Economics in Low-Income Countries

I came across Ingrid Kvangraven‘s very thoughtful review of Alternative Theories of Economic Development over at Developing Economics. The book sounds like a rehashing of the standard critiques of contemporary research in the field of development economics, some which tend to fall squarely in the caricature column. That said, caricatures can sometimes be useful in forcing us to reconsider core assumptions. In particular, I think the field of development economics has yet to deal with the problem of being “a tool-driven profession, where the tools determine the types of questions that are possible to ask as well as the type of analysis possible to carry out.”

For instance, I love most of the exciting micro work in development economics, but would certainly be interested in reading more books or papers covering big picture macro topics in developing countries. I also realize that economists from developing countries are the best-placed (in terms of incentives and access to information) to try and answer some of the big picture questions that do not always lend themselves to empirical analyses.

Here are some excerpts:

The editors also emphasize the increasing focus on methods in the field of development economics, rather than theory and history (in line with my own observation). The editors argue that the field has developed into a tool-driven profession, where the tools determine the types of questions that are possible to ask as well as the type of analysis possible to carry out. For example, as pointed out by Viner (1937), increasing returns was removed from international trade theory because it was not compatible with equilibrium. As Paul Krugman (1991) puts it: Economics came to “follow the line of least mathematical resistance”.

screen-shot-2017-02-14-at-3-49-26-pmThe editors also find that the basic fact of uneven development tends to be reduced to models of “dualism,” which implies less attention to the differentiation internal to sectors, and patterns of interaction of different groups of classes within and across sectors. Furthermore, when it is discovered that certain institutions are different from “the norm” in developing countries, they are highlighted and explained using the same basic analytical tools developed for the norm. This type of Economics is what the editors call a National Geographic view of the broader process of development, as only snapshots of particular institutions or economic activities are separated for the analysis.

You can read the whole thing here.

A Kansas City High Schooler’s Development Questions

I regularly receive emails from readers with all sorts of questions and requests. This one caught my eye:

Hello Dr. Opalo,

My name is [redacted] and I am a senior in high school in Kansas City, MO. I am currently working on an exhibition regarding poverty in sub Saharan Africa. My essential question is: What are the factors that contribute to ongoing poverty in sub Saharan Africa. I was wondering if you would be willing to answer a few questions to assist me in my research.

1. How would you describe the current state of poverty in sub-Saharan Africa?

2. What can be done to solve the feminization of poverty?

3. Is Time Poverty a large factor in ongoing poverty and how can time poverty be solved?

4. How can safety be maintained in sub-Saharan Africa through policy?

5. What can an average American do to help end poverty?

Thank you for your time!

If you have answers to any of these questions, let me know in the comments section. I plan to write back before the student’s exhibition is due…

J. D. Vance’s Hillbilly Elegy and Economic Development

Hillbilly Elegy has been touted as a the guide to understanding Donald J. Trump’s overwhelming support among working class European-Americans.

It also has important lessons for students of development. Take this excerpt, for example:

Despite its reputation, Appalachia – especially northern Alabama and Georgia to South Ohio – has far lower church attendance than the Midwest, parts of the Mountain West, and much of the space between Michigan and Montana. Oddly enough, we think we attend church more than we actually do. In a recent Gallup poll, Southerners and Midwesterners reported the highest rates of church attendance in the country. Yet actual church attendance is much lower in the South.

This pattern of deception has to do with cultural pressure. In southwestern Ohio, where I was born, both the Cincinnati and Dayton metropolitan regions have very low rates of church attendance, about the same as ultra-liberal San Francisco. No one I know in San Francisco would feel ashamed to admit that they don’t go to church (In fact, some of them might feel ashamed to admit that they do.) Ohio is the polar opposite. Even as a kid, I’d lie when people asked if I attended church regularly. According to Gallup, I wasn’t alone in feeling that pressure.

The juxtaposition is jarring: Religious institutions remain a positive force in people’s lives, but in a part of the country slammed by the decline of manufacturing, joblessness, addiction, and broken homes, church attendance has fallen off. Dad’s church offered something desperately needed by people like me. For alcoholics, it gave them community of support… For expectant mothers, it offered a free home with job training and parenting classes. When someone needed a job, church friends could either provide one or make introductions.

This is not a political book. Instead, it is simply a powerful narration of a story that is often ignored: that America has millions of poor European-Americans, a good number of whom feel economically and culturally isolated from the public sphere. Vance suggests that this feeling of isolation may have been rendered more acute by the ongoing erosion of the idea that European descent ought to be an automatic ticket to material stability and high social status.

I read this book hoping to get an insight into Hillbilly politics, but the key lesson that I came out with is that people organize out of poverty.

Atomization is disorienting. Stable homes, communities, and well-ordered societies make a huge difference for material outcomes from generation to generation.

History teaches us that the only means of inter-generational persistence of material advancement is through stable and resilient organizations — family units, churches, investment clubs, firms, capable and responsive governments, etc.

I highly recommend the book, whether you are interested in American politics or not.

Population trends and the potential for a demographic dividend in Africa

Bloom, Kuhn, and Prettner write:

We assess Africa’s prospects for enjoying a demographic dividend. While fertility rates and dependency ratios in Africa remain high, they have started to decline. According to UN projections, they will fall further in the coming decades such that by the mid-21st century the ratio of the working-age to dependent population will be greater than in Asia, Europe, and Northern America. This projection suggests Africa has considerable potential to enjoy a demographic dividend. Whether and when it actually materializes, and also its magnitude, hinges on policies and institutions in key realms that include macroeconomic management, human capital, trade, governance, and labor and capital markets. Given strong complementarities among these areas, coordinated policies will likely be most effective in generating the momentum needed to pull Africa’s economies out of a development trap.

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Dependence Ratios Across Different Regions

 

Do you need a reason to visit Kenya?

Kenya’s economy is growing at 5.9%. It is a frontier economy of 46 million with lots of opportunities for investment in sectors as diverse as tech, infrastructure, agribusiness, and light manufacturing. Kenya is also a gateway to the wider Eastern Africa region, with a market of about 120 million.

But if you are not a potential investor and just want to visit, here are some pictures to help you along…

Facebook founder Mark Zuckerberg visited Nairobi this week for business. He also found time to visit Lake Naivasha, a quick two hour “safari lite” destination to the northwest of Nairobi. The best thing about Nairobi is that it is the only city in the world with a national park (not a zoo) within city limits. Zuckerberg could have gone for a game drive in Nairobi, if he wanted to. The pictures were posted on Zuckerberg’s Facebook account.

Now go ahead and book those tickets.

The Secret to Autocratic Success (The Example of China)

This is from The Economist:

Even so, Mr Xi’s authority remains hemmed in. True, his position at the highest level looks secure. But among the next layer of the elite, he has surprisingly few backers. Victor Shih of the University of California, San Diego, has tracked the various job-related and personal connections between the 205 full members of the party’s Central Committee, which embodies the broader elite. The body rubber-stamps Mr Xi’s decisions (there have been no recent rumours of open dissent within it). But the president needs enthusiastic support, as well as just a show of hands, to get his policies—such as badly needed economic reforms—implemented. According to Mr Shih, the president’s faction accounts for just 6% of the group. That does not help.

Admittedly, this number should not be taken too literally: it is difficult to assign affiliations to many of the committee’s members. Doubtless, too, many members who are not in Mr Xi’s network support the president out of ambition or fear. Still, Mr Xi can rely on remarkably few loyal supporters in the Central Committee because he did not choose its members. They were selected at the same time he was chosen as party leader in 2012, a process overseen by the dominant figures of that period, Mr Hu and the long-retired Mr Jiang.

Most people who laud China’s autocratic success conveniently choose to ignore two important facts:

  1. That China’s rulers, at least since the late 1970s, have not been totally unaccountable. The country is a dictatorship by committee. And a large committee at that. It is not a personalist one man show.
  2. The the Chinese party-state works tirelessly to reduce the cost of compliance among its citizens — through conscious state building, coercion, and public services.

What this means is that in order to replicate China’s autocratic success, would be little Chinas must invest in both state capacity and intra-elite accountability (perhaps by building strong, institutionalized parties).

Absent this, what you are likely to get are mediocre petty tyrants running disorganized non-states with infant mortality rates straight out of the 16th century.

Why are Africans getting shorter?

South Asia still posts the lowest average height for adults in the world (see image below). But a remarkable finding of a recent study is that adult Africans (among other low income regions of the world) have gotten shorter, on average, since the 1970s.

Being taller is associated with enhanced longevity, and higher education and earnings. We reanalysed 1472 population-based studies, with measurement of height on more than 18.6 million participants to estimate mean height for people born between 1896 and 1996 in 200 countries. The largest gain in adult height over the past century has occurred in South Korean women and Iranian men, who became 20.2 cm (95% credible interval 17.5–22.7) and 16.5 cm (13.3–19.7) taller, respectively. In contrast, there was little change in adult height in some sub-Saharan African countries and in South Asia over the century of analysis. The tallest people over these 100 years are men born in the Netherlands in the last quarter of 20th century, whose average heights surpassed 182.5 cm, and the shortest were women born in Guatemala in 1896 (140.3 cm; 135.8–144.8). The height differential between the tallest and shortest populations was 19-20 cm a century ago, and has remained the same for women and increased for men a century later despite substantial changes in the ranking of countries.

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What explains deceleration in average adult heights on the Continent?

One obvious explanation is a decline in nutrition amid rising populations and declining agricultural productivity (Africa barely registered a green revolution). Another major culprit is the economic disaster that visited the Continent from the late 1970s to the early 1990s — which resulted in poor nutrition and an unchecked disease burden. Lastly, there is the issue of water and sanitation, especially in the context of a rapidly urbanizing population, which has direct implications for the realized disease burden.

The top 20 best countries to invest your money in Africa

This is according to the latest Ernst & Young’s Africa Attractiveness Report (2016). Kenya is ranked 4th. Ahead of Tunisia, Mauritius, and Botswana. You just need to spend a few hours in Nairobi, or the other 46 county headquarters, to understand why. While economic inequality remains to be a huge (political) challenge, it’s hard to argue against the structural transformations underway in the Kenyan economy.

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More on this year.

Human Capital and Economic Development in Britain, 1750-1930

B. Zorina Khan writes:

Many argue that the nature of early British industrialization supports the thesis that economic advances depend on specialized scientific training, the acquisition of costly human capital, and the role of elites. This paper examines the contributions of different types of knowledge to British industrialization, by assessing the backgrounds, education and inventive activity of the major contributors to technological advances in Britain during the crucial period between 1750 and 1930. The results indicate that scientists, engineers or technicians were not well-represented among the British great inventors, and their contributions remained unspecialized until very late in the nineteenth century. For developing countries today, the implications are that costly investments in specialized human capital resources might be less important than incentives for creativity, flexibility, and the ability to make incremental adjustments that can transform existing technologies into inventions that are appropriate for prevailing domestic conditions.

…….. The patent records also enable us to examine whether a science background increased productivity at invention. Again, the patterns are consistent with the notion that at least until 1870 a background in science did not add a great deal to inventive productivity. If scientific knowledge gave inventors a marked advantage, it might be expected that they would demonstrate greater creativity at an earlier age than those without such human capital. Inventor scientists were marginally younger than nonscientists, but both classes of inventors were primarily close to middle age by the time they obtained their first invention (and note that this variable tracks inventions rather than patents). Productivity in terms of average patents filed and career length are also similar among all great inventors irrespective of their scientific orientation. Thus, the kind of knowledge and ideas that produced significant technological contributions during British industrialization seem to have been rather general and available to all creative individuals, regardless of their scientific training.

The whole paper is definitely worth reading and is available here.