Can you train people to be financially competent?

Margaret Miller and co-authors try to answer this question in a new paper in the World Bank Research Observer. The paper does a meta-analysis of 188 studies conducted in Africa, Asia, Latin America, the United States and Europe.

Are there approaches to teaching financial skills or modifying financial behaviors through educational programs, training, or other outreach activities that have reliable, positive results? The objective of this paper is to analyze the evidence of impact for financial literacy and capability interventions through a systematic review of the evidence. The review includes the use of meta analysis, a statistical technique that pools data from different studies to test for significance in the enlarged sample of observations this creates. This paper is different from most previous narrative reviews in that it focuses exclusively on research that analyzes the impact of financial education interventions. Key characteristics of 188 papers are coded to create a rich data set with the characteristics of the interventions, as well as statistical information on the impact of programs on outcome variables such as general savings, retirement savings, and credit performance. This data set is then used for a descriptive analysis of the literature and for empirical tests using meta-analysis.

…. we find that financial education can affect financial outcomes such as savings and improved record keeping, but does less well in preventing negative outcomes such as loan defaults. These results suggest a role for financial education in improving behaviors where individuals have the ability to exert greater control. Arguably, loan default is imposed by external agencies (banks or other financial providers), and hence can only be avoided secondarily or over the long term if financial education leads to more prudent borrowing decisions. Savings and record-keeping, in contrast, are immediate and primary decisions that can be acted upon by targeted consumers.

More on this here.

European logging firms are financing rebels in CAR

According to Global Witness:

CAR’s trade in timber – the country’s number one official export – has assisted the war effort. Logging companies have paid millions of euros to armed groups to ensure that they can continue operating. Under the cover of conflict they have also been stripping out CAR’s rainforests.

Throughout this period, European companies have continued to offer CAR timber for sale on EU markets, which Global Witness believes violates the EU’s flagship timber law, the EU Timber Regulation.  China is another major market for CAR wood, but has no regulations in place that could help halt the import of illegal or conflict timber.

At some point in the video an officer in one of the French firms involved says:

“But it’s Africa. It’s so common we don’t pay attention. It’s not really a concern. It’s not a war where they attack white people. It’s not a war we have to avoid.”

This honest assessment of the situation in CAR highlights one of the reasons why wars in places like CAR or Liberia and Sierra Leone in an earlier time tend to be so intractable.

Source: Wikipedia

Source: Wikipedia

Research shows that sources of finance determine the industrial organization of rebel groups and their propensity to commit atrocities against civilians (see also here). The ready availability of shady firms like Tropica-Bois and Société d’Exploitation Forestière Centrafricaine (SEFCA) make it possible for rebel leaders to raise funds for their war effort in the international commodity market. This in turn makes it possible for them to buy arms and recruit locally, but without maintaining strong ties with the very communities in whose name they raise arms (call it the rebel’s resource curse). The resultant incentive system is one in which CAR warlords can obtain material benefit from the rents on illicit trade without capturing Bangui, as long as their maintain access to the global market of timber.

The Global Witness report adds to complaints about French intervention in the ongoing CAR conflict. In April news broke that more than a dozen French soldiers abused children in Bangui in exchange for food. The six children who came forward with the complaints were aged between eight and 15 and at the time lived in a center for displaced people in Bangui. The centre was under the care of French peacekeepers.

Tropica-Bois must be paying a lot of taxes to the French treasury, or oiling the electoral machines of key French politicians.

According to the UN Comtrade database  in 2013 wood comprised 40% of all commodity exports from CAR, second only to diamonds (45.8%).

The case for well-planned infrastructure mega-projects

No one likes white elephants. But some mega-projects are simply unbeatable. One example is India’s Golden Quadrilateral highway project, constructed between 2001-2012. In a new paper, Ghani, Goswami and Kerr write:


Source: Wikipedia

We exploit a large-scale highway construction and improvement project in India, the Golden Quadrilateral (GQ) project. The analysis compares districts located 0-10 km from the GQ network to districts 10-50 km away, and we utilize time series variation in the sequence in which districts were upgraded and differences in the characteristics of industries and regions that were affected. Our study employs establishment-level data that provide new insights into the sources of growth and their efficiency improvements.

The GQ upgrades stimulated significant growth in organized manufacturing (formal sector) in the districts along the highway network, even after excluding the four major cities that form the nodal points of the quadrangle. Long-differenced estimations suggest output levels in these districts grew by 49% over the decade after the construction began. This growth is not present in districts 10-50 km from the GQ network nor in districts adjacent to another major Indian highway system that was scheduled for a contemporaneous upgrade but subsequently delayed. We further confirm this growth effect in a variety of robustness checks, including dynamic analyses and straight-line instrumental variables (IV) based upon minimal distances between nodal cities. As the 0-10 km districts contained a third of India’s initial manufacturing base, this output growth represented a substantial increase in activity that would have easily covered the costs of the upgrades.

Decomposing these aggregate effects, districts along the highway system experienced a significant boost in the rate of new output formation by young firms, roughly doubling pre-period levels. These entrants were drawn from industries intensive in land and buildings, suggesting the GQ upgrades facilitated sharper industrial sorting between the major nodal cities and the districts along the highway. Despite a substantial increase in entrant counts, the induced entrants maintained comparable size and productivity to control groups. The young cohorts, moreover, demonstrated a post-entry scaling in size that is rare for India and accounted for an important part of the output growth.

Of course these findings should not come as a surprise to anyone who has seen the rapid growth along the $360m Thika Superhighway in Nairobi and Kiambu counties in Kenya — the African Development Bank (a key financier) estimated the project to have an internal economic rate of return of 30%. Which is precisely why Harambee House ought to consider fast-tracking the construction of a dual carriageway linking Mombasa to Busia and Malaba.

On effective altruism

Peter Singer has an essay on effective altruism in the Boston Review, with responses from several authors and academics. One of the more interesting responses came from Jennifer Rubenstein.

She writes:

A central strength of the effective altruism movement is that it urges donors to make empirically informed decisions that focus on effects rather than good intentions, “warm glow” feelings, or the intrinsic value of actions. In this respect, it is far superior to charity appeals based on identifiable victims, charismatic megafauna (e.g., polar bears), charismatic mega-stars (e.g. Bono), oversimplified villains (e.g., Joseph Kony), and dramatic images of disaster.

….  The effective altruism movement retains members by directing their emotional energies and commitments toward each other, not the people they aim to assist. Singer thus profiles effective altruists for his readers to emulate; he does not depict poor people using assistance to exit poverty. Likewise, organizations such as Giving What We Can encourage their members to make commitments to, and engage in community-building with, each other—not poor people. These strategies rightly avoid using pity as a motivational tool, but they also preclude more promising forms of connection, such as political solidarity.

By excluding poor people and encouraging a savior complex and insularity among its members, the effective altruism movement fails to meet normative criteria of democracy and equality. A supporter of this movement might respond that democracy and equality are less important than improving individual welfare. Yet in the medium-to-long term, the movement will likely fall short in this regard as well. As the low-hanging fruit of basic health programs and cash transfers are exhausted, saving lives and alleviating suffering will require more complicated political action, such as reforming global institutions. Undertaking this action will require outsiders to work with, and follow the lead of, activists in poor countries. Yet the effective altruism movement as Singer describes it does not cultivate the expectations, attitudes, or relationships necessary for this kind of work.

The whole exchange is here.

It’s hard to argue against public health interventions or direct cash transfers that save lives and marginally improve living conditions for the world’s poorest.

But at the same time, you’ve got to wonder why well-to-do people in rich countries would be into uncritically subsidizing the bad habits of their counterparts in poorer countries (through “technical” targeted interventions that sidestep political processes). Why should Obiang’s son have the luxury of buying a private jet rather than building clinics for his country’s poor?

A slightly different story on administrative unit proliferation

The emerging stylized story about administrative unit proliferation in the developing world is that it is often a result of political machinations by national and local elites intent on creating new units for marginalized groups and for the ruler to buy votes; and that such proliferation only serves to re-centralize actual power — see for example these really cool papers by Grossman and Lewis (on the specific case of Uganda), Mai Hasssan (on the use of new districts to buy votes in Kenya) and Kimuli Kasara (also on how heightened electoral competition after 1992 accelerated the process of administrative unit proliferation in Kenya).

But there is also a slightly different, and in some ways complementary, story.

Regarding the creation of new provinces in Vietnam, Edmund Malesky notes:Screen Shot 2015-07-09 at 12.30.20 PM

The timing of provincial separations after Party Congresses, the dominance of Non-state Provinces despite little change in national output, and the decisive political outcome of this dominance at the 2001 Party Congress bolster the argument that reformers had an explicit electoral strategy in calling for the splitting of provinces in 1996. By creating new Non-state Provinces, modernizers believed they could influence the outcomes of future CCOM debates about
grand strategies and smaller NA debates about implementation of these new policies. While rhetorically it was easier to argue for new provinces based on efficiency, it would seem they were studying maps of
district economic composition and creating new reform-oriented
provinces out of SOE-dominated areas.

The key difference between administrative unit proliferation in Vietnam and Uganda (and Kenya before 2010) is the electoral connection (an aspect that, in my view, is missing in the current literature). Because the provinces had votes (in party congresses and plenums), the creation of new Vietnamese provinces had significant implications for the de facto distribution of power in both Hanoi and the periphery (and in Malesky’s story, made reforms possible). Provincial splits in Vietman were therefore not just about patronage and marginalized groups, but also about securing a win for the reformist bloc at the centre.

This might not be the case in countries where new units can be created without altering the balance of power in the party congress or parliament — either because such action does not create new electoral districts; or the president gets to nominate or can credibly influence the election of the representatives of the new districts. For this reason, I would predict that Kenya, Nigeria, and South Africa (whose subnational units are electorally significant and have a fair amount of fiscal autonomy) are unlikely to create new primary subnational units willy-nilly.

Africans Covered 98% of the Cost of Administering Colonial French West Africa (AOF)

Elise Huillery writes in the Journal of Economic History:

What share of French expenditure was allocated to West Africa? What share of West Africa’s revenue was provided by France? These two questions are crucial since scholars and politicians who claim colonization had a “positive role” make essentially the two arguments that the colonies benefited from imperial public investments and that mainland taxpayers sacrificed local investments for investments in the colonies.

I find that the costs of AOF’s colonization for the metropolis were low. From 1844 to 1957 France devoted on average 0.29 percent of its public expenditures to AOF’s colonization. Colonization of French West Africa was profitable for France to the extent that the impact on cumulative domestic production exceeded 3.2 billion 1914 francs. The military cost of conquest and pacification accounts for the vast majority (80 percent) of the average annual cost. The cost of central administration in Paris accounts for another 4 percent. So subsidies to AOF account for only 16 percent of the average annual cost, meaning that less than 0.05 percent of annual total metropolis public expenditures were devoted to AOF’s development.

For French West African taxpayers, French contribution was not as beneficial as has been argued. From 1907 to 19578 the metropolis provided about 2 percent of French West Africa’s public revenue. Local taxes thus accounted for nearly all of French West Africa’s revenue. These resources supported the cost of French civil servants whose salaries were disproportionally high compared to the limited financial capacity of the local population. Administrators, teachers, doctors, engineers, lawyers, and so on, were paid French salaries and got an additional allowance for being abroad. Thus, in the colonial public finance system, most revenues were collected on an African basis while being spent on a French basis. To illustrate this point, I show that colonial executives (eight governors and their cabinets) and district administrators (about 120 French civil servants) together accounted for more than 13 percent of local public expenditures.

The rest of this very fascinating paper is here.

Besides the headline finding, also interesting in the paper are: (i) the extent to which Paris subsidized private firms involved in the colonial enterprise; and (ii) the structure of the public finance system that allowed the AOF administration to borrow directly from French banks with the full backing of Paris (which allowed for lower rates). This might explain the persistence of the monetary relationship between former AOF territories and Paris in the form of the CFA and a common central bank (BCEAO).Screen Shot 2015-07-05 at 12.05.23 AM

As I keep saying, Economic History is hot again. And sooner rather than later it’s going to become more apparent to more people that African political and economic history did not begin in 1960, or for that matter in 1884-5. And neither was it just about the unimaginably catastrophic Atlantic experience.

Why should the United States pay attention to Africa?

Howard W. French, associate professor at the Columbia University Graduate School of Journalism says:

In the final analysis, though, the reason to pay attention to Africa is not China. We need to get over the idea that one needs an excuse to pay attention to Africa. That, too, is a holdover from the Clinton era, when they came up with out-migration and the threat of epidemic diseases as an excuse to have a look in on the continent, perhaps as a response to Robert Kaplan. The best reasons to pay attention to Africa are inherent to Africa itself. They go to extraordinary demographics, with an upside at least as full of opportunity as the downside is full of risk. They go to the immense opportunity for both Africans and Americans represented by economic growth on the continent, which needs to be enhanced and broadened. They go to urbanization. And, finally, they go to matters of universal interest related to the environment, in other words, helping ensure that Africa, which is a late-starter in many economic processes, can both maximize its potential and get things right environmentally. As long as we cast our interest in Africa in negative frames, of security, or rivalry with China, we’ll continue to miss this hugely important big picture. Similarly, as long as we continue to play small ball, politically, calling an Africa policy the occasional gathering of “young entrepreneurs,” hosting four or five African leaders together at once for a photo op at the White House, and making a mere one or two visits to the continent at the presidential level per term, we’ll be failing to engage the continent’s potential and simply missing out.

As usual, French is spot on. You can read the whole Q&A with Laura Seay on his latest book here.

Chapter 9 of The Gospel of Aid: The Aid Prayer

In Chapter 9 of the Gospel of Aid, the Nigerian author and satirist Elnathan John writes:

CHAPTER 9: The Aid Prayer

  1. You must pray then this way: Our donors, who art abroad, hallowed be thy purse. Thy aid come in dollars and pounds.
  2. Thy will be done in our countries, as promoted by Bono
  3. Give us this day, our yearly funding
  4. And lead us not into self-reliance
  5. But deliver us from our selves
  6. For thine are dollars, the pounds and the euros, forever and ever. Amen

The rest of the “Gospel” in all its hilarity is here.

Have a blessed Tuesday.

Today’s Interesting Links

  • Former Ugandan Prime Minister, Amama Mbabazi, is running for president. He hopes to challenge incumbent Gen. Yoweri Museveni in the ruling party’s primary ahead of elections next year. Museveni will win, but Mbabazi’s candidature is probably the most exciting thing that will happen in this well-choreographed electoral cycle. The police are already on his case.
  • Peace and prehistory in Somaliland. You never hear much about Somaliland, the quasi-independent state to the north of the Republic of Somalia. This nice piece by Stanley Stewart documents what Somaliland has to offer as a travel destination.
  • The problem of urbanization without growth. The (developing) world is urbanizing fast, but will this trend result in an unambiguous improvement in human welfare? This post reminds us that throughout history urbanization has not always gone hand in hand with economic growth (See also here).

    correlation between urbanization and growth over time

    correlation between urbanization and growth over time