Tag Archives: poverty

Why has economic growth reduced poverty in some African states but failed in others?

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This is from an excellent paper by Rumman Khan, Oliver Morrissey and Paul Mosley:

Between 1990 and 2012, for most of the developing world, poverty has halved or more than halved except in sub-Saharan Africa (SSA). The simple poverty headcount fell from about 60% to 15% in East Asia; 50% to 25% in South Asia; 20% to 10% in Latin America; but only from 57% to under 43% in SSA (Beegle, Christiaensen, Dabalen and Gaddis, 2016: 21- 22). This is despite more than a decade of impressive growth in SSA, averaging 5-6 per cent per year since the late 1990s (Devarajan, 2013: S9). Some countries did (almost) halve poverty, such as Ghana (McKay and Osei-Assibey, 2017) and Uganda (Kakande, 2010), and many achieved significant reductions. In contrast, populous countries such as South Africa and Nigeria, on the available evidence, have not achieved significant poverty reduction.

The authors note that the effects of growth on poverty reduction across Africa has been bimodal. And this is their explanation:

povertyTo explain variation within SSA in poverty reduction, we consider aspects of colonial experience associated with the emergence of differing potential for redistributive policies to emerge after independence. Following the approach of Myint (1976) and others, we classify SSA countries into two groups according to the economic strategies used by the colonial authorities, using pre-independence data on factors such as inequality, land ownership by Europeans and political participation by Africans (the process is detailed in Appendix A, with validation by cluster analysis). In smallholder production economies, African agricultural smallholders had economic and some political participation. In contrast, extractive production economies dominated by foreign-owned mines and large-scale farms fostered the emergence of an elite politics characterised by urban bias and capital-intensive production technologies. During the colonial period African economies became clustered around a bimodal structure, which provided better opportunities to the poor in countries whose production was based on the development of labour-intensive smallholder exports than in countries whose growth strategy was based more on capital-intensive mines and large farms. We then test if the growth elasticity of poverty differs between these two groups of countries, using available (PovcalNet) poverty data since 1985, noting that mean growth rates for the two groups were very similar. The analysis shows that the smallholder group significantly outperformed the extractive group, smallholder experience is a significant predictor of poverty reduction, and inclusion of other potential explanatory variables does not alter the conclusion.

I recommend you read the whole paper (including the very rich appendix).

People Are Brains, Not Stomachs

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Alex Tabarrok over at MR has a fantastic summary of some of the works of this year’s three Nobel Prize winners in Economics. This paragraph on one of Michael Kremer’s papers stood out to me:

My second Kremer paper is Population Growth and Technological Change: One Million B.C. to 1990. An economist examining one million years of the economy! I like to say that there are two views of humanity, people are stomachs or people are brains. In the people are stomachs view, more people means more eaters, more takers, less for everyone else. In the people are brains view, more people means more brains, more ideas, more for everyone else. The people are brains view is my view and Paul Romer’s view (ideas are nonrivalrous). Kremer tests the two views. He shows that over the long run economic growth increased with population growth. People are brains.

Here is the abstract from Kremer’s QJE paper:

The nonrivalry of technology, as modeled in the endogenous growth literature, implies that high population spurs technological change. This paper constructs and empirically tests a model of long-run world population growth combining this implication with the Malthusian assumption that technology limits population. The model predicts that over most of history, the growth rate of population will be proportional to its level. Empirical tests support this prediction and show that historically, among societies with no possibility for technological contact, those with larger initial populations have had faster technological change and population growth.

Read Tabarrok’s entire post here. Highly recommended.

Since Sunday I’ve been asking around if the Prize got any mention on local radio in Busia, Kenya — the cradle of RCTs, if you will, and where Kremer conducted field experiments. No word yet. Will report if I hear anything.

The Economics of Weddings in Nigeria

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This piece highlights some interesting facts about the wedding industry in Nigeria.

How much do weddings cost?

When an upper-class Nigerian couple throws a wedding, at least 1,000 guests are invited. This equates to about ₦20 – ₦100 million [$55k-$275k], indicating that our celebration culture is nothing short of extravagant.

For perspective:

In India, with 3-5 days set aside to mark the union of two people, a single wedding can earn the economy about as much as $300,000.

Here’s more:

There is evidence that Nigerians’ desire to “flex” has provided a boost to the economy. For example, during the country’s last recession, the entertainment industry continued to expand even as other sectors shrunk. This similar pattern is observed with big-budget weddings. The cost of living has risen, but it hasn’t deterred the big wedding spenders.

And this has had a rippling effect on the rest of the economy.

Today, weddings are major employers of catering services, makeup artists, photographers and so on, directly supporting key growth drivers for any economy- small businesses. For example, a mobile toilets startup estimates that marriage celebrations account for 40% of its revenue. Trickle down economists might have a point. Our booming wedding culture is now supporting so many businesses today that would have struggled to survive in the past.

… Even though Nigerians are still famous for being net importers of many products, the wedding industry appears to be directing more spending within the country’s borders. Designers like Deola Sagoe and Mai Atafo have become favourites among brides for their bridal train outfits, instead of foreign designers like Vera Wang.

Lately I have been thinking a lot about socially-embedded economic sectors on the Continent, and their potential for mass job creation — think housing, agriculture, textiles, logistics, carpentry, funerals, weddings. These sectors provide low hanging fruits for policymakers for value addition and productivity gains. And their social embeddedness ensures that the surpluses are shared across the entire SES spectrum.

Unfortunately, most African governments spend all their energies on attracting FDI that ends up in enclave economies that create very few jobs. And to make matters worse, these sectors also get a ton of subsidies:

For example, multinational companies [in Nigeria] are entitled to tax incentives worth an estimated $2.9 billion a year– three times more than our entire health budget. By comparison, small and medium-sized businesses and workers in the informal sector face multiple taxes. Regressive tax policies like this work to keep wealth concentrated amongst a few.

FDI is great for capital intensive sectors. But governments should also be thinking creatively about how to promote local (micro) SMEs that touch a wider base of households.

Perhaps its time for the World Bank to consider issuing “An Ease of Doing Business for Local Firms” index.

There appears to be no systematic relationship between genetic diversity and economic development

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This is from Caraher and Ash:

We replicate Ashraf and Galor (2013) and find that its conclusions concerning the association between human genetic diversity and economic development depend substantially on inconsistent coding and data selection. We correct the coding inconsistencies and add or update data on genetic diversity and population density from high-quality sources. We find little support for the hypothesis that variation in genetic diversity among subpopulations has a systematic relationship with economic development.

I suspect this debate is just beginning. And for the record, there is no harm in doing these kinds of research. Let the scientific evidence take us where it may.

I also wish that scholars of deterministic origins of development read more world history. For example, the historical record is chockfull of allegedly genetically “inferior” peoples who rose to build great societies. So at some level, I am yet to be convinced of the utility of the insights we stand to gain from these studies — perhaps beyond proving racist 18th century European intellectuals right or wrong (because if we are honest, that is the genealogy of these studies).

Which is to say that differences in incomes across the world are inherently temporal. Today’s backwater may be tomorrow’s Aksum, Timbuktu, or Kumasi. And vice versa.

My two cents on this is that scholars are better off focusing on the organizational origins of development. People (regardless of their genes) organize out of poverty — into firms, trading networks, guilds, market associations, city states, nation states, or empires. Contextually optimal organizations keep everyone locked on focal outcomes (good or bad), allow elites to milk all the surplus that is politically feasible from workers, and enable the same elites to channel some of that surplus towards productive (or non-productive) enterprises a la Olson’s stationary bandit.

We do not really have a good handle on what makes some societies able to organize better than others?

Works on institutions have done a great job on this front. But “institutions” are becoming the new “neopatrimonialism” — hard to define and overused to explain everything, thereby rendering them analytically useless. Always ask: what specific institutions do you have in mind? 

 

Is the government of Rwanda massaging statistics on growth and poverty reduction?

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This is from the latest installment in the debate over whether Rwanda’s official statistics on economic growth and poverty reduction can be believed:

All poverty lines yield similar trends when used consistently over time, indicating that poverty increased between 5% and 7% points between 2010 and 2014. All changes are statistically significant at the 5% level.

It should be noted that our results differ from those obtained by simply updating the poverty line for inflation using CPI data, as was done by NISR in their 2016 trend report (NISR, 2016). In principle, if the data are of good quality and sufficiently disaggregated, both methods should be equivalent and should not yield significantly different results. This therefore raises questions about the quality / reliability of official CPI data, and/or the quality of price data collected by the EICV. In either case, this would undermine our ability to correctly estimate poverty levels in Rwanda. The discrepancies found here should invite us to more closely scrutinize official statistics coming out of the Rwandan statistical office. GDP growth figures appear to be incompatible with the findings of the EICV survey, given than agriculture still accounts for about one third of GDP and two thirds of the labour force.

More on this here.

The idea that Rwanda is growing without reducing poverty is concerning because it means that the implicit bargain inherent in the country’s political economy — growth in exchange for controlled political development — is not working. It is also likely that the benefits of the country’s recent impressive economic performance are accruing to only a few people, perhaps along ethnic lines. That, again, would be a source of serious concern.

If these data are to be believed, one wonders if Paul Kagame’s refusal to step down is informed by an understanding that the implicit bargain might not hold if he steps down because it was all a mirage to begin with.

More generally, what this means is that Rwanda is developing like any other poor country in which the initial beginnings of rapid growth will be accompanied by rising inequality. The singular problem for Rwanda, of course, is that its history and political economy mean that following this trajectory comes with serious risks to continued political stability.

Cash and Markets in Development

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This is from a story in Kenya’s Standard Newspaper:

Martin Wepukhulu is a small-holder farmer in Trans Nzoia County, popularly described as Kenya’s breadbasket. To produce a two-kilogramme tin of maize known as gorogoro here, he spends about Sh25 on land preparation, seeds and fertilisers on his one-acre farm.

Some 270 kilometre away in Turkana County, one of Kenya’s poorest counties, is Loseny Nguono, a goat keeper, with two wives and 13 children. Turkana is one of the 23 counties affected by drought which has left close to 4 million people in danger of starvation.

Loseny receives Sh8,000 after every two months from the national government through the national safety net programme. He is willing to pay Martin a decent Sh70 for his gorogoro of maize. Unfortunately, neither Martin nor Loseny will get his wish. A reclusive government, ruthless cartels, dilapidated roads and marauding bandits conspire to ensure that while Martin sells his cereals at a low of Sh40, Loseny buys it at a high of Sh150.

Read the whole thing here.

It is great that Loseny has cash; and that unconditional cash transfers for social protection are increasingly becoming a mainstream policy option (notice that the story doesn’t even acknowledge the awesomeness of this reality). But the other lesson that we can learn from the story is that in order to get Loseny out of poverty we need good roads, properly functioning markets, and security. All these are public goods that must be provided through collective action, above and beyond the improvements in Loseny’s private consumption.

Intrahousehold Inequality Across Income Levels: Evidence From Nutrition Data

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Antipoverty policies in developing countries often assume that targeting poor households will be reasonably effective in reaching poor individuals. This paper questions this assumption, using nutritional status as a proxy for individual poverty. The comprehensive assessment for Sub-Saharan Africa reveals that undernourished women and children are spread widely across the distribution of household wealth and consumption. Roughly three-quarters of underweight women and undernourished children are not found in the poorest 20 percent of households, and around half are not found in the poorest 40 percent. The mean joint probability of being an underweight woman and living in the poorest wealth quintile is only 0.03. Countries with higher overall rates of undernutrition tend to have a higher share of undernourished individuals in nonpoor households. The results are consistent with evidence of substantial intrahousehold inequality.

…. the paper has provided a comprehensive study for 30 countries in Sub-Saharan Africa. We find a reasonably robust householdwealth effect on individual undernutrition indicators for women and children. Nonetheless, on aggregating across the 30 countries studied here, about three-quarters of underweight women and undernourished children are not found in the poorest 20% of households when judged by the household wealth index in the Demographic and Health Surveys.

That’s Caitlin Brown, Martin Ravallion, and Dominique van de Walle in a new World Bank working paper. 

 

A Kansas City High Schooler’s Development Questions

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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…

Development Experts and Their Biases

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It is perhaps uncontroversial to suggest that World Bank staff have a different worldview from others. World Bank staff are highly educated and relatively wealthier than a large proportion of the world. However, it is interesting to note that while the goal of development is to end poverty, development professionals are not always good at predicting how poverty shapes mindsets. For example, although 42 percent of Bank staff predicted that most poor people in Nairobi, Kenya, would agree with the statement that “vaccines are risky because they can cause sterilization,” only 11 percent of the poor people sampled in Nairobi actually agreed with that statement. Overall, immunization coverage rates in Kenya are over 80 percent. There were also no significant differences in the responses of Bank staff in country offices and those in headquarters or in responses of staff working directly on poverty relative to staff working on other issues. This finding suggests the presence of a shared mental model, not tempered by direct exposure to poverty [emphasis added].

That is an excerpt from the World Development Report 2015, the section on the biases of development professionals.

One hopes that the problem highlighted by the last line is not crowded out of President Kim’s agenda at the Bank by the ongoing cost-cutting. And in case you were wondering, I don’t think flying coach and no breakfast will cut it since airports and the Mamba Points of this world are beyond the reach of most poor people. Speaking from experience, the development “expert” bubble is real, and enduring. We definitely need to do more to burst the bubble.

If field country offices are mere extensions of DC, then many development projects will continue to be variants of the proverbial solar cookers decried by Jim Ferguson in the Anti-Politics Machine. And everyone will continue to run around in circles.

Pockets of California amid sub-Saharan Africa?

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Rant and rave alert. 

As an undergrad at Yale I took several classes in which professors, TAs and fellow students would casually say things that insinuated that all of Africa (read sub-Saharan Africa) was a cross between a hospice, a giant slum and a war zone. Let’s just say that it all made me a little bit uncomfortable, and sometimes forced me to over-compensate in discussions and with papers and homework. I was particularly disappointed in my professors for not knowing any better. It probably also played a big role in my choice to pursue a career as an academic in the social sciences. 

The quote below reminded me of those episodes:

Despite considerable economic growth and increasing self-confidence as a major global player, modern India is a disaster zone in which millions of lives are wrecked by hunger and by pitiable investment in health and education services. Pockets of California amid sub-Saharan Africa, sum up Sen and Drèze.

It’s one thing when an ignoramus who imagines Kenya to be a town in South Africa that does a mean giraffe barbecue says something nasty about an entire region and its people. But it’s quite another when it comes from a college professor or from people that you expect to know better. 

For instance, when we say California, are we talking Palo Alto or East Palo Alto? I must add here that because it is Sen (my beloved author of The Idea of Justice), may be he meant the “median Californian experience” vs the “median African experience” as opposed to simply comparing Palo Alto with Kibera. May be.

I admire Prof. Sen. Very much.  But I would like to register my disappointment over this offending line. The full article in the Guardian is actually quite illuminating regarding inequality in India. 

If you ever teach a class or write a book or newspaper article or give a talk, please know that it is not kosher to use the word Africa as short hand for everything that you imagine to be wrong with this world. Always remember that part of your audience might include real flesh and blood Africans. Spare us the awkwardness. Please. 

Rational Impatience and marshmallows (and development)

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Back in 1972 Stanford psychologist Walter Mischel conducted experiments in which he claimed to show a correlation between patience and later success in life – in the experiment kids who could wait for 15 minutes before getting two marshmallows, instead of eating one immediately, were likely to be more successful and self-controlled later in life. Michel attributed patience and self-control to some of the kids’ innate capacities.

It turns out that that might not be the case after all. Researchers in Rochester revisited the experiment and show that kids’ choices over whether to wait or not are “moderated by beliefs about environmental reliability,” in other words, kids react rationally to the proposed deal based on prior experience.

According to Celeste Kidd (more on this here), a University of Rochester grad student and lead author on the study:

“Being able to delay gratification — in this case to wait 15 difficult minutes to earn a second marshmallow — not only reflects a child’s capacity for self-control, it also reflects their belief about the practicality of waiting,”

Adding that:

“Delaying gratification is only the rational choice if the child believes a second marshmallow is likely to be delivered after a reasonably short delay.”

This reminded me of the interesting works in economic history (gated, sorry) that try to tackle issues of culture and socialization and their role in economic development. The punchline from these works is that group-specific socio-cultural values have long-lasting effects on attitudes towards investment, saving, entrepreneurship and ultimately economic development (Think of the fabled frugality and self-discipline of Weber’s protestants). Putting some of the critiques of these works aside for a moment, they are a reminder of just how COMPLEX development is.

Because material conditions both shape and are a result of prevailing cultural norms and practices (both Marx and Weber were right!) it becomes difficult to change one thing while ignoring the other (And this is even before you open the pandora’s box, viz: POLITICS). To put it simply, you cannot increase the investment rate in a society simply by throwing money at people. They will spend it on a new shrine for their god or marry a third wife.

This is not to say that it is impossible to transform entire societies in a short while, just that it is not easy, and that we should be humble enough to accept this fact when thinking about how to promote economic development in the bottom billion societies of the world.

Re-assessing Africa’s Resource Wealth

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Over at African Arguments Bright Simons tries to debunk the accepted paradox of African poverty in the middle of a natural resource glut. The post is definitely worth reading, and raises some salient questions regarding resource use and development policy in Africa – and by extension, the economic viability of some African states (thinking of Chad, Central African Republic and Niger….)

Of those few minerals that Africa is believed to hold globally significant or dominant reserves, nearly all of them are concentrated in 4 countries: South Africa, Angola, Democratic Republic of Congo and Guinea. When one computes the level of inequality of mineral distribution across different continental regions, Africa pulls up strongly, showing a far higher than average level of distribution ‘imbalance’ per capita or square mile. In very simple terms, it means that mineral wealth is more concentrated in a few countries in Africa compared to other continents. 

Adding that…..

with the exception of bauxite and petroleum, these minerals are not as widely used in industry (or in the same considerable volumes) as a number other minerals, such as tin, copper, nickel, zinc, iron, coal, and lead, that Africa does not produce in sufficient quantities. Indeed, of the top 5 metallic minerals which constitute 62 percent of the total value of global production, Africa is only a significant producer of one of them: gold. Africa has 8 percent of the world’s copper, 4 percent of aluminium, 3 percent of its iron ore, 2 percent of lead, less than 1 percent of zinc, and virtually no tin or nickel. To put these figures into perspective, recall that Africa has about 14.5 percent of the world’s population.

….. Africa’s low production of the ‘hard minerals’ minerals most intensely used in industry compared to the less widely used ‘soft minerals’ reduces its total take from the global mineral trade. But it also makes a nonsense of fashionable policy prescriptions that emphasise import-substitution strategies based on value addition to minerals, rather than export competitiveness through smart trade strategy and the deepening of the financial system to support entrepreneurs.

More on this here.

H/T Africa in Transition.

Persistence of Culture (and Institutions)

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“How persistent are cultural traits? Using data on anti-Semitism in Germany, we find local continuity over 600 years. Jews were often blamed when the Black Death killed at least a third of Europe’s population during 1348–50. We use plague-era pogroms as an indicator for medieval anti-Semitism. They reliably predict violence against Jews in the 1920s, votes for the Nazi Party, deportations after 1933, attacks on synagogues, and letters to Der Sturmer. We also identify areas where persistence was lower: cities withhigh levels of trade or immigration. Finally, we show that our results are not driven by political extremism or by different attitudes toward violence.”

That is Voigtlander and Voth writing in the Quarterly Journal of Economics.

Their paper speaks to my previous post on the challenges of institutional engineering given the stickiness of institutions (and by extension the cultures that create and then reinforce them). Of course culture is a dicey subject that is often misused to explain economic and social outcomes. Instead of using the amorphous term “culture” I prefer to hear more about the reward systems that make it beneficial for individuals and communities to engage in certain cultural practices.

On a more positive note, the paper provides some evidence of the power of economic opportunities to dis-incentivize engagement in hateful cultural practices:

“Instead of reinforcing persistence, we argue that economic factors had the potential to undermine it…… Our results also lend qualified support to Montesquieu’s famous dictum that trade encourages ‘‘civility.’’

On Industrial Policy (In which I concur with Blattman 1001%)

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I have made the case before here, here and here.

For more here’s Blattman, commenting on Industrial policy:

“You can’t pick winners” is the knee-jerk retort to the mention of anything that even rhymes with industrial policy. I would call it the triumph of ideology over evidence, except that even “ideology” feels like a generous term. Lazy thinking might be a more accurate description. Some have given the question a great deal of thought, but most have not.

I’m not suggesting that the paper above has the right answer (odds are, like most papers, it does not). I’m also not suggesting that governments can pick winners (probably they can’t). Nor am I forgetting that industrial policy is easily politicized and distorted (as surely it is). So what am I talking about?

More on this here.

World Bank President Doubles as a Rapping Spaceman

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Just in case you haven not seen this yet:

[youtube.com/watch?v=-DIMT-auQIA&feature=related]

H/T Erin.