Academic economists usually air their new ideas first in working papers. Here, before the work gets dusty, a quick look at transition policy research in progress.
- By Peter PassellPeter Passell, the Economics Editor of Democracy Lab, is a Senior Fellow at the Milken Institute.
Looking for a cheap way to save millions of lives each year in rural parts of poor countries — and prevent soil erosion and slow global warming at the same time? For some years now, development specialists have been touting the virtues of simple, cheap, high-efficiency cooking stoves that can reduce indoor air pollution from open fires — one of the most prominent causes of respiratory illness and premature death in parts of Africa and Asia. What’s more, along with protecting householders (especially children) from smoke inhalation, they cut back the use of brushwood that otherwise protects fragile soils from erosion and reduce total greenhouse gas emissions. (This is one of the reasons why Hillary Clinton, among others, has become a passionate advocate of "clean cookstoves.").
But there’s a catch: To get any benefit from these stoves, they have to be used. According to a scientifically controlled study by Rema Hanna (Harvard), Esther Duflo (MIT), and Michael Greenstone (MIT) that was conducted in a poor village in India, introduction of the stoves did reduce smoke inhalation in the first year. But in the three years following, the stoves ceased to make a noticeable difference. "Households failed to use the stoves regularly or appropriately," the economists report, and "did not make the necessary investments to maintain them properly." The sobering lesson, of course, is that engineering studies back home have limited predictive value on how technology will be used in real-world development settings. Up in Smoke: The Influence of Household Behavior on the Long-Run Impact of Improved Cooking Stoves. MIT Economics Department Working Paper. Download free here.
Forged in Adversity
Non-specialists tend to assume that Eastern Bloc economies were one undifferentiated train wreck before the collapse of the Soviet empire. But in fact these newly freed economies had quite different characters in terms of social and human capital and traditions of entrepreneurship. And while none of them has had an easy time integrating with Europe, it shouldn’t be surprising they’ve followed widely divergent paths in managing the transition. If you really want to understand what happened, you could spend a few months perusing the literature — or you could cut a number of corners and read this splendid big-picture analysis of two decades of wrenching change written by Anders Aslund, who made his reputation predicting the economic implosion of the USSR long before it was fashionable.
Don’t expect me to summarize the summary. But I can offer you a sneak preview: Those difficult decades left Eastern Europe in surprisingly good shape to recover from this last global recession. Indeed, Poland is now in a far better position to grow than the countries on the southern periphery of the Eurozone. Lessons from Reforms in Central and Eastern Europe in the Wake of the Global Financial Crisis. Peterson Institute Working Paper WP 12-7. Download free here.
There’s now a virtual consensus among development specialists that reducing gender inequality is critical to jumpstarting economic growth in the poorest countries — and that the surest route to greater equality lies in education. But western educators learned decades ago that the culture of inequality deterring female empowerment is all too often reinforced in school. Among other problems, girls are inclined to defer to boys and therefore get less out of the classroom experience.
A group of researchers (Harounan Kazianga, Dan Levy, Leigh Linden, and Matt Sloan) working under the auspices of the Institute for the Study of Labor (IZA) in Germany have confirmed that what’s true in Europe and America applies to ultra-poor Burkina Faso as well. They compared traditional primary schools with "girl-friendly" schools created under the BRIGHT program, which is funded by the U.S. government. (BRIGHT schools, by the way, are apparently co-ed, but go out of their way to make themselves attractive to girls by adding more and better trained female teachers, setting up separate bathrooms for girls, etc.) The results have been pretty spectacular, increasing girls’ enrollment rates and raising test scores for both boys and girls. The Effects of "Girl-Friendly" Schools: Evidence from the BRIGHT School Construction Program in Burkina Faso. IZA Discussion Paper No. 6574. Download free here.
For all the bad rap following the collapse of the financial bubble in 2008, financial derivatives remain indispensable in managing risk in modern economies (your economist-narrator said defiantly). But sharia law bars financial speculation just as it bans interest. And more often than not, the creation of a derivative — say, a bet on the price of gold in six months — requires that one party to the transaction have speculation in mind. Is there any way to make derivatives acceptable in financial systems governed by Islamic law?
According to Andreas Jobst (Bermuda Monetary Authority) and Juan Solé (Bank for International Settlements), the answer is a definite maybe. By their reading of the literature, sharia does offer significant wiggle room, allowing derivatives in a variety of circumstances. What’s important now, the authors argue, is to codify acceptable practices in the relevant countries so that parties that do derivative contracts don’t bear the risk that their agreements will be declared invalid when there are efforts to enforce them. Operative Principles of Islamic Derivatives — Towards a Coherent Theory. IMF Working Paper WP/12/63. Download here free.
Spillovers from Microfinance
The idea that the introduction of formal ways to borrow and save can make a big difference in the poorest of places is now widely accepted. Indeed, tiny loans from both non-profits and profit-seeking businesses seem to be the fashion these days, financing everything from cell phones to farm equipment.
What’s less clear, though, is their impact on the welfare of people other than the immediate beneficiaries. Jeffry Flory, an economist at the University of Chicago, examined one particular aspect of the question: The degree to which access to formal savings and credit served as a safety net in times of crop failures and other disasters. In a study of isolated villages in central Malawi, he found that a one percentage point increase in households with formal savings increased the number of households receiving inter-household gifts/loans by about three percentage points, along with the expected improvements in health outcomes.
A serendipitous finding, you say? Yes, but there is one catch: The obligation to support extended families and friends in hard time is, in a sense, a tax, and thus may well reduce the incentives to save and invest in just the sort of places that most desperately need it to grow. Micro-Savings and Informal Insurance in Villages: How Financial Deepening Affects Safety Nets of the Poor, A Natural Field Experiment. Milton Friedman Institute Working Paper 2011-008. Download free here.
Trade and the Arab Spring
It’s one thing to engineer a political revolution, and quite another to build a successful economy from the wreckage of autocracy and exploitation. Can the Arab Spring countries (Egypt and Tunisia for now, but who knows later on) find the means to become prosperous? Most relevant here, can the West make a difference in their fate?
Economists Thorvaldur Gylfason, Inmaculada Martínez-Zarzoso, and Per Magnus Wijkman explore one element: The potential for gains from greater economic integration, both within North Africa and between North Africa and Mediterranean Europe. They conclude that trade represents enormous untapped potential within the Arab Spring countries — not an intuitive result, by the way — and that Europe has the opportunity to use preferential access to its markets as a carrot to make economic reform easier. Solid potential. How Free Trade Can Help Convert the "ArabSpring" into Permanent Peace and Democracy. CESifo Working Paper 3882. Download free here.