1. The World's Largest Financial Inclusion Experiment(s): That's a descriptor that applies to basically any Indian or Chinese national policy, but India is definitely where the interesting financial inclusion experiments via sweeping policy changes action is right now. Whether we'll learn from these experiments remains to be seen. Here's an attempt to learn something from the Indian government's JDY scheme to make bank accounts widely available--finding that usage is growing, and the primary actions are person-to-person transfers (sounds familiar doesn't it?). And here's a story from the FT on how insurance companies are attempting to use the shock of demonetisation and the increasing use of bank accounts (via JDY) to increase penetration of microinsurance.
2. Economists' Social Skills: A big concern in developed economies is the "skill mismatch": the skills that people have today (and by implication that our education system is focused on imparting) are not the skills that will be required for jobs in the near future (if not the present). The two items I see most frequently in such discussions is "coding/programming" and "social skills." I've never understood the former--computers are obviously better at coding than people are already. Social skills though, those do seem important. The surprising thing in this piece on skills and future jobs is the chart about mid-way through which says that economists require strong social skills, even more so than physicians, nurses' aides, and police(!). Perhaps that mismatch between practicing economists and social skills explains why the chart also notes that employment share for economists is stagnant.
Week of January 30, 2017
1. Cashlessness: I continue to be amused that the most commonly written about and discussed issues in the field seem to be "more cash" and "less cash"--and those aren't actually opposing view points. Here's a piece critiquing the "less cash" arguments using the classic Baptists and Bootleggers lens. I remain puzzled that there isn't (even here) more discussion of the increased coercive power cashlessness would provide governments, which is something it appears a lot more people are starting to worry about in other domains. Here's a reading list on one of the arguments for cashlessness that I am least familiar with: how it enables more (and more effective?) monetary policy options. And here's an overview of the possibility of a universal basic (cash) income in India, plausible because of India's progress away from cash, including speculation about Gandhi's attitude about UBI. Meanwhile, Peru is making progress in building the infrastructure for ubiquitous digital payments, but adoption is concentrated among the urban and already banked. To summarize, I fall back to paraphrasing James Scott, "Underbanked is a strategy, not a condition."
2. Digitization: Digitization isn't all about digital payments. A start-up in Chicago is focused on digitizing the process for applying for food stamps. On it's face, it appears to be quite similar to Propel, a somewhat older start-up in New York. I wish much success to both. Interestingly, though, the above discussion of UBI in India contemplates one of the ways to keep program costs under control is to make it time-consuming to certify access so that only the truly needy take the time. It's a reminder, in the spirit of Bootleggers and Baptists, that difficulty in accessing public benefits is often a feature, not a bug.
3. Conspicuous Consumption (Is A Hell of A Drug): Conspicuous consumption is usually thought of as a feature of the spending choices of the wealthier tiers of society. Here's a new paper from Bellet and Sihra examining conspicuous consumption among the poorest in India finding that where inequality is greater, the poorest households substitute toward more visible spending and away from basic necessities like nutritious food. Here's one of the foundational pieces on spending patterns of poor households, The Economic Lives of the Poor, just because if you haven't read it, you should.
Read MoreWeek of January 23, 2017
1. Cash Crisis (India): India's demonetization "adjustment" continues. IMTFI has begun a special series on their blog focused on demonetization; the first post has an overview of the issues with links to work from many researchers from many disciplines, and the promise of more to come. The New York Times takes a look at the knock-on effects three months after the announcement--my only quibble is the headline which implies that demonetization only now "begins to bite."
2. Cash Crisis (US): It's certainly not sudden demonetization that's the cause of US household's troubles managing cash and cash flows. But there are struggles none-the-less. Diana Elliott of the Urban Institute looks at the budgetary effect on cities of residents who don't have $2000 in liquid savings, finding that 10 large US cities incur (via missed property tax payments, managing evictions, etc.) costs that amount to .3 to 4.6 percent of their annual budgets (the data can be found here). Lisa Servon has a new book, The Unbanking of America, which looks at how much of the traditional financial services industry has turned its back on customers who need help managing their day-to-day cash flow and short-term needs. Here's Lisa discussing her research, which included working at a check casher, a payday lender, and a debt crisis hotline, on Fresh Air, and a review from The Atlantic.
3. Policy Influence: Every week I link to new (at least to me) research--but does any of it matter? ODI has a new report on "10 Things to Know About How to Influence Policy with Research." It's also a question I ask everyone in my book on the use of randomized trials in development economics (hint, hint, nudge, nudge). Sometimes it's hard to draw the lines between basic research, research designed to inform or influence policy, and advocacy masquerading as research. Other times not so much. That particular instance from Justin Sandefur and colleagues as they respond to critics about their RCT evaluating Liberia's new charter school policy, and consider whether the research will change anyone's mind.
Read MoreWeek of January 16, 2017
1. In Memoriam: In the last edition, I linked to some remembrances of Tony Atkinson. The philosopher Derek Parfit died the same day as Atkinson, and was equally concerned with inequality though in a quite different way. Here's a 2011 profile in the New Yorker by Larissa MacFarquhar that provides a very good overview of Parfit's thinking (by the way, if you haven't read MacFarquhar's Strangers Drowning, it is probably the ne plus ultra of counterprogramming today). Here's Dylan Matthews remembrance and explainer at Vox--with the truly remarkable note that a volume of essays discussing his work On What Matters was published before the book itself came out. Here is a review of Reasons and Persons from 1984 and Parfit's essay "Why Anything? Why This?" both from LRB.
2. Reproduceability, Replication and Meta-Analysis: There are all sorts of arguments about what the defining features of science are, but I think most of them include reproduceability and the ability to make accurate predictions. At the ASSA meetings there were a number of sessions on these issues in economics. Here's a look at published replications in development economics and an overview of the state of replication in the field in general. Here is Eva Vivalt's review of the dispersion of estimates of impact in development impact evaluations (in lieu of the in progress paper she presented on the rate of false positives and false negatives that builds on her earlier work). And here's Rachael Meager's job market paper on using Bayesian Hierarchical Analysis to understand and predict heterogeneity in treatment effects using the microcredit impact literature. And here's Ioannidis et al. on the limited power of most economics papers.
3. Household Finance and Cashflow: Expect to hear a lot in this space about cashflow and how it affects households (hey did you know you can pre-order The Financial Diaries, the book about the US Financial Diaries work?). Here's a paper looking at how changing minimum payments affects how much people pay on their credit cards finding a large but not exclusive role for liquidity constraints, estimating that US consumers would save $570 million a year (or credit card companies would lose $570 million a year in earnings) if all companies used the most conservative minimum payment calculation. Here's a look at excessive sensitivity to payday in Iceland--people spend a lot more when they receive paychecks and it's not explained by illiquidity. Here's recent work in Malawi varying timing of paydays (weekly vs. monthly, Friday vs. Saturday) finding that monthly payments helped recipients save more. And here's a video of Meiping Sun discussing the very large effects of the New York City MTA imposing a $1 fee on the purchase of fare cards.
Read MoreWeek of January 2, 2017
1. In Memoriam: The new year began with news of the deaths of two important thinkers on development, economist Tony Atkinson and philosopher Derek Parfit. Here's Tony Atkinson's view of his most important work. Here's a celebratory post from the World Bank's Let's Talk Development blog, here's Beatrice Cherrier's overview of his work as the "founder of modern public economics," and here's a Foreign Affairs piece of Tony's from late 2015, as always focused on inequality and what can practically be done about it. I'll save links for Parfit until next week.
2. Microcredit: I have a new post at Next Billion on what I consider to be one of the most important new research papers on microcredit, an examination of the size and prevalence of subsidy by Cull, Demirguc-Kunt and Morduch. It documents that subsidy is widespread but small--in other words, that delivering pro-poor financial services isn't free, but that it is cheap. Over at CGAP, Greta Bull offers her thoughts on the four drivers of change for financial inclusion in 2017. And here are the most influential posts of 2016 at Next Billion.
3. Cash Aid and Basic Income: I'm trying not to turn the faiV into a cash and basic income newsletter, but it is a topic that is drawing a lot of attention lately. In the UK, one of the tabloids attacked aid for giving cash to poor people (as opposed to giving cash to rich people?). The Atlantic ran a piece about the history of cash aid in philanthropy and how it is changing current practice. Here's a short history of the idea of basic cash income and here's a round up of both history and current things going on. If you're at #ASSA2017, there's a reception Saturday night to learn more about the Y Combinator basic income experiment in Oakland.
Read MoreWeek of December 12, 2016
1. Effective Altruism: It's the right time of year to be talking about charitable giving--most US-based charities take in about 50 percent of their annual revenue during the month of December. Here is GiveWell's list of recommended charities this year (NB: I'm on the board of GiveWell). Jennifer Rubinstein has a new essay about the "hidden curriculum" of effective altruism, as seen in Peter Singer's and Will MacAskill's books. There's always a hidden curriculum isn't there?
2. Evidence-Based Policy: Effective Altruism shares a curriculum, hidden or not, with evidence-based policy. At Stanford Social Innovation Review, Jennifer Brooks of the Gates Foundation has a post making the case for evidence-based decision-making. I suspect that prior to November 8th most readers of this newsletter wouldn't have thought the case needed to be made. One of Brooks' key points is the need for better data from rigorous evaluations so that there is evidence not just on effectiveness of a particular program, but information on how to improve other programs' performance. That just so happens to be one of the points in the conclusion to my shortly to be available book on the use of RCTs in development economics. You're running out of time to buy a copy for a holiday gift. It won't arrive until January regardless, but it's the thought that counts right? Oh wait--the whole point of effective altruism and evidence-based policy is that it's not the thought that counts.
3. African Bank Failures: It doesn't make the global news, but there have been a number of bank failures in sub-Saharan Africa in the last few months: Kenya, Mozambique, Zambia, and Uganda have all closed banks since the beginning of October. At FSDAfrica, Mark Napier looks at whether there's a trend to be concerned about. He forecasts a "rocky ride" for African banks, and lots of work for bank regulators, in 2017.
Read MoreWeek of December 5, 2016
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 Finance: Agricultural 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.
Read MoreWeek of November 28, 2016
1. The Case For Social Investment in Microcredit: Four years ago, at the suggestion of Alex Counts, I started working on a review of operationally relevant academic research specifically for practitioners. I finally finished it this month [sad trombone]. One of the reasons for the long delay was that the world kept shifting. Over the last 18 months it became clear that the need was not just to document the opportunities for innovation in microfinance but to specifically address whether additional social investment in microcredit was justified given the published impact evaluations.
So I ended up making the case for social investment in microcredit. I believe the case for additional social investment is strong—not despite, but because of, what we’ve learned from impact evaluations. Obviously there’s much more in the paper, but here’s the one sentence summary (there’s a one-page summary in the paper): Microcredit is a cheap intervention with modest but generally positive effects with a great deal of scope for evidence-based innovation that could materially improve impact. The kicker, though, is that the innovation required to boost microcredit’s impact is unlikely to happen without targeted social investment.
Please take a look and argue with me, publicly or privately, about it.
2. Digital Finance and Household Behavior: I lied, I admit it. A few weeks ago the faiV featured "the most interesting" papers from NEUDC. But the most interesting paper wasn't ready for circulation so I couldn't include it. It is now. Tomoko Harigaya studied what happened when savings groups in the Philippines were transitioned to digital finance tools--in other words, group leaders stopped taking cash deposits, instead directing members to make deposits themselves using mobile money. Members could now also make withdrawals without traveling to a bank branch. The result was a significant drop in savings deposits and savings balances and an increased reliance on informal loans. In other words, "convenience" went up and usage went down. The effects seem to be driven by those closest to bank branches ex ante, by the loss of positive peer effects and by increased salience of fees for transactions. Now there are some obvious ways to potentially counteract these effects but it is an important cautionary insight into how little we know about how digital stores of value and transactions affect household financial behaviors--and an especially important finding for the bank itself which would have seen it's funding costs rise from a program designed to reduce operational costs since it relied on deposits as a cheap source of capital.
Week of November 11, 2016
1. Demonetization in India: It doesn't seem like I'm the only one who's a bit confused by exactly what's happening in India and why this particular set of steps will yield the stated outcomes. Here's my current understanding: Last week, the government declared that 500 and 1000 Rupee notes would no longer be legal tender, effective immediately. Except that those notes could be exchanged for new notes until December 31 at banks and post offices. But only by people with official government ID. The purpose is to drive more of the economy into the formal sector and to clamp down on black market activity and corruption. Usually advocates of this sort of step talk about high denomination bills (which they say facilitates corruption by making it relatively easy--in terms of size and weight--to transport large sums) like $100 bills. But 1000 Rupees is roughly $15 and a new 500 Rupee note will be in use and other large denominations like 2000 Rupees will also continue to exist.
As you can imagine, when 86% of the currency in circulation by value has to be immediately exchanged, there are some problems. Of particular interest to faiV readers might be the effect on microfinance banks, which are not allowed (as of now) to accept or exchange the old notes. That apparently has caused repayment to plummet since people can't get their hands on legal notes to make their payments. There's also a surge in use of ATMs and people signing up digital finance systems. Of course, then there's the problem that roughly 30 percent of the population (a mere 300 million people) doesn't have official ID (not counting the additional millions who are short-term migrants and don't have their ID with them where they currently are). Lot's more to come on this story I'm sure.
2. Digital Payments and State Capacity: Dan Radcliffe of the Gates Foundation has a new paper (published by CGD) on the knock-on benefits of government-to-citizen digital payments infrastructure. Direct transfers have already shown significant benefits in terms of efficiency and effectiveness of social welfare programs. Radcliffe argues that other benefits also deserve attention, specifically "strengthening energy policy, food security, government transparency" and overall state capacity.
NEUDC 2016 Special Edition
1. Mentors for Microenterprises in Kenya: Brooks, Donovan and Johnson assign high profit microentrepreneurs to mentor newer entrants. That's a particularly interesting way to potentially change the trajectories of microfirms. The mentored firms see a significant jump in profits driven by learning how to cut costs but don't maintain the gains once mentorship stops.
2. Grants and Plans for Senegalese Farmers: Ambler, de Brauw and Godlonton give $200 grants and develop a farm management plan for smallholders. The grants boost production (by more than $200), but the gains seem to fade out, though higher stock of assets remains. Farm management plans don't have a measurable impact. I find this interesting for many of the same reasons as #1: figuring out how to boost profits of small enterprises is near the top of my list of urgent program/policy questions.
3. Seasonal Migration in India: Imbert and Papp use NREGA and choices about short-term migration to better understand why the large gap in earnings between rural and urban migration doesn't lead to more seasonal migration. They estimate that more than half of the income gap is consumed with higher living costs in urban areas, with the rest due to non-economic costs--like being away from home and "hard-living", (e.g. sleeping on the street). There are some interesting policy applications for the design of rural public works/income programs and the development of migration finance and support programs.
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