Bluematter.

Whether you believe aid is effective or not, it has always struck me that, as a quantitative matter, it is a drop in the ocean. I am not saying that we should abandon aid; I am convinced it mostly makes things better. What I am saying, however, is that given how little it is and how widespread poverty is, the effect on national-level indicators can only be very, very small.

While aid can realistically only ever be a small part of the solution, other policies pursued by rich countries can have very widespread effects, and have perhaps received less attention than is warranted. In other words, we may be giving x euros in aid, but how much are we taking back by pursuing a Common Agricultural Policy? How much aid would a country have to give to make up for the effect on the poor of tight immigration policies?

The excellent Owen Barder links to a worthwhile attempt to rank rich countries according to how well they perform on development along these dimensions:

Though the effects of aid on development are uncertain, there is a huge amount that industrialised countries can do – or not do – which affects how quickly countries develop.  The policies of rich countries on trade, investment, migration, the environment, security and technology can make a huge impact on how quickly poor countries are able to develop. Yet we tend to judge industrialized countries too much according to how much aid they give, and too little to how they behave in all these other ways.

The Center for Global Development provides an essential service by ranking the rich each year so we can see how we are doing.  They use a series of quantitative measures on all these dimensions to create a composite picture of how a country’s policies affect development. 

The 2010 results are now in. An excellent effort; I hope the next step is an attempt to monetize the value of the different policies pursued. However arbitrary this exercise may be, it will be another step in going beyond a qualitative understanding of the effect of aid, trade policies, etc, allowing us to better focus our collective efforts.

If present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time.

And there's more, from a new NBER paper by Sala-i-Martin and Pinkovskiy entitled AFRICAN POVERTY IS FALLING...MUCH FASTER THAN YOU THINK!(I covered their previous related paper here):

1) African poverty is falling and is falling rapidly; (2) if present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time; (3) the growth spurt that began in 1995 decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic.

And there's some lovely graphs too - the style is unappealing, but the content is so sweet it's worth framing them and hanging them on every wall you can find:


And here's where I'll be going in a month's time:


Yes, there is such thing as an uplifting economic paper.

One of my parents' good friends is a very successful (and rich) lawyer in her late fifties who grew up near Nafpaktos in western mainland Greece.

Back in the 60's when she was graduating from primary school, pupils needed to pass a challenging set of exams if they were to proceed to high school. Aleka almost didn't make it, and the reason was this: her father was dead worried that, if she failed the exams, the family wouldn't have any use for a girl's pair of shoes - and he refused to make the investment up to a few days before the exams. Aleka had no shoes up till then, and shoes were necessary to be allowed in the exam hall.

Going further back to the 1930's, my grandfather also passed his high-school exams, one of only two people in his entire (very large) village to achieve the feat that year. To get to the school, he had to walk 40 kms (a full marathon) every Sunday to get to the city, and 40 kms every Saturday to get back to his village. My great-grandfather made sure shoes were provided, but there was never any thought of my grandfather wearing them during his twice-weekly marathon: that would wear them out, and with no shoes there would be no school.

Fast-forward to the present, and I'm tutoring 15-year olds in economics. The subject turns to economic growth (shockingly, not part of the syllabus), and I ask them whether they think people today are better off in material terms than they were 40 or 60 years ago. They usually hesitate to answer economics questions, and they often disagree with each other. This time, there was no need to pause for thought: they all confidently told me that people today are much, much poorer.

This economist thinks that Paul Romer's charter cities are an amazing idea, one that is very likely to speed up the process of eradicating poverty across the planet. I also think that they they will be easier to establish, politically, that perhaps even Romer believes. I may be naive, but I can very easily picture a Nobel-Peace-Prize-winning Obama ceding control of Guantanamo to the Canadians or the Norwegians for a limited time period before it is returned to Cuba. (for background on Charter cities and the US-Canada-Cuba scenario, see after the jump at the end of this post)

Chris Blattman disagrees:

Fundamentally, I think this is a problem not of economy, but political economy. Even if we know what an ideal Charter City looks like, have we mapped out how to get there amidst the lobbyists, big business, and international interests?

I think the crucial thing Chris is missing here is that, unlike say health-care reform, there really isn't any powerful constituency that would oppose Charter Cities. Lobbyists of all and any colours have no reason to fight them. Big business - all big business - has much to gain and nothing to lose. I find it hard to think of many scenarios where 'international interests' take offence.  There are gains from Charter cities that can be split between stakeholders so that everyone's happy.

Even if you think there are cases where some interest group objects, Charter Cities are small enough to ensure no-one stands to lose so much that they can't be brought around. 

Maybe it's time someone started tracking membership of the Charter City club (modeled along the lines of the Pigou club). In that case, count me in.

Deworming is the most cost-effective way to improve school attendance and performance in developing countries:

The simplest and least costly of these programs is deworming. Nearly 2 billion people around the world are affected by parasitic worm infections, with children disproportionately affected.

Harvard economist Michael Kremer has studied the impact of mass deworming in Kenya and India. Delivering deworming medication costs 50 cents per child per year in Kenya but yielded a 25 percent increase in school attendance; a similar program in India cost $4 per student per year and yielded a 20 percent attendance gain. "This is a simple, cost-effective and yet tragically not-done program. It's a scandal that [deworming] hasn't been addressed," Kremer says. There are spillover effects as well. "The most surprising thing about the study in Kenya was the widespread impact," Kremer says. The program drove down infection rates for several kilometers around the schools, he says, and there were significant improvements in attendance for untreated students, in the treatment schools as well as in nearby schools not in the program.

Bravo! This is brilliant, it's bloody beautiful. I don't think I've ever seen a more hit-you-right-between-the-eyes dataset in my life. If you are teaching economics 101 (or for that matter, econometrics 101) this is the definitive demonstration.

Here, ladies and gentlemen, for your education and amusement, lie the benefits of the market plain and simple, to see with your own eyes and believe. There shall be no doubt in your minds. Watch closely, for ye shall see how functioning markets are no less powerful than magic.

Here's the story. In Kerala, a state in south India, fishing is very important. There are more than 1 million fishermen, and fish is consumed by 70% of the population on a daily basis. The catch varies daily between the different fishing regions, and so does the price: the poor folk can never tell if they'll be able to afford fish on any given day, as it is lady luck who decides. Waste and shortages are common, as sometimes the fish caught are simply too many, or too few.

But in 1997, a miracle happens. Mobile phones are introduced, and one of the key ingredients of functioning markets - information - is in place. What follows is, as promised, nothing short of magic.

Three different regions, three different mobile telephony adoption dates. On the y axis is the price, on the x axis time. Fish now make their way to where they are valued more, and prices are stable. Fishermen profits increase by 8%, and the average price falls by 4%. Before, six fish in every hundred were wasted, with fishermen unable to find someone to sell them to. Now, all fish find their way to a happy customer.

Here is the Robert Jensen paper (free access), and here is a presentation. Hat tip to the Yorkshire Ranter, via the ASI blog.

We document the market response to an unexpected announcement of proposed sales of government-owned shares in China. In contrast to the "privatization premium" found in earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect in response to the announced cancellation of the government sell-off [Empasis DC]. [...] the positive effects on profits of political ties through government ownership outweigh the potential efficiency costs of government shareholdings.

Companies with former government officials in management have positive abnormal returns, suggesting that personal ties can substitute for the benefits of government ownership. The "privatization discount" is higher for firms located in Special Economic Zones, where local government discretionary authority is highest.

From a new NBER paper describing what happens when the 'grabbing' and 'helping' hands of the Chinese state meet the invisible hand of the market.

Good news:

Measles deaths in Africa fell by 91% between 2000 and 2006, figures from the World Health Organization show. The drop, from an estimated 396,000 to 36,000, means the United Nations target to cut measles deaths by 90% by 2010 has been hit four years early.

But the WHO warned deaths were still far too high in South Asia, particularly in India and Pakistan.

The success follows concerted efforts to vaccinate all children against measles before their first birthday.

Overall global measles deaths fell by 68% - from an estimated 757,000 to 242,000 - over the six year period, a WHO report showed. WHO said the decline in measles deaths in Africa was made possible because governments had implemented robust immunisation programmes.

"This is a major public health success and a tribute to the commitment of countries in the African region," said Dr Margaret Chan, WHO director-general. "We need to sustain this success and intensify our efforts in other parts of the world, as there are still far too many lives lost to this disease."

Video (must watch),article, website. I really don't understand why the get one give one programme is limited both in number of pieces to be made available and location, but I can wait.

And yes, I think it's an amazing idea and will work wonders in the developing world - and beyond. More on this in an upcoming post.

This, on the other hand, is a gadget I will be getting soon - and fellow owners will find the information in the video very, very useful.

And while we are at it, David Pogue's podcasts at the NYT are simply amazing; unless you hate gadgets and technology with a passion, don't miss it.

James Watson (discoverer, with Francis Crick, of the double helix structure of DNA) comments on development policy. From the Independent:

One of the world's most eminent scientists was embroiled in an extraordinary row last night after he claimed that black people were less intelligent than white people and the idea that "equal powers of reason" were shared across racial groups was a delusion.

James Watson, a Nobel Prize winner for his part in the unravelling of DNA who now runs one of America's leading scientific research institutions, drew widespread condemnation for comments he made ahead of his arrival in Britain today for a speaking tour at venues including the Science Museum in London.

The 79-year-old geneticist reopened the explosive debate about race and science in a newspaper interview in which he said Western policies towards African countries were wrongly based on an assumption that black people were as clever as their white counterparts when "testing" suggested the contrary. He claimed genes responsible for creating differences in human intelligence could be found within a decade.

Dr Watson told The Sunday Times that he was "inherently gloomy about the prospect of Africa" because "all our social policies are based on the fact that their intelligence is the same as ours – whereas all the testing says not really". He said there was a natural desire that all human beings should be equal but "people who have to deal with black employees find this not true".

I won't comment on the thing that most needs commenting on (I may return on this tomorrow, and I'm sure there is going to be ample talk elsewhere on the blogosphere), but I can't help but notice that his words show a deep appreciation for economists. Assume you drop a 'dump' bomb on Cameroon or Belgium and everyone's IQ falls by 20 points. As an economic adviser to Cameroon or one of the countries that want to see Cameroon become rich, how on earth would you change your tune to reflect that? Are 'good economics' different for clever and for dumb nations? Politician: 'Hey, I have new data here, average IQ fell from 124 to 104. What should we do to maximise our growth prospects? Economic Adviser: 'Gosh, I had given you the right policy prescription for clever people. For dumb people, you need to raise the marginal rate of income tax to 30%, impose tarrifs on imported goods and start subsidising your farmers.'

(I am not saying that there are clever and dumb nations, so don't attack me in the comments for that. I know, the post does not deal with the important aspect of the matter here, but hey, that's what I felt like commenting on)

Postscript: Oh no, not again - a book is behind this too?

His views are also reflected in a book published next week.

From BBC News, Venezuela's four-legged mobile libraries:

A university in Venezuela is using a novel method to take books into remote communities and encourage people to read.

[..]these mules are rather special. They are known as bibliomulas (book mules) and they are helping to spread the benefits of reading to people who are isolated from much of the world around them.

As the project grows, it is using the latest technology. Somehow there is already a limited mobile phone signal here, so the organisers are taking advantage of that and equipping the mules with laptops and projectors.

The book mules are becoming cyber mules and cine mules.

In a follow-up to his now-legendary TED2006 presentation, Hans Rosling demonstrates how developing countries are pulling themselves out of poverty. He shows us the next generation of his Trendalyzer software -- which analyzes and displays data in amazingly accessible ways, allowing people to see patterns previously hidden behind mountains of stats. (Ten days later, he announced a deal with Google to acquire the software.) He also demos Dollar Street, a program that lets you peer in the windows of typical families worldwide living at different income levels. Be sure to watch straight through to the (literally) jaw-dropping finale.

Watch this video, hat tip to Statistical Modeling.

Here is Trendalyzer, the free online software used to display the statistics in the presentation. Dollar Street is here (free to download). And watch the 2006 Rosling TED video here, from an older Bluematter. post.

This is an edited version of a fascinating post from an economist in paradise:

The history of Mauritius is inextricably linked to the slave trade. In 1806, the slave population reached 78 000, an estimated 85% of the population, for an island no more than 720 square miles.

Slaves changed masters via openbid ascending (English) auctions; males were sold separately, women and their children were sold as a bundle. Armed with a uniquely detailed data set gathered from notarial acts on auction sales over the period 1825-1835, economists Chenny, Dionne, StAmour and Vencatachellum ask two questions in two separate papers. Firstly, was the market for slaves in Mauritius characterised by imperfect information, whereby sellers (masters) had more information about the productivity of the slaves than potential buyers? Secondly, how did the British take-over of 1810 and rumours of abolition affect the market for slaves?

Between 1825 and 1835, 2827 slaves were bought and sold at an average price of 326 piastre per slave, that is around 320 US dollars (roughly a quarter of per capita US income of that time). The average price for a male slave was $337 and a female slave $288. There are three broad categories of slave occupation: ’skilled’, ‘labourer’ and ‘household’. Relative to the average male price, ’skilled’ males were sold at 15% more, ‘household’ males at 4% less and ‘labourer’ males at 7% less. Slaves that grew up in the island, called ‘Creoles’, were sold at at premium of 13% over the average slave price, those recently imported from Mozambique were sold at a 10% discount, those from Madagascar at a 3% premium and ‘Indian’ slaves were sold at a whopping 54% discount.

The question asked by the authors is whether these prices reflected fundamentals. In some way, they do: ‘Indian’ slaves were ’smaller’ people and perceived to be less productive than their ‘African’ counterparts, while the ‘Creoles’ were perceived to be more adapted to local conditions. But the authors also find that asymmetric information was prevalent in the market for slaves: the circumstances under which a slave was sold dictate his/her price.

There are, in fact, three reasons for a slave to be sold: (1) death of the owner, which under Mauritian Law, required the assets of the deceased to be sold off and the proceeds distributed to the heirs, (2) bankruptcy of the owner and (3) voluntary sales. Two main findings emerge. Firstly, when male slaves are being sold involuntarily (death or bankruptcy of the owner), they were traded at a big premium (around 45% above the price of a slave sold voluntarily). Secondly, if, when a slave was being sold involuntarily, a relative of the owner participated and won the auction, the slave is generally traded at an even higher premium. This seems logical since relatives had insider information about the slave and would only bid aggressively when the slave is known to be productive.

Rumours about abolition

In their second study, the authors attempt to deduce whether slave owners believed in the persistent rumours that the British would abolish slavery. One way of finding this is to assess the market for children slave. Since children slave would only be productive in the future, rumours about abolition ought to depress their prices. In fact, they observe that the price for children slave rose between 1825 and 1827, from which they conclude that slave owners did not treat abolition as a serious possibility. Indeed, the threat only started to reveal itself in the data after 1833, two years before actual abolition.

Technological change

Improvements in technology took the form of the introduction of the horizontal roller mill in 1819, and steam-driven rollers in 1822. It seemed that technology ironed out differences in productivity as the price discount on handicapped, Indians and Mozambicans fell in the slave market.

The slavery period was undoubtedly the grimmest part of Mauritian history, the consequences of which are still being felt, more than five generations later. Descendants of slaves, who account for quarter of the population attain, on many counts, much less than the average Mauritian. Is there, after terrible uprooting, a degree of path dependency that we economists tend to seriously underestimate?

The papers are here and here. By the way, An Economist in Paradise provides an invaluable 'live-at-the-scene' perspective into Mauritius and the economics of developing countries in general, and is well worth a place in your bookmarks folder.

Greg Mankiw links to 'a new hagiography of Jeffrey Sachs' in Vanity Fair.

Jeffrey Sachs—visionary economist, savior of Bolivia, Poland, and other struggling nations, adviser to the U.N. and movie stars—won't settle for less than the global eradication of extreme poverty. And he hasn't got a second to waste.

Here is more on Sachs's 'Millenium Villages'. Hagiographies of Sachs occur with impressive frequency. Mankiw is clearly, if not explicitly, ironic; Dani Rodrik is also sceptical. Academic economists are certainly less enamoured to Sachs than journalists - but whether this reflects envy about the man's image in the 'popular' press or deeper objections to the substance of his work is difficult to tell.

Personally, I am a fan - here's an economist who understands that the science of economics can not merely be 'disinterested study' and that packaging and marketing are essential elements of public policy.

At the same time, I am not too sure projects such as the Millenium Villages are worth the effort; and it does feel like press coverage is consistently way over the top. But how can you blame the press? Jeffrey Sachs is a journalist's dream.

And to prove the point, here's an excerpt from PBS's 'Commanding Heights' documentary, directly from the horse's mouth:

Drafting Poland's Reform Program

INTERVIEWER: Tell me the story about how you and your colleagues were given basically an overnight deadline to work out an economic plan for Poland.

JEFFREY SACHS: We had these discussions with all of the Solidarity leadership, and one night David Lipton and I went to the small apartment flat of Jacek Kuron, a marvelous man, one of the most wonderful people I've ever met, a real hero of mine. We were in his cramped apartment, he didn't really speak English but he understood most. Chain-smoking like crazy.

And we talked for a few hours, where I was trying to explain, at least [in] my view, how you get out of this mess that the Communist system had left behind. Of course no one had tried it yet, this was all hypothetical. And the idea was to sketch it, and every couple of minutes that I was speaking, he would pound on the table, "Pah, pah, pah, yes, yes, yes, I understand." And we'd gone on, pah, pah, and it was really exciting. We went on for a few hours like this. I was exhausted and the room was filled with smoke and he said, "Okay, clear."

Our friend was translating, he said, "Clear, write up the plan." And we got up, I said, "Well, this will be a great honor. Doctor Lipton and I are leaving tomorrow evening or the next day and we'll send you something just as soon as we can." "No. Tomorrow morning I need the plan." And I laughed and he said, "I'm absolutely serious, I need this written down now." And we looked at each other and our friend, who was the business manager of the Gazeta Wyborcza, which was the embryonic newspaper at the time, it had just been opened, and it was working out of a kindergarten school classroom with the offices on slabs of wood over sinks so you could put down a computer terminal. He said, "We'll go back to the office and we'll write something."

And Lipton and I went back and we wrote up a plan that night, from about 10:00 in the evening until I don't know if it was 3:00 or 4:00 in the morning.[We] delivered it the next morning to Kuron, to Geremek, to Michnik. And they looked at it, distributed to the Solidarity members of the Parliament, the so-called OKP, the Solidarity club of the Parliament, and we were told, "You can get on an airplane to go to Gdansk. It is time for you to go see Mr. Walesa."

This is a fascinating presentation by Hans Rosling, Professor of International Health at Sweden's Karolinska Institute and founder of Gapminder, a groundbreaking project with the aim to 'bring data to life'. The Trendalyzer free online software, as seen on the presentation, is here.

And to add an interactive element to this, before playing the video have a stab at beating the proverbial monkey and guess which country has the highest child mortality rate of each pair:

1. Sri Lanka or Turkey
2. Poland or South Korea
3. Malaysia or Russia
4. Pakistan or Vietnam
5. Thailand or South Africa

Or cheap to produce, immensely useful inventions that hold the promise of making the life of the poor much, much better. Now, that's social responsibility I can relate to.

Click here for an excellent slideshow published in the International Herald Tribune - my favourites are 4, 6 and 7 (number 6 for personal reasons too)