In recent years, the effects of microcredit, particularly the high-interest loans offered by for-profit lenders, have been hotly debated. New research (abstract; PDF) from Dean Karlan and two co-authors, which Karlan discussed on this blog as the project was getting underway, addresses the impacts of the for-profit loans offered by Compartamos Banco, Mexico’s largest micro lender. Their findings:
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Our results suggest modest but generally positive average effects on our sample of borrowers and prospective borrowers. We make five broad inferences. First, increasing access to microcredit increases borrowing and does not crowd-out other loans. Second, loans seem to be used for both investment—in particular for expanding previously existing businesses—and risk management (through a reduction in asset fire sales). Third, there is evidence of positive average impacts on business size, reliance on/need for aid, lack of depression, trust, and female decision making. Fourth, there is little evidence of negative average impacts: the only “negative” impacts are reductions in asset purchases and temptation goods, and these results have normatively positive or neutral interpretations as well. Fifth, the positive effects are not sweeping or transformative. Although some of the AIT effects are economically large, and all of the statistically significant effects are likely large in treatment-on-the-treated terms, we find statistically significant effects on only 12 of the 35 more-ultimate outcomes we evaluate, and no positive effects on household/business income, consumption, or wealth.
Economist Jeffrey Sachs, the force behind the Millennium Villages Project, is in the news as a book chronicling his efforts is released – Nina Munk’s The Idealist: Jeffrey Sachs and the Quest to End Poverty. You can read about it in the Wall Street Journal, or read excerpts in the Huffington Post. Sachs’s project is a major effort at a new way to fight poverty in Africa, as Joe Nocera, writing in The New York Times, explains:
The quest began in 2005, when Sachs, who directs the Earth Institute at Columbia University, started an ambitious program called the Millennium Villages Project. He and his team chose a handful of sub-Saharan African villages, where they imposed a series of “interventions” in such areas as agriculture, health and education. The idea was that these villages would show Africa — and the world — how the continent could loosen the grip that extreme poverty had on so many of its people.
Sachs admirably raised millions, drew attention to efforts to alleviate poverty around the world, and launched Millennium Villages in several countries. However, the reviewers hone in on the book’s discussion of many of the difficulties, such as drought, disease, locals who resisted the idea of selling their prized camels at the new markets set up for them, or locals who used the anti-malarial bednets on their goats rather than their children. Read More »
The standard narrative around technology in the developing world usually focuses on the positive: cell phones make it easier to check crop prices, transfer money, and understand violence. But a new study, summarized in Foreign Policy, finds that all this connectivity can also increase political violence in violence-prone regions and countries:
A new study by Jan Pierskalla of the German Institute of Global and Area Studies and Florian Hollenbach of Duke University looks at the relationship between mobile phones and political violence in Africa. They found that from 2007 to 2009, areas with 2G network coverage were 50 percent more likely to have experienced incidents of armed conflict than those without. The clearest overlaps between cell coverage and violence were observed in Algeria, the Democratic Republic of the Congo, Kenya, Nigeria, Uganda, and Zimbabwe.
The authors think that improved cell-phone coverage helps insurgent leaders overcome what’s called the “collective-action problem” — that people are reluctant to join group endeavors when there’s a high level of personal risk. But better communication helps leaders recruit reluctant followers, whether they’re demonstrating for higher wages or killing people in the next town.
Writing for Foreign Policy, Tyler Cowen explains what cookbooks can tell us about economic development. Why is it easy to find Mexican food cookbooks, but impossible to find a cookbook detailing the recipe for Yemen’s mutafayyah dish? Here’s Cowen’s economic explanation:
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Consider how cooking evolves: It starts in the home and then eventually spreads to restaurants and on to cookbooks, along the way transforming a recipe from oral tradition to commercialized product. In the home, recipes are often transmitted from grandmother to mother, or from father to son, or simply by watching and participating. I’ve seen this in rural Mexico, for instance, when an older daughter teaches her younger sister how to pat tortillas the right way. When societies get richer, you start to see restaurants, a form of specialization like auto mechanics or tailors (see: Adam Smith on the division of labor). Restaurants require that strangers — other cooks — be taught the process. That means simplifying or standardizing ingredients so they’re easier to work with and, in many cases, available year-round. This, of course, means writing down the recipe. Once a dish reaches these commercial milestones, cookbooks will follow.
Silicon Valley heavyweights like Facebook co-founder Chris Hughes and Google have a new favorite charity: GiveDirectly, an organization that makes direct transfers (via M-Pesa) to poor people in the developing world. From Forbes:
“Instead of building hospitals, why don’t we just give poor people money? Research shows it’s effective,” [Hughes] said. Hughes, who purchased The New Republic magazine in early 2012 and serves as publisher, also joined the board of GiveDirectly.
Backing up Hughes’s point was Jacquelline Fuller, Director of Giving at Google. She told the crowd Thursday night that one of her superiors at Google was extremely skeptical when Fuller first suggested that Google back GiveDirectly. “I was told, ‘You must be smoking crack,’ ” Fuller recalled. But GiveDirectly had exactly what Google wanted: lots of data on how the recipients of cash used it to improve their nutrition, their health and their children’s education. After looking at the data, Google donated $2.5 million to GiveDirectly.
GiveDirectly stems from economist Paul Niehaus‘s research in India, where to limit corruption the government makes direct cash transfers via mobile phones. “A typical poor person is poor not because he is irresponsible, but because he was born in Africa,” says Niehaus, adding that GiveDirectly’s transfers have had positive impacts on nutrition, education, land, and livestock — and haven’t increased alcohol consumption. The charity is also No. 2 on Givewell’s list of recommended charities.
(HT: Marginal Revolution)
We’ve blogged before about witches — mainly with respect to how economic conditions affect witch hunting. Writing for Worldcrunch, Rodrigue Mangwa investigates the practice and explains the economics of witch trials in the Congo:
It should be noted that the witchcraft trials are not free, and are an important source of revenue for the tribal chief. Before the dispute can be brought to the court, each party has to pay a mandatory fee of $200 – the price of a cow – whether they can afford it or not.
The headmaster of a primary school situated in Rubanga, 10 kilometers from the village of Lemera, says the witchcraft trials are just a way to exploit the local poor farmers in order to generate revenue for the tribal chief. “It would be naïve to think this is a real test of witchcraft. The tribal judges, who are pawns of the Mwami, are bribed to hand out false verdicts,” he says.
(HT: Marginal Revolution)
The video was timed to coincide with the release of Bill Gates‘s 2013 Annual Letter, which notes successful health reforms in Ethiopia and the importance of quality measurements. ”[A]ny innovation — whether it’s a new vaccine or an improved seed — can’t have an impact unless it reaches the people who will benefit from it,” writes Gates. Read More »
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[W]e randomly allocated loans to a subset of applicants considered too risky and “unreliable” to be offered loans as regular borrowers of a well established MFI [micro-finance institution] in Bosnia. Our group is poorer and generally more disadvantaged than regular borrowers. What is particularly interesting is that they have applied for the loan and thus believe they have a profitable investment opportunity; however, they were turned down. This is exactly the group we need to analyze if we are to understand whether alleviating liquidity constraints in this way can be an effective anti-poverty tool.