes up) Food Security issues are also exacerbated by High yielding cops (HYCs) being difficult for the poor to use Perform well only only with significant fertilizer On non-irrigated lands, HYCs turn into LYcs when the rain fails On drought-prone land, HYC create yield instability In good years they can overwhelm markets In bad years, they can create famine For subsistence farmers the main motivating focus is survival So farmers prefer crops with low yield but also low variance because of its safety So crucial policy issues is how to reduce uncertainty Formal insurance on weather and prices Buffer stocks to minimize risk of famine Use of future markets Drought-tolerant crops

Challenges to New Green Revolution

Current arguments are we need a much greater focus on drought-tolerant crops But there are obstacles to this: Lower consumer demand for GMOs The patents are held by big multinational organizations like Monsanto which makes developing countries reluctant to engage with them and donors unwilling to fund projects they don't control Political resistance to agricultural investments in developing countries because of fears of export competition from developing markets

Overview of inequality

Current political instability throughout much of the world is based on issues of inequality - There are issues of inequality in much of the world and there are many questions about the role of inequality in driving populism and authoritarian nostalgia in countries throughout the world - Some facts: - The richest 85 people in the world own more wealth than the bottom half of the entire global population (85 > 3.6 billion people) - Income of the richest 1% = income of poorest 57% - Jeff Bezon, Bill Gates and Warren Buffet -- Their earnings in a year is greater than the combined GDP of the 48 poorest countries combined - In approximately 1 month they will earn more than 800 million of the world's poorest in one year

Economic Systems in Slums

Dharavi (Asia's largest slum right outside of bombay) We think of this as the epitome of poverty in an urban environment - mostly people who move to cities from rural areas for work who can't live in the city because of property restrictions But this is actually a thriving economic ecosystem Has around a million inhabitants; A billion in output every year; 15,000 single-room factories producing things like pottery and textiles; About 500 garment factories that sell their products to major retailers; 150 leather product factories; 100 printing presses; 85 export-licence shops (including one WHO approved surgical suture manufacture); 5 soap and detergent factories; Restaurants, bakeries; 90% own a television, 85% own a

Reasons for Giving Aid

During the Cold War it was very clear that the geo-strategic interests of the donors influenced aid decisions USA and Multilaterals were providing a third of global aid by the 1990s The things that increased your likelihood of getting aid at this time were being 1) a supporter of NATO, 2) being an anti-soviet state Matches Warsaw Pact military spending - west trying to match Soviet aid After the Camp David Accords, if you were Israel or Egypt you got a lot of aid Weak relationship between need and aid in this era - much more a question of geostrategic balance AFTER the Cold War (1990-) The Share from the U.S. has decreased significantly and lots of other countries are providing foreign aid Countries that were historical recipients of aid are now providing it Now, aid is more need based and more selective in terms of institutional quality Countries that control corruption get more aid - But there is much variance across donors For the UK and France, past colonies get a lot of aid, specifically in Africa For the US, being a US ally still matters For some other countries (Switzerland, Australia) - aiding blocs are more strategic at trying to create blocks of countries that they can rely on After Bush era, there was an association between poverty and state fragility

Distribution of spending for poor

Economic life of the poor - food is biggest share Has been declining (from 70% to 60% today) Because of inefficiencies (too much spending on sugar and costly foods) poor household could be getting more calories more effectively Poor spend 10%-30% of their budget on tobacco and intoxicants (alcohol, qat, coca, hashish, etc.) Poorest quintiles spend up to 10% on festivals (weddings, funerals, or religious) Could be to grow social networks in informal economies Could be the most accessible form of entertainment and leisure without major infrastructure This is a signaling mechanism to signal to the community that you should be taken seriously In richer countries, the poor spend highly disproportionate rates on things like the lottery - because it is mostly the poor who buy lottery tickets it detracts from the very groups that are supposed to be aided by lottery funds The lottery tax is going into schools but it is the schools in richer areas that have larger budgets and thus receive more in transfers in the budget - thus the lottery becomes a regressive tax where it is paid for by the poor and then funneled to the rich with better public schools Very little spending on education among the poor (<2%) - this is in part because they are sending their kids to public schools which shouldn't cost anything but little on supplies, etc. Very strong preferences for migration - about 80% would want to migrate but very few actually do migrate - you actually have to have some income to make the move As people rise above the poverty line their migration rates actually increases - you are lifting people from the very bottom to the point they have the assets to be able to migrate - actual migration increases as you go from the extreme poor to partly poor

Arguments for Inequality being harmful

Equality of opportunity may be harder to achieve in an unequal society - Social resource hoarding like in higher education - Inheritance - resource hoarding that transfers across generations - Thus, where you have inequality of outcome you can have inequality of opportunity - Can cause market failures because of imbalance of political influence - Can lead to monopolization and cartelization - Can Cause Government failures: - State capture comes about because people in positions of economic privilege use it to gain political influence - Government failures can lead to market failures - shaping government regulation against market failures - Can harm social stability, cohesion, etc. - Reducing inequality can enhance growth

Sachs and Warner on Resource Curse

Evidence: Regressions show that resource-abundance is associated with slower growth Even when controlling for geography, evidence shows there is a resource curse Why? Commodity price volatility makes growth volatile This is because there is more uncertainty which leads to shorter timelines of investment Less likely to invest in the stock market, etc. Governments also stop relying on medium term budgeting framework - instead they take advantage of resources flowing into the market when prices are high and then cut from crucial sectors (like education) when prices subsequently dropped - they do a bad job of limiting increased spending when prices get high and lack stabilization funds (required by the IMF) Getting these 'rainy day' funds is very hard to do politically Resource dependence is associated with bad institutions (i.e. in economies that rely on resource revenues, the tax burden domestically can be very low [or even non-existent at times]) Without taxation, citizens don't really demand stuff- leads to issues with accountability and credibility Natural resource extraction can also crowd out 'tradable' manufacturing activities; primary resources take up all the economic room even though manufacturing drives growth much more effectively than natural resources → thus focusing energies on natural resources harms development (DUTCH DISEASE) Resources are diverted into natural resource sectors away from everything else

The Two Components of Poverty

Fixed component: Expenditure necessary to buy a minimum standard of nutrition and other basic necessities Fixed across countries (cost of minimum adequate caloric intakes and other necessities) Variable component: Amount of consumption reflecting the cost of 'participating in everyday life' in society Varies across countries (e.g. indoor plumbing is a necessity in some countries and a luxury in others.)

Food and Alcohol Consumption among the poor

Food Consumption Food accounts for 56% - 78% of consumption among rural households, and 56 to 74% in urban areas Problem is that the extreme poor aren't optimizing on buying food with the greatest levels of nutrition Rice and wheat consumption is more expensive per calorie Spend almost 7% of the budget on sugar - more expensive than grains as a source of calories and no nutritional value Share of food in budget has been falling over the years Those in extreme poor are only consuming 1400 calories a day Only 57% said everyone in their household had enough to eat - 40% said there was a period of time where they didn't have enough food 40% report a household member requiring a doctor in the past month or being bed-ridden for a day 65% of adult men are underweight and 55% have anemia, 46% report severe or chronic illnesses, 1/7 have problems with vision or eyesight A lot of consumption goes into things like alcohol and tobacco Of people below the poverty line, the average household in Yemen is spending 60-70% of its budget on Khat (a chewable drug)

Financial Inclusion for the Poor

Fraction of rural poor HHS having outstanding debt ranges widely - 11% in East Timor, 67% in Udaipur, India, and 93% in Pakistan Leads to issues of farmer suicides This debt isn't just from borrowing to work in farms - also borrowing to migrate But very few of these loans from formal lending sources Come from informal institutions Come from friends and family or neighborhood money lenders Not about physical access, but cost (credit from informal sources is expensive) - even from microfinance institutions this can be very burdensome (see companies like Kiva with have interest rates like 19% or 33%) Informal interest rates are lower for land-owners because you can use the land as collateral Limited savings Difficult to find a safe place to save money and earn reasonable returns Few EPs HHs have banks savings accounts So poor save informally Savings clubs, ROSCAs, Self Help Groups, credit unions, etc. Middle East and North Africa have very low rates of banking For borrowing the problem is even worst Most people have never borrowed from a bank - sub 10% levels for the poorest in most regions Instead, people borrow heavily from friends and family when they are in poverty

Multi-Dimensional Poverty Indices

From people who made HDI, they also made Multi--dimensional Poverty-indices which looks at three dimensions of poverty - Health, Education, and living standards (but NOT income) Health = Nutrition and Child Mortality Education = Years of school and School attendance Living Standard = Cooking fuel (indoor pollution problems), Sanitation, Drinking Water, electricity, housing, assets You look at these because many anti-poverty programs tend to focus on influencing income

Singer and Prebisch on Agricultural Economies

Hand Singer and Paul Prebisch argued that long-run tendencies for the terms of trade to move against primary goods so those who rely on primary goods are 'screwed' Terms of trade is how much you can export in proportion to how much you can import Price of primary goods will decrease while the price of consumer goods will increase relative to the primary goods So argued we needed to get these countries out of primary product manufacturing

Birth of the Modern Foreign Aid System

Happened after the destruction of WWII Historically, the response of the victors after a big war is reparations (Seen in WWI) After the first world war the citizens of Europe didn't have the income to buy necessities → lead the Weimar government to inflate their currency → lead to hyperinflation → image of Soviet Bear coming down over the peaceful countries of Western Europe So in 1947, Marshall gives the commencement speech at Harvard where he talks about the need for a European assistance program - this is unheard of → you don't send money to the losers when you are a victor in war, you don't help them reindustrialize Marshall said the shadow of this emerging Cold War and that the income to produce necessities just wasn't there Lead Truman to sign the Marshall Plan (European Recovery Act) Marshall Plan works by providing cash transfers to European governments for specific purchases - financed purchase of infrastructure, food products, and other industrial goods About 15 countries received aid to a total of 110 billion in today's money between 1948-1951 Today the U.S. has a roughly 30 billion dollar budget for the entire world

Lipton Urban Bias Thesis (Naive Version)

Has four components 1) Rural areas of Primary Product Exporters suffer from too little (relative) spending on education and health (human capital) 2) People in rural areas are forced to pay a higher share of national taxes (notwithstanding the fact that taxes from rural areas are difficult to collect) proportionate to their output 3) Government-impose price distortions cause inputs into rural areas to be overprices and outputs from rural areas to be underpriced 4) Food is under-priced (through government subsidy), hurting net food producers (rural), benefiting net food consumers (urban) Add these things up → Distributional bias + price distortion = inefficiency

Headcount vs. Poverty Gap

Headcount = total number of people whose income is below a poverty line (index = headcount/N) Headcount index: Counts the poor below the line Ignores how intense poverty is Does not change if the living standards of the poor improve (as long as they are below the poverty line) Poverty Gap: How do you measure the depth of poverty? How do you distinguish between two countries with 10% poverty where one is close to the line and the other is far from it You use the poverty gap which is the difference between the poor's income and the poverty line (index = poverty gap/poverty line) Squared poverty gap = weighted poverty gap index (where the weights are the poverty gaps) This takes into account the inequality among the poor A transfer from the less poor to the poor reduces the squared poverty gap (SQGI) Poverty gap indices: Looks at the shortfall in living standards that would have to be compensated by pro-poor policies Alternatively it is the minimum cost for bringing the poor out of poverty through a targeted transfer (does not factor in distortions or other costs associated with the transfer program

Issues with Lipton Urban Bias Thesis

If this was true we should see higher returns in the small agricultural sector or rural non-farm sector than in urban-based industries because they are more capital scarce so should have higher returns (but this is false) The intersectoral terms of trade (trading farm goods with non-farm goods) should be biased against rural areas (but this is also not true)

Political Dutch Disease

In addition to the price effects, resource abundance can have strong political consequences Political dutch disease may cause: Short-sightedness among politicians who want to spend revenue on non-efficient investments Resource booms can increase the influence for certain groups of privilege Resource booms can weaken state institutions

Impact of Changing Food Prices

In rural areas, the rich and poor are more likely to be net food sellers So there is a big gap between those who live in the city and those who live in the countryside Change in welfare as result of change of food prices Change in food prices tend to harm urban livers because they consume the most - complaints about raised food prices are only limited to these groups Poor are the ones most effected by increase in food prices because they spend more of their income on food Whereas food price spikes actually benefit rural areas - so decreasing poverty could be linked to increasing price levels on food This is true for landowners, not the landless - the landowners are able to benefit across the board in many contexts through increases in food prices - so this can benefit all of the rural population and thus decrease inequality between rich and poor

Different Types of Inequality

Income inequality - Gets most attention from development specialists - 'Asset' inequality Ownership of 'capital' matters as much (and perhaps more) than income and earning Refers to both physical assets and human capital - Social inequality Inequality of status Inequality of opportunities Gender and racial/ethnic inequality

Benefits of Land Reform

Increases productivity - productivity gains if small farms are more productive and if owned land is better than tenanted land - so land reform can boost the economy Distributional consequences - decreases poverty and inequality - especially rural poverty Long-term institutional and political effects - more equal distribution of political capital if more have ownership of land - also increases social mobility opportunities

ITT

Intent to Treat The effect of the treatment on those who are eligible to receive it (or given the opportunity to receive it) If there is perfect Compliance ATT = ITT

Two Gap Model

Investment Gap and Trade Gap Still the main model used to identify how much foreign aid a country need Aid is used to fill the investment gap and Foreign exchange gap (for capital imports) Investment gap A minimum amount of investment is needed for growth and if that investment isn't available domestically than it has to come from abroad Recall Harrod Domar, where you need Foreign borrowing (F) if you don't have enough investment (I) Conceptually, if your banks don't have enough money for investments, you need to get money from abroad → you need to fill your gap from financial flows (the investment gap) trade gap you don't just need investment but need a certain amount of imported financial goods The trade gap = assume that investment requires a certain minimum amount of imported capital goods Under Foreign Aid programming models, foreign Aid should be provided so that the financial flow fills the larger of the two gaps So if your saving or investment gap is bigger than your import gap, that is the gap that needs to be filled

Difference between resource dependence and abundance

It is possible that poor growth and institutions are affected by resource dependence but not abundance Resource extraction may be the 'default' sector when the rule of law is weak Or bad economic development leads to resource dependence Using resource abundance as an instrumental variable for dependence (ration of resource of exports to GDP) leads to the 'curse' disappearing) Abundance = just pure access to natural resources, dependence = relying on these for a huge amount of your economic growth What explains abundance without dependence? Those who have the first and not the second all 1) had low levels of inequality at the beginning of the oil boom 2) Had private-sector, competitive markets in oil extraction rather than state-owned oil companies 3) Good government control Seen in Norway's public pension fund This is the largest public pension fund in the world, even though workers don't actually pay into it but instead oil revenues go into it which leads to revenues not going directly into the budget but instead going into long term savings

Agricultural Land-Market Failures

Land is unequally distributed - this creates an initial imbalance of wealth Land sales are generally rare Most sales occur from the poor to the rich elites Weak property rights (in comparison to other assets) Land is typically valued for more than its agricultural use Limited access to credit markets (particularly for the landless poor - DeSoto)

Land Tenure Systems

Land tenure: patterns of land access Examples: Tenancy: farms operated with rent paid to a land lord Sharecropping: revenue shared with landlord Communal farming: practices in Africa Collectivised agriculture: former Soviety Union and North Korea - public ownership of the farms These systems are almost always inefficient - they do not make the best use of inputs

Employment for the Poor

Lots of entrepreneurship 47% of the urban poor operate a non-farm business 25-98% of the rural EP report being self-employed in agriculture, 7-36%of the rural poor also run a non-farm business Remain involved in multiple occupations Working in stalls, in domestic service, in manual labor Most people in extreme poverty (EP) do all of these things - it is a portfolio of work Sometimes work in all of these jobs depending on opportunity Includes farming your own land and non-farm activities Rarely engage in specialized labor Most activities are small scale Landholdings are small Businesses remain small - the median business of the poor (and the EP) have close to no paid staff- operated by 1.4-2.6 people (most family) and have few assets (only 20% of businesses operated out of a separate room)

Micro-Macro Gap for Aid

Macro evidence of the effect of aid on growth is indeterminate But cross-region and cross-sector aid funded projects show high rates of return (so it seems to be working on a micro level) On the micro-level, aid seems to be working, but at the macro level we aren't seeing huge effects This is purely in financial terms - in returns on investment (not looking at social effects) This is explained by the level of things that 'happen in between' the micro and macro level Aid funded projects alter the income of beneficiaries, release equivalent amounts of public resources to be used for other things, and alters relative prices because now (food aid will change income and change relative prices in the food market) By releasing public resources to be used for other things, it allows governments to cut taxes, cut borrowing, increase expenditures for development, or increase expenditures for other things Thus, at the macro level, the policy decisions a government makes can change the benefits the country receives

Poverty Lines

Measuring poverty begins with fixing a poverty line = a minimally-acceptable standard of living below which an individual is deemed to be poor Advantage: simple, transparent, easy to understand, same standard for everyone Disadvantage: arbitrary, 'binary' Difference between someone at $1.89 and $1.91 is negligible but one is within the line and one isn't Types of poverty lines: Absolute International ($1.90/day) National (varies by country) Relative (bottom 10% of income distribution)

Types of Aid that aren't ODA

Military aid, peacekeeping, etc. Democracy promotion Social and cultural programs Refugee assistance Nuclear energy

Facts on Poverty

More than 700 million people (10%) of the world population, still live in extreme poverty = surviving on less than US$1.90 a day Employment isn't the key - 8% of employed workers and their families live in extreme poverty Disproportionately affects children (450 million) Disproportionately affects women - for every 122 women in extreme poverty there are 100 men High poverty rates are seen most in small, fragile and conflict-affected countries and sub-Saharan Africa 80% of the world population lives on less than $10 a day

Lewis Argument on Agricultural Economies

Most agricultural economies are Primary-product exporters (PPEs) meaning they do little processing of these products so there is low value added (VA) from products Main object is to urbanize and industrialize So how do we do that Urban-Industrial views of development W. Arthur Lewis → disguised unemployment (people who should be unemployed but are working - they are wasting time) in rural areas of poorer countries, where the marginal productivity of labor is low, so migrants to the city will find more productive jobs, and pull their families out of poverty (A two sector approach - agricultural versus urban sector) If you have migrant from one country with high unemployment going to a more efficient economy, that will help poverty in their home economy Productivity of workers from El Slavador or Guatemala increases eightfold if they come to U.S. because our economy better maximizes their labor output

NET ODA

NET ODA = Amount you dispursed - amount you get back (interest payments)

Effect of Natural Resources on Innovation

Natural resource abundance crowds out innovation and entrepreneurial activity in the non-resource economy if wages in the natural resource sector rise (strong evidence) - you have more scientific output if you have less natural resources, and the correlation is remarkably strong Non-resource rich countries have a huge correlation between increases in wealth and increases in scientific output, whereas resource rich countries see diminishing returns on increases in technology

Nominal Rate of Assistance

Nominal Rate of Assistance for a commodity = (the domestic price + any subsidy less world price) / world price So if the NRA is negative it means farmer-producers are being taxed because they could get a higher price internationally but aren't able to - an effective tax So if NRA is positive it means that consumers are being taxed - Farmers are receiving a producer price that is higher than the international price - this means it is more efficient to sell domestically than get involved in international trades NRA tells you about the price gap between domestic and world prices - can be due to either input or output prices Many economies have switched from taxation to protecting commodity markets

Easterly Critique of ODA

ODA is allocated by an outdated, obsolete, quasi-utopian mechanism that never worked in the first place ODA is provided without accountability with a focus on process and outputs instead of results, and as a result it has little benefits for a country while increasing dependence ODA cannot fix problems in states that simply have poorly functioning governments

Unique Impact of Oil

Oil seems to have a particular effect on the development of economies Highly volatile growth rates (see Russia and UAE) There is a high amount of gender inequality in oil dominant countries because women have less participation in the labor force (seen in the Middle East and North Africa) Oil production reduces the role of women in the labor force Women who don't work have less political influence Neighboring countries tend to be 'drawn into' the resource curse when you have oil This can be because of tariffs and fees on pipelines and gas transit which creates an opportunity for corruption (seen in Russian oil pipelines which run through the Ukraine, which allows Ukraine to extract rents on it) This can also be because of remittances from workers employed in oil fields which act as a source of rents for neighbors Petro-states have lots of petrodollars Instead of investing in human capital or domestically, these dollars tend to be invested abroad Petrodollar investment in bonds (along with Chinese purchases) is one of the reasons why the EU and US have benefited from low interest rates since the 1990s → may have lead to the mortgage crisis in the U.S. (low interest rates makes borrowing for property very easily, and property values began to go up) Failing oil prices sometimes prompts political liberalization, but only until prices start climbing again Economic and political reform tends to happen when oil prices are in the dumps, but these reforms only last as long as economic conditions are low and reverse Can lead to cultural backlash where political reform is associated with low economic ebbs and economic success can be associated with political corruption This is highly dependent on the length of the economic collapse and 'success' of the reforms

A New Big Push in Aid

Originally a big push in the 1960s and 1970s, and there are efforts to do this again Financial-gap models argue that financial inflows are needed in capital scarce economies to industrialize If private financial flows were not forthcoming, financing should be provided through foreign aid Investments for poverty reduction: Most of the poorest countries are stuck in a poverty trap In this trap, subsistence, low savings, low investment, and low capital accumulation create low capital stocks which are part of a vicious cycle Aid is supposed to create crucial investments that are required to move citizens out of this trap Under idea conditions ODA would go to households, the budget, and the private sector, which would allow for an expansion of capital stock which would lead to growth which would reduce the poverty of poor households, increase their savings, and put these countries in a virtuous cycle So ODA needs to be scaled up for a global compact to end poverty

Paris Principles

Paris Declaration (2005) supports improvements in donor practices in donor-recipient relationships 1) Changes to ownership (recipient) - insuring that a country that gets aid 'owns' the outcome of the project, so they get credit if it succeeds or fails 2) Donor harmonization - ensuring it is used more efficiently - but Easterly argues this leads to monopolization and 'trade' cartels 3) Improving alignment - donors strategies have to align with recipient countries development plans 4) Results need to be clearly displayed - not just the provision of the money but what the money is doing 5) Increasing accountability - this needs to be true both for the recipient and for the donors These five principles for aid quality are known as the Paris Principles

Participatory vs. Non-Participatory Aid

Participatory vs. Non-participatory aid - it used to be that there was no participation at all but just a consultation between a government official and donors, but now there are efforts to involve the communities that will receive the money - especially in decentralized allocations, community-driven-development is much more popular because it allows village counsel to identify their own priorities

Conditionality

Partly as a response to the principle agent problem, donors apply conditions for aid disbursement But: Best policy conditionality is not always clear (e.g. Washington Consensus - focus on neoliberal stuff like privatization and deregulation and cutting taxes etc. which had major pushback - these conditions didn't help these countries) Key question: are there too many conditions or too few? In Cold War people said there were too few conditions → people would use funding for bad purposes because of a lack of conditionality U.S. has been criticized for applying too many conditions - it is impossible for countries to meet - if you can't meet your conditions you don't get the next part of the loan The evidence is not good - most recipients of aid typically implement reforms only when it is in their interest and most donors continue to disburse even when conditionality is violated because there are strategic interests involved in providing funding (think about Ukraine) Types of conditions can vary dependent on the types of loans This means that you are often interfering in the politics of the country - often requires government's passing laws which creates obvious local issues with politics

Land Tenure and Institutions

Percentage of cultivable land held as 'family farms' in 1850's is strongly related to the index of democracy in 200s - so there seems to be a relationship between family farming and modern democracy There is a strong link between property rights and political representation - if you own land you have much stronger participation in democratic institutions - so if land holding is more widely held than more people will be able to participate in the democracy So there is a strong relationship between the distribution of land and democracy over time

Picketty on rate of return and capital and rate of output

Picketty says the rate of return to capital is normally much higher than the rate of global growth and that the world is returning to this 'normal' now - The rate of return to capital benefits the rich and the rate of world output benefits laborers - argues that for most of world history the rate of return to capital has been higher than world output - For this period there is no income tax or revenue gathering - This is scrambled by industrialization which leads to capital returns decreasing and world output increasing - But now wealth is being concentrated again amongst asset holders and wage earners are getting less money - Most of population working for wages that are not growing and a small group of asset owners ARGUMENT: In history in all the European countries wealth was extremely concentrated from 1700-WWI - 90% of aggregate wealth for top 10% of wealth holders - 60% for top 1% of wealth holders - The classic patrimonial (wealth-based) society: a minority lives off its wealth, while the rest of the population works Today, wealth concentration is still very high again, but less extreme - About 60-70% for top 10%, about 20-30% for top 1% - The bottom 50% still owns almost nothing (<5%) - But the middle 40% now owns 20-30% of aggregate wealth = the rise of a patrimonial 'middle class' - It is this middle class that is voting for populists and most actively participating in protest movements, even violent ones - tend to be more right wing

Cultivation styles and gender equality

Plough cultivation favors male dominated societies - because men have a comparative advantage, are needed for the fields, and there is a pressure on women to produce sons In contrast, shifting cultivation favors women because they play an equal role in the workforce and there is not pressure to produce male children

Resources and Corruption

Prevailing view: Resource rich countries are more corrupt and have weaker institutions State dominance in resource sectors (especially fuels and minerals) through 'parastatal' companies create more opportunities for predatory behavior → more control = easier extraction of rents → an avenue for corruption that wouldn't otherwise exist In resource-rich economies, states have less incentive to protect property rights because in order to have rents that are more attainable, property rights have to be deliberately insecure (so natural resource rents can be easily obtainable) Evidence: Relationship between resource wealth and corruption isn't super clear - just pure level of resources doesn't impact corruption BUT, if there is a change (i.e. an increase in oil rents) there is almost always a significant and corresponding increase in corruption - so bare levels don't matter, but change in levels do matter

Principle-Agent Problem

Principle is delegating something to an agent There is a long chain of these relations in this issue Long-chain of links between taxpayers in donor countries → donor aid agencies → recipient governmental body → program implementer → individual beneficiaries Thus, there are a lot of steps for providing aid which creates room for inefficiency This affects all aspects of aid delivery from design to implementation Potential for adverse selection problems -- not being able to distinguish between good and bad recipients Once aid is given a recipient can engage in actions to benefit themselves to the detriment of aid giver

Pros and Cons of Quasi-Experimental Method

Pros: Draws on existing data Less expensive and quicker to implement than experimental design Easier to fit with expectations of program designers (and other stakeholders) Cons: Does not completely resolve the problem of selection bias - can't assume that it is completely random - whoever is in the program will have unobservable reasons they differ from others Methods can be statistically complex Nuance of results often more complicated to explain to policy makers

Productivity for Private, Tenancy, and Sharecropped farms

Private Ownership: Farm land has certain output in cost based on amount of labor you put into land (and labor is costly) This is classic diminishing returns You will contribute labor until you maximize the profits - this is the Marginal Product of Labor (MPL) At the beginning the benefits will be steep but as you get farther on the returns diminish This can ONLY happen if you have secure property rights because only then can you maximize the profits and ensure they will come to you With tenancy you have a fixed-rent contract so your output is reduced by the amount of rent you provide which decreases the overall level of production Efficiency could be maintained but the problem is that the tenant bares all the risk, because the output function (yield) varies from year to year This means that these tenant will have a tendency to fix towards sharecropping In sharecropping the output is reduced by a land-lord share The landlord only cares about output but each individual sharecropper will maximize their own personal surplus and this is at a much lower level than for other systems because the output curve for them is much lower so the optimal output level is soon So this is a collective action issue The issue is the gap between the potential production function and the real one

Pros and Cons of Randomized Control Trials

Pros: It solves the two big problems - it has a clear counter-factual, and controls for selection bias Allows an accurate measure of the direct impact of a program or intervention Can be designed so as to be flexible Results easily interpretable for policy makers and investors Cons: It is very expensive Requirement for randomization raises concerns about ethics Sometimes can by inflexible Someone needs to be denied the program to do this and this can't be compromised Very difficult for long-term evaluations (treatment and control groups may get mixed up, treated sample may have dropouts, etc.)

The Productivity of different property systems in agriculture

Ranking from most productive to least productive Most to Least Owner-occupied farms that use family labor Larger mechanized owner-cultivated farms that employ wage labor Non-owner cultivated or rented farms that use family labor Sharecropper farms Example: In Latin America - total factor productivity is twice as high on family farms as on sharecropped lots (latifundios)

Quasi-Experimental Methods

Relies on using existing data because rigorous evaluation is not cheap - thus these methods rely on less-expensive approaches Look for 'natural experiments' i.e. random occurrences that may have (randomly) affected one subgroup of the population but not another Examples: Natural events (rainfall, natural disasters, electricity blackouts) Random timing of an event: Colonization (Acemoglu and Robinson - random arrival of colonial settlers) Budgetary rules for the effective use of programs Sequential rollout of development programs - by identifying the consequences of the program before it is rolled out and after (if the rollout is somewhat random) you can use quasi-experimental methods Eligibility rules (age requirements, income levels, credit scores → random cutoffs → those just above and just below the poverty line)

Resources and Rentier States

Resource abundant countries are part of class of states that earn money from external 'rents' instead of domestic economic activities Such as: Resource exports, remittances, foreign aid, and tourism receipts Each of these have the ability to create 'rentierism' which has a lot of overlap in characteristics to resource abundant countries Poorly-developed tax administrations Weak-political representation of citizens High corruption is not the case everywhere, but there is a strong association

Protests and poverty

Seems that poorer countries are at a greater risk of violence Poorest household/individuals are not the ones likely to participate in violence Evidence from the West Bank: middle-class are more likely to engage in violence Evidence from the Middle East, Africa, Latin America = vulnerable lower-middle class more likely to support violence for political ends while the poorest are the most harmed by these acts of violence and pay the highest cost of militancy The best approach may be to make the vulnerable middle class feel less vulnerable?

Harmonized vs. Fragmented Aid

Some aid is harmonized (donors coordinate in advance) and some aid is fragmented (everyone does their own thing) - this varies from country to country → Rwanda used to be super fragmented but now is harmonized → Rwanda has seen a massive drop in poverty and the president gets all the donors together every year and allocates priorities for them (you do x, you do y, you do z, etc.) → donors can also harmonize outside of countries (i.e. prior harmonization)

How PPP effects international poverty line

Suppose there is only one poor County (India) and only one rich country (USA) in the world If all rich people are in one country and all poor people are in the other - the poverty line for the world would be the India poverty line - the global poverty line = the India poverty line, so the global poverty headcount is simply the number of poor in India by their own national count No need for PPP But suppose we want to express the GPL in terms that basic people can understand Convert Rupees to USD using the PP for INdia relative to the US But the problem is that PPP changes If PPP is revised to Rs. 15 = $1 and nothing else changes then the Indian line doesn't change at all - it is still $1 a day But the global line is now $2 a day What do we do? Option 1: Change the line to $2/day, poverty headcount is unchanged Option 2: Hold the line at $1 a day, and the poverty headcount will fall but actual poverty is unchanged Option 3: something in between World Bank picked Option #3 - When PPP raised from $1.25 to $2.50, World Bank picked $1.90 Bank describes this just like inflation - raises national poverty line and global poverty line too This change in the poverty line had a major effect on estimates of poverty in India, which more than halved from 400 million to less than 200 million But India's poverty line hasn't changed so for them poverty is the exact same

Non-Experimental Methods

Suppose we wanted to know if a program is effective Could Use: Retrospective evaluations: survey participants and non-participants after program participation Pre-Post Evaluation - survey participants before and after program participation Both are common in evaluation efforts, but they are NOT best practice Problem 1: why did the current participants participate? → selection problem Problem 2: what happened to those who did not participate? → counterfactual problem

Technology and Agricultural Production

Technology improves productivity of both land and labor Land: biological inputs (improved crop varieties) Capital: mechanical inputs (tractors + machines) The two can be combined in particular contexts to assess overall farming capacity There are often big trade-offs in adopting tech: See the environmental consequences of fertilizer use contrasted with food security

Terms of Trade for Primary Product Exporters

Terms of trade are the price index of exports over imports (ToT = Px / Pm) Terms of Trade (TOT) for oil economies improved in the 1970s and again between 2000-2012 But ToT for most other PPEs have not improved (and have worsened slightly) Surprisingly, oil importing countries benefit from high oil prices because of remittances from workers in oil producing countries - remittances from workers in Saudi Arabia or elsewhere grew significantly when oil prices were higher, so this means that it is actually worse for these countries to have lower oil prices

Definition of ODA

The DAC = Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD) → formed to administer Marshall aid - 24 rich, donor countries The standards for foreign aid are established here Official Development Assistance (ODA) = financial transfers undertaken 1) by the official sector in the donor country (can't be from charity, non profit, or private sector) 2) Has to be aimed at promoting economic development and welfare (thus military assistance, peacekeeping, etc. is NOT ODA) 3) It has to be concessional financial terms (meaning it has to be cheaper than what you'd get in the private market - by 25% or more) 4) Has to be to low- and middle-income countries Financial transfers that do not meet criteria 2, 3, or 4, are 'official aid' Financial transfers that do not meet criteria 1 are 'private voluntary assistance' - money from charities, religious associations, etc. ODA can be multilateral or bilateral (bilateral = a single nation, multilateral = multiple nations)

Three Zones of the New World

The Grain Zone (east coast of U.S. and Canada) - not cash crops but cereal and wheat Doesn't make a lot of sense to have huge numbers of workers - Grains don't benefit from economies of scale - you don't save money by growing millions of acres of this crop compared to the money savings you get from growing mass amounts of cash crops - so you need smaller land holdings and more distributed ownership - smaller plots of land The Crop Zone (Central America and northern South America) - production of cash crops To succeed in this zone you need a lot of free labor, not a lot of equipment, and large plantation land holders - based primarily on minimum cost labor (slave labor) Mineral Zone (Lower South America) - Lots of mining To succeed in this zone you need a small land-holding elite combined with lots of workers who don't own the land In places where there have been mineral discoveries where land holding isn't concentrated legal intervention is required to prevent land from becoming concentrated - there is a tendency for land to be acquired by large land holders Under these three conditions, the elites tend to work to protect their property rights Leads to restrictive institutions in mineral zones - want to make it hard for people to acquire land who don't already have land grants - limiting immigration during time of colonies in order to insure land holdings were large - these land grants gave indigenous owners the ability to exploit the workers - limiting access to education, political rights, etc. for the population being exploited for minerals Leads to coercive institutions in crop zones - land holding is still being restricted - leads to slave labor and the importation of the lowest cost labor possible - immigration wasn't open to most settlers but only slaves Leads to open institutions in grain zones - encouraged new immigration - the creation of institutions which allowed for strong property rights and easy access to credit and larger markets and trade (these are the best types of institutions) Thus good institutions aren't emerging because of deliberate choices but because of climatic conditions which create factor endowments that shape institutions If the english had settled in the rest of south america they would have set up the same institutions that the Spanish did - culture of the settler doesn't matter, but only the geography within which institutions are established

Issues with Green Revolution

The Green Revolution (and Borlaug) were criticized for: Reducing soil fertility and increasing toxicity Reducing the genetic diversity of crops Contributing to soil erosion Ironically, increasing the vulnerability to pests The green revolution thus both saved lives and also came with long-term costs (greater chemical dependence)

Kuznets Curve

The Kuznets Curve - for poor countries where income is low the amount of inequality will be low (everyone is poor) - and then, as a country develops, inequality increases, until it reaches a certain threshold when inequality begins decreasing again with social intervention - As countries become wealthier it leads to redistribution - Transition of people from traditional to modern sectors and the race between technology and education as a country develops leads to increased inequality and then there will be a catch up once social equality programs become possible - So far, this type of relationship hasn't occurred - we haven't seen the gap between rich and poor closing as countries get richer

Fixing the Financing Gap

The argument is that there is just not enough official aid out there to fund the needs of developing countries It is estimated there is $1.4 trillion in financing for needs that acquiate to $3.9 trillion in needs, which leads to a $2.5 trillion shortfall in annual aid This can't fully be filled through foreign aid, the rest has to be provided through private financing There is no way for official aid plus existing private financing plus domestic resource mobilization to fulfill investment needs of developing countries Therefore, private investment must be expanded But is risk too high and insurance too costly? The solution: Blended finance ODA + Private sector Use OCA to provide de-risking instruments Focus on investment with strong social and developmental benefits that would otherwise not materialize due to higher actual or perceived risks

Equation for Improved Farm Efficiency

The basics are the same everywhere → farm efficiency = technology use + property rights Technology improved crop yields And Property rights increase tenure and ownership This are deeply interrelated with each other Without secure tenure on land you have no incentive to invest in long term increases in yield and efficient technology because the time scale is longer than your potential ownership Asset ownership and asset equality can be a big part of anti-poverty programs The less land inequality there is, the better these systems should be

Why Ownership Matters in Agriculture

The family owns the land and so invests optimally in long-term investments (irrigation, fertilizer, etc.) Where there is high unemployment or underemployment, family labor has low value off the land Landowners can use land as collateral and access formal and informal credit

Experimental Methods

The gold standard for evaluation - almost 95% of Ph.D. students doing economics are doing some kind of randomization Tries to approximate best practices in 'clinical' trials Laboratory conditions Random assignment Double-blindness In development, this involves thinking of projects/programs as drugs in a trial Randomized Controlled Trial (RTC) Participants/individuals are randomly assigned into a treatment (t) group and a control (c) group Members from T as asked to participate, C are excluded Randomization ensures that T and C will be identical in all respects except for participation in the program (the larger your group, the more likely that they will be identical in approaching the population mean) Timeline for RTC if you were to set up, design and run it First: identify eligible individuals (may be just a subset of the population, not the whole thing) Second: Randomly assign into T and C groups Third: Survey T and C groups - do a baseline survey - this isn't always necessary and will increase your costs but gives you a baseline to use in evaluation Fourth: You run the intervention or program Fifth: You Survey T and C groups and ask the exact same questions in a follow-up survey(issue is that sometimes it is hard to track down the groups in T and C because of attrition problems, which can reduce the validity of the evaluation) Both groups to be surveyed before and after the program When compared over time, outcomes for the treatment and control groups allow for exact measure of direct program impact, with evaluators able to control for all

Socioeconomic status model for voting

The poor are less likely to vote High opportunity cost for voting Harder access to get to voting stations Lack of access to key information - don't follow politics as much Seems to fit OECD countries very well - in richer countries voter turn out is very much associated with income (Maybe turn out increases when you have more at stake to lose - resource hording for rich leads to more dedicated voting?) But this pattern doesn't seem to be the case everywhere Countries in Latin America, in Africa, and in India see the poor being more likely to vote In some places in Latin America they pay off voters to just show up and vote - giving them alcohol or medicine or other things and then busing them to voting stations - poor are easier to mobilize in these contexts There is a big role for Vote Buying and clientelistic behavior - was seen in U.S. in 19th century

Assets for the Poor

The poor have few assets Land is the major asset When the poor own land, plots tend to be v. small Median landholding < 3 hectares Often lack property rights over land (titling rules, etc.) The land rights of the poorest tend to be very unstable because the property rights aren't well protected if you don't have proof of title - DeSoto Without titles you can't Extract revenue directly from your land Use it as collateral for credit This makes it harder to officially register them in government systems - no birth certificate or formalization of their existence Thus not having proof of ownership keeps people excluded from the capitalist economy

Education for the poor

The poor invest very little in education Enrolment of children in school is high - at least 50% of both boys and girls aged 7-12 in 12/13 countries in sample are enrolled The poor spend very little on education (~2% of HH budget) Why? Children in poor HHs attend government schools that charge no fees But quality of schooling is low Growing interest in private schools even in poorer places Teacher absenteeism is high Test scores are low

Changes in Agriculture for rich countries

The share of GDP placed into agriculture decreases as you get richer and the percentage of labor in agriculture also shrinks Productivity is the difference between rich and poor countries - as you get richer the productivity improves - the amount of output per worker is increasing Productivity is increasing but there is some divergence Productivity in sub-saharan Africa has not increased much at all Overall yield has increased too Increased yields decrease food security, hunger, and drought and gives you an easier path to industrialization But this has stalled in Africa

The Staple Theory of Growth

The traditional view of the role of resources in development Innis and Viner - Traditional View: Economic development in 'backward' areas begins with a resource boom Therefore, resource abundance should help (not harm) developing countries Staple-producers face capital shortages and labor abundance Exporting commodities will attract foreign investment to help which can then correct imbalances in factors of production Government would thus be able to collect revenues from both the investments and from taxes on trade (which was a major source of revenue in the 1950s and 1960s)

Effect of Burnside Dollar Findings

The view that aid works better (or only) in countries with good policies/institutions became conventional wisdom in the early 2000s It had a great impact on how donors provide aid Led to World Bank's Performance-Based Allocation (PBA) which requires allocation of concessional funds (zero-interest money) according to a combination of need (per-capita income) and 'good policy/governance' (based on the Country Performance and Institutional Assessment) This creates a ceiling on how much aid each country can get The Millennium Challenge Corporation (MCC) was created on the assumption that aid works only in well-behaving countries - meant to provide money to countries that have already met the conditions for good policy and help a small group of 'threshold' countries to start to meet the conditions (through things like secure property rights and regulatory consistency and low corruption, etc.)

Calculating Poverty with National Accounts vs. Surveys

The way countries account for the measure of their economic activity within their territory - used to measure GDP, trade, investment, etc. Accounting techniques for measuring the economic activity of a nation Current account: Production account = domestic output (and the goods and services used up in producing that output) Income account = money generated in production (e.g. wages and salaries and distributive income flow (predominantly the redistributive effects of government taxes and social benefit payments) Expenditure account = how disposable income is either consumer or saved OTHER: CAPITAL and FINANCIAL ACCOUNTS, and BALANCE SHEET (everything coming in and out of the country) items Once you look at income you can estimate who is living below a cutoff These accounts produce different poverty estimates than household surveys: There is less 'under-reporting' of income (as the very rich tend to not do surveys) - tend to underreport their income Survey-based means are lower, and grow more slowly than National Accounts

Untied vs. Tied Aid

There are differences between the types of uses you put aid too - untied aid allows you to use aid however you want, tied aid means there are certain things you have to do (like in infrastructure projects, untied aid would say all you have to do is follow procurement rules and actually use the aid for the intended project, you can do whatever you want - in comparison, tied aid would say that the money has to be used to hire contractors from the following countries, or consultants from these countries, or workers from these nationalities, etc.)

Global Income Distribution

There are many very poor people and also lots of middle income people (two humps on the global inequality measure) - If you look at just the global population, than inequality as decreased - If you just look at countries, it has gone up - Between country inequality is going up - some rich countries are getting much richer than poorer countries - But if you take the whole world as one country, it is dropping

Project Support vs. Budget Support

There is a difference between budget support (i.e. writing a check that the government can use to implement the aid project) vs. Project-support (programmable aid that goes to programs - - this can be seen with donors doing things like sending checks to the minister of finance with a specific goal in mind - people often prefer this over using government accounting rules, which many donors do not trust) Governments don't want donors having their own accounting procedures and audit mechanisms because if you have lots and lots of donors it increases costs because the number of different reporting mechanisms are overwhelming Thus, countries perfect budget support over programmable aid

Why Oil and Food Prices are Linked

This is true because of transport costs of food (which is effected by oil) This is mainly because the cost of fertilizer (which is a big petroleum product) affects the cost of food

Arguments against Land Reform

This kind of dramatic change in land ownership and rights can have significant effects in creating social and political upheaval that can lead to civil wars It is difficult to manage for governments without strong institutions It is ineffective? If landlords have better representation or influence they may 'capture' the reform process Loopholes in land reform laws are common (e.g. landowner can gift land to extended family or servants to keep de-facto control) In some cases it may worsen the situation of the landless It is inefficient? Potential loss of economies of scale in agriculture - especially on cash crops where large lots of land are needed Large farms may actually be more productive in the absence of market distortions Potential Rural unrest? Landlords are bound to resist, use all the mechanisms at their disposal to evict, evade, and avoid the loss of land Lead to the Nicaraguan civil war and Salvadoran civil wars, which were landowners resisting large land reform Where land reforms are successful, class resentments can create the basis for factionalism and rebellion

Measuring Aid

Total Aid (nominal or constant) As a share of GDP/GNI Size relative to the economy High ratio can mean large aid or small economy Useful in understanding debt sustainability Per Capita Looking at the amount of aid available for the people → if you want to understand how much aid is available for a specific goal this is what you look t Amount of aid needed to immunize children can be a large % for a poor country and small % for a large country but the same amount of aid

Aid Flows

Total amounts of ODA has gone up over time - we are now closer to about 140 billion - was pretty until the 1940s when total amount of ODA started to increase significantly Aid goes up proportional to international crises (Latin American Debt Crisis, Asian Crisis in the late 1990s, the End of the Cold War, the implementation of the Millenium Development Goal Plan, etc.) - in some ways they are counter cyclical to market trends Even though total dollars have gone up, because the economy has increased too, as a percentage of GNI total amount of Aid has actually gone down Most of the money is actually going to middle income countries and now low income countries Spike in 2008 because of recession Continent wise - the most aid is going to Sub-Saharan Africa Big boost recently to the MIddle East and North Africa Latin America gradually decreased aid over time

Types of Land Reform

Transfer of land from landholder to the landless May be with or without compensation Beneficiaries usually do not pay Can involve many things Land Tenure Reform: Conversion of informal 'tenancy' into formal property rights; can be sudden (through statute) or gradual (through land taxation) Converting land claims into formal claims if there is enough proof of long-term tenancy External inducements: expenditure on land reclamation, credit by a land bank, etc. External Prohibitions on use of land: Like rules preventing underutilization or absentee landlords/foreigners, land ceilings Confirmation of title: title to those who can 'demonstrate' claim

Ghana Cocoa Board

Underpriced domestic cocoa relative to international prices from 1941-1979 in order to help the government capture the gap in revenues Maintained exclusive rights to cocoa trade Ghana underwent structural adjustment during 1980s under IMF - liberalized their agricultural system Removed subsidies Privatized the cocoa processing companies And began to sell state-owned cocoa plantations Now exports remain controlled by the Cocoboard but there are about 25 companies that can also sell the crop The farmers are still guaranteed a floor price and the company still maintains majority control over exports

$1 a day line

World Bank's approach In 1990s the poverty team at world bank discovered the median poverty line in the 10 lowest income countries out of the 33 surveyed was about $1.08 a day → they rounded down to a dollar a day as a very rough estimate of extreme poverty Very close to the mean poverty line of the 15 poorest countries in the world This was revised to $1.25 a day after 2005 PPP adjustment Revised to $1.90 a day after 2011 PPP adjustment Considered the benchmark for 'extreme' poverty - most of language in sustainable development goals is based on this