Week of December 5, 2016

Samaritans, Eugenics, Poverty Traps and Poverty Escapes!

1. Poverty Traps: Every year the Development Impact blog selects a few interesting job market papers and invites the authors to blog the papers (you have to believe that there is some randomization going on in the background and at some point David McKenzie et al. are going to publish something about the causal impact on citations and job offers). The most interesting to me so far this year is a paper by Arun Advani attempting to explain why, given that there's lots of inter-household lending in poor communities, and at least some opportunities for productive investment, so little informal lending seems to flow into productive investments and households stay poor.

Using theory and data from one of the Targeting the Ultra-Poor studies, Advani shows how lenders can be reluctant to help their peers make profitable investments because success will weaken the bonds that keep them in mutual support relationships. It's a useful lens to think about the limitations of informal finance and where the relative advantage of formal financial services may lie.

2. Pro-Poor Digital Finance: Last week, I posited this topic as a question. This week, in strong contrast to the piece I linked about Safaircom preying on poor women, a new paper from Tavneet Suri and Billy Jack argues that access to mPesa moved 194,000 households in Kenya above the $1.25 poverty line. They write, "Thus, although mobile phone use correlates well with economic development, mobile money causes it," which seems to me to be a remarkably strong causal claim. Meanwhile, the UNCDF has published the first in a series of toolkits for financial services providers hoping to develop pro-poor digital finance. And the Aspen Institute's Financial Services Program has launched the Non-Profit Leaders in Financial Technology (nLIFT) group to link groups working on pro-poor digital finance in the United States.

3. Agricultural FinanceAgricultural finance is hard and it always has been (see David Graeber's Debt for an intro to agricultural finance debt crises in ancient Mesopotamia). So it's not surprising how little use of formal or informal agricultural credit there is in sub-Saharan Africa despite the spread of microfinance and increasing use of modern inputs. This new paper finds that the only form of "credit" in wide use is output-labor arrangements, which fits nicely with the poverty trap model in Bangladesh noted above. Agricultural finance isn't all about credit--insurance is a big issue too. Here's a new paper looking at the "Samaritan's Dilemma" (moral hazard arising from the expectation of a bail-out by private charity or public aid) in agricultural insurance markets in the US which finds the dilemma exists and leads to farmers underinvesting in insurance and inputs. Like I said, agricultural finance is hard.

4. Social Investing: Last week I highlighted the case for social investment in microcredit. How will I know if the paper makes any difference? Well, there are a couple of new surveys trying to bring a bit more regular measurement to the social investing space: one from GIIN and the other called Toniic. Yes, really. Of course, the amount of investing and the returns they are reporting should generate a great deal of skepticism that we've nailed the measurement of social investment activity.

5. Slavery, Eugenics and Economics: Economic historians and historian historians are having a running battle about how to understand the economics of slavery in the American South and it's relation to industrial development and capitalism. I have a sneaking suspicion which side most of my readers will gravitate to, especially after reading the historians' takes on counterfactuals. Speaking of economic history, here's the "take your breath away" story of the beliefs of the founders' of the American Economic Association. As Justin Wolfers notes, perhaps it's time to change the name of the Ely Lecture (to be given this year by Esther Duflo).

You didn't really think I was going to skip over David Roodman's adjudication of the Worm Wars? Or the new look at wage stagnation in the US? Or the big new Raj Chetty look at economic mobility? Of course I wouldn't--but I am assuming that you already have an open tab for each of those. Whether or not you click on these links will tell me whether I need to keep such high profile things in the first 5 (or 10) links.

There is some good news on the income front--from Pew, data on household incomes finally climbing after years of stagnation, especially for Hispanic households. Source: Pew

There is some good news on the income front--from Pew, data on household incomes finally climbing after years of stagnation, especially for Hispanic households. Source: Pew

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