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Thursday, January 28, 2010

Keynes vs. Hayek Rap

"My man Keynes was more baldy than Mr. Freddy. But that aside, this kicks booty," raps an officemate. Just when you thought economists were uncool.

But then again, we are probably all just nerds.

Monday, January 25, 2010

India as a development puzzle

India poses a development puzzle on a grand scale. Sixty years of electoral democracy, thirty years of rapid growth, and a number of world class institutions (such as the Institutes of Technology or Election Commission)... Yet, on many fronts, India's indicators of human well-being (e.g. malnutrition, immunization) are at, or below, those of much poorer sub-Saharan African countries. Measures of the administrative capacity of the state on basics like attendance, performance, and corruption reveal a potentially "flailing state" whose brilliantly formulated policies are disconnected from realities on the ground.

And so goes the abstract of my latest discovery of a paper by Lant Pritchett. I wish I could provide a copy but I could only find a gated version here (accessible from school libraries I suppose). It's an easy read with just around 8 pages of text.

Yes, why does India still struggle with basic service delivery you would think an "emerging" country should have an easy time overcoming? To Pritchett, the problem centers on how the administrative apparatus is neglected and underdeveloped. But my main takeaway is this:

Maybe you personally didn't succumb to the romance of it all, but not so long ago there was an "end of history" fever going around: market economies and democratic polities would solve all ills as one would get prosperity from free markets and through democracy good governance would lead states to take care of anything markets couldn't - externalities, public goods, and all that. If you believe in markets and democracy, India is a billion person strong puzzle: sixty years of democracy, rapid growth for thirty years and it has child malnutrition among the highest in the world, infant mortality worse than Bangladesh, learning achievement on par with Ghana...

Boy do I love that paragraph.

Sunday, January 24, 2010

Let their People Come

Here's a new, radical proposal by my boss, Michael Clemens, to help Haiti in the aftermath of the earthquakes.

We must let more Haitians come here [to the US]. In fact, it's time to consider an entire new class of immigration -- call it a "golden door" visa, to be issued in limited numbers to people from the poorest countries, such as Haiti. It could be permanent or temporary, but that's less important than its core purpose. Our immigration law has traditionally had three primary goals: reuniting families, supplying employers and protecting refugees. But part of America's greatness is that in letting people come, the nation has pursued a fourth, unwritten goal: extending opportunity to those born in places without it. A golden door visa would simply recognize in law what the United States has done since its founding.

Here's the reason:

Meanwhile, those workers [Haitian migrants] would do more good for themselves and their families than any amount of aid could do for them. And people remaining in Haiti would benefit enormously. Haiti already gets close to $2 billion per year -- about a third of its income -- in cash remittances from its citizens living abroad. That's nearly 100 times as much as generous Americans have donated to Haiti via their cellphones. And unlike foreign aid, remittances go directly to families.

As usual, I expect Michael will be receiving tons of hate mail, death threats on the phone come Monday. One such caller called him a white old man who sits in his office desk the whole day and worships stone.

But seriously, this is the biggest idea in development no one has tried:

Wednesday, January 20, 2010

The Digital Provide

A graph can paint a thousand words. Here's the best I've seen in an academic paper. You know it's an excellent graph when you don't need to delve deeper into the text, understand complex equations, to get the point. (click here for a larger image)

Figure IV presents the price series for the average 7:30–8:00 A.M. price for one kilogram of sardines in each of the fifteen markets [in Kerala, a state in India with a large fishing industry] over the sample period... The graph shows that before any region had mobile phones, the degree of price dispersion across markets within a region on any given day is high, and there are many cases where the price is zero (i.e., waste)... Further, there are no cases of waste in [these regions] after phones are introduced.
That is Robert Jensen in his paper, "The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector."

I suspect there are many other (undocumented) cases in which mobile phones have contributed to development, especially in the Philippines. It's not always true that you need big infrastructure to integrate markets more efficiently. Sometimes, facilitating the spread of information will do.

Friday, January 15, 2010

Development Through the Lens of Psychology

To those interested in the intersection between development and psychology but do not know where to start, this working paper by Sendhil Mullainathan of Harvard is a must read. It is a completely harmless exposition of the core insights of the subfield devoid of the tedious math equations. A perfect read for undergrads trying to get a feel for behavioral economics. Here is the abstract:
Economists conceptualize a world populated by calculating, unemotional maximizers. This view shapes our understanding of many crucial elements of development economics--from how rural villagers save, to how parents decide on whether to send their children to school.

Psychological research, however, has documented the incompleteness of this perspective. Individuals have self-control and time inconsistency problems. They can give into short-run temptations and later regret it. They can have strong feelings about others that drive them to commit both generous and spiteful acts. They often passively accept defaults rather than make active choices. They let the institutions around them make choices for them. And they may misread new data in a ways that fit their beliefs. In short, the rational maximization model may not be a very good approximation of human behavior.

In this paper, I present some of the psychological evidence that I believe helps us to better understand a few core issues in development economics, such as savings, education, and property rights. This gives us new ways to interpret a variety of behaviors in these contexts, and enriches the set of policy tools we should consider. This evidence also suggests not only the need for dramatically new tools, but suggests small cost changes that may dramatically improve their efficacy of existing policies.

Thursday, January 14, 2010

A Very Superior Grade of Lovers

This morning I stumbled upon this 1938 article by Time magazine, which gives a great explanation of why Filipino migrants did not want to leave America.
"The boys," explained Dr. Hilario C. Moncado, president of the Filipino Federation of America, "do not want to go back without money or assurance they will earn a living." Another good reason is that in some cases boys are loathe to leave a country where, as a California judge remarked (TIME, April 13, 1936), they boast of enjoying the favors of white girls because they are a very superior grade of lovers.
I would like to personally attest to this.