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Friday, December 6, 2013

We Respectfully Disagree, Paul Collier

I thought I'd curate some replies to Paul Collier's recent op-ed in the NYTimes arguing for limiting migration as an act of compassion to poor countries. I disagree. And others, more knowledgeable than I am, do too. Below are some excerpts of interesting comments that I have found through combing the internet. I thank everyone for lending voice to my dissent.

Shanta Devarjaran (http://blogs.worldbank.org/futuredevelopment/comment/383#comment-383)
When a poor person moves from a low-productivity job to a higher-productivity one, we usually celebrate. The worker is clearly better off; the hiring firm is no worse off; and it’s good for the economy as a whole. Indeed, development is often described as the process of structural transformation, where low-productivity workers (typically in agriculture) move to higher-productivity jobs in manufacturing or services. 
But when that same worker happens to cross a national border, we call it “migration” and, instead of celebrating, we start investigating the effects on workers, firms and public finances in the new environment; and on those left behind (the so-called “brain drain”).
Please see the excellent comments on the blog as well.


AidWorkerJesus even makes an appearance.





Katy Long (http://katylong.blogspot.co.uk/2013/12/collier-refugees-and-point-of-no-return.html)
Should people be tied to nations not of their choosing, when the World Bank estimates 50% of our wealth is determined not by any conscious action we take, but by the citizenship we’re assigned arbitrarily at birth? ... 
Collier tells us that in cutting adrift the ‘chain of lifeboats headed for the developing world’, and restricting migration from the poorest societies, we’re really doing the poor a favour... 
We can all agree that, when peace comes, we should want to encourage sustainable returns of refugees, including elites. But in all the conversations I’ve had with refugees and policy-makers, no-one has suggested that the best way to achieve this is to turn repatriation into an obligatory burden. In fact, quite the opposite is true: it’s often in having that second passport that refugees find the courage to return. Exit strategies make return a possibility. Safety nets are essential for refugee returns to succeed as state-building. We should be granting more refugees dual citizenship: do this, and we'd see more returns.

Thursday, November 28, 2013

First World Solution Meets Third World Problem

And why technology is exciting, but exciting doesn't often work. Jason Cass writes in the NYTimes about some of our fumbling approaches to get people toilets.
Just consider some of the parameters of the Gates Foundation’s first Reinvent the Toilet Challenge: Create a “practical” toilet that is suitable for a single-family residence in the developing world. Make sure it takes in the bodily waste of an entire family and outputs drinkable water and condiments, like salt. And while you’re at it, make sure that the toilet is microprocessor-supervised and converts feces into energy. And all this has to cost just pennies per person per day. That’s some toilet. 
The winner of last year’s contest invented a solar-powered toilet that converts poop into energy for cooking. Impressive — but each one costs $1,000. 
Other models boasted membrane systems, treatment of fecal sludge using supercritical water oxidation (heating water to 705 degrees Fahrenheit, or 374 degrees Celsius, then injecting oxygen) and hydrothermal carbonization (oxidizing feces at a high temperature and high pressure while under water). 
High-tech toilets are exciting, but even the Gates Foundation has admitted that “the economics of such a solution remain uncertain.” In plain English: No one can afford them.
Contrast this though to the success we have had in getting the poor to use mobile phones. It appears to have done wonders. A favorite documented case is this paper by Jensen for fishermen in Kerala. Upon introduction of mobile phones, prices of fish between markets stabilized, reducing excess in supply or demand, and reducing spoiled fish.

Inventing technology is one thing, but getting the poor to use them is another.

Wednesday, November 27, 2013

Why We Must Replicate

@JustinWolfers on Twitter alerts me to this graph.

X's are the original psych study; Dots are replications. As you will notice, the first study often overestimates or underestimates what is probably the true effect of an experiment and by a significant margin.


And so the task is to replicate. But incentives are not aligned and what is often rewarded in journals is originality. Perhaps there is need for a of Journal of Replication?

The original source is here: https://openscienceframework.org/project/WX7Ck/wiki/home/.

Tuesday, November 12, 2013

Remittances as Insurance

Part of what will help the Philippines recover from the latest storm will be the potentially massive amounts of remittances migrants overseas will send home for relief and rehabilitation efforts. Remittances act as insurance, rising in the wake of negative shocks like extreme weather events. Dean Yang, my advisor, has written the paper that documents this:
Do remittances sent by overseas migrants serve as insurance for recipient households? In a study of how remittances from overseas respond to income shocks experienced by Philippine households, changes in income are found to lead to changes in remittances in the opposite direction, consistent with an insurance motivation. Roughly 60 percent of declines in household income are replaced by remittance inflows from overseas. Because household income and remittances are jointly determined, rainfall shocks are used as instrumental variables for income changes. The hypothesis cannot be rejected that consumption in households with migrant members is unchanged in response to income shocks, whereas consumption responds strongly to income shocks in households without migrants.
I know many see outmigration as a downright bad outcome (and I still believe the evidence for this is lacking), but they will have to admit this is one of the benefits of being one of the largest migrant-sending countries in the world.

I have tried to do as much as I can this morning. What I'm worried about now is whether these will actually get to the people who need it the most.

Friday, November 8, 2013

Do Politicians' Relatives Get Better Jobs? Evidence from the Philippines

In this paper, we exploit naming conventions and a unique dataset to estimate the positive and negative impacts of being connected to local politicians on occupational choice. We use a large administrative dataset collected between 2008 and 2010 on 20 million individuals in 709 Philippine municipalities along with information on all 38,448 local candidates in the 2007 and 2010 elections in those municipalities. Unusually, the data include family names of all individuals surveyed and we rely on local naming conventions to assess blood and marriage links between households.
The probability of being employed in a managerial position increases by 0.54 percentage-points, or more than 22 percent of the control group mean, for individuals related to current offi ce holders. ...
From my favorite paper out of the NEUDC. They use a dataset of 20 million individuals - wow!

If you are from the Philippines, this is probably not at all surprising. This is something we know, and probably accept.

But these are very large effects. I wonder what the 22 percent effect is equivalent to. Is that equivalent to having a college education, an additional year of schooling, in the Philippines?

Tuesday, November 5, 2013

Who are we to say what's good for them?

We usually fear that giving the poor money unconditionally leads them to spend it on beer or cigarettes. And that this is horrible. Which is why the latest evaluation of GiveDirectly that provides unconditional cash transfers to poor Kenyan households made such big news last week. Researchers found that the program does *not* increase spending on temptation goods for poor households.

But what if, Jishnu Das asks, they actually spent it on such goods. Should it matter?
...what if they spent it on a bottle of beer at the end of a 12-hour shift or working in the field so that they could relax? Is that really so bad?
To be clear: The answer “does giving cash work well” is a well-defined question only if you are willing to say that “well” is something that WE, the donors, want to define for families whom we have never met and whose living circumstances we have probably never spent a day, let alone a lifetime, in. ...
... Look, I understand that donors are worried about people not using the money “responsibly”. But, as my colleague Paul Niehaus, a professor at UC-San Diego, a fine theorist and one of the founders of Give Directly told me, “Substance abuse is a real issue that we shouldn’t trivialize, but it is pretty ironic the number of conversations I have had with development people about the poor and their drinking—over drinks.” This debate caters primarily to the fears of rich donors, all paragons of virtue who top the charts in the world’s leading beer drinkers. If we can stop the waste of resources and brainpower on answering questions that stem from a purely elitist mindset, we can start (again) by asking: What are the market failures, and how do we fix them? Because redistributing cash was one of the two things that governments were supposed to do, fixing market failures was the other. So yes, cash is not a panacea for poverty, and that’s something we have known for a long, long, time. But it also goes a long, long, way.
There is perhaps more to this issue. Individuals probably do not always know what's best for them; but equally so, do policymakers know any better?

In the same vein, many also fear that migrant remittances, which is another form of cash transfers, are spent "badly." But in the end, who are we to say what's good for these people?

Tuesday, October 29, 2013

Max U, Sociopath

Deirdre McCloskey was here yesterday to talk to grad students about how to write better (because god knows how terrible academics write). So I got some good advice but more:
I call the utility maximizing agent in economics Max U because he "maximizes subject to." Do not use Max U as a model to live life. Screw incentives. Max U captures an interesting aspect of human behavior, but I don't know if you've noticed, that agent is a sociopath.
I am paraphrasing of course. An economics moment of zen.

I've read more about Deirdre in Wikipedia since and her personal life is quite colorful. She gives a public lecture today on "Why Economics Can't Explain the Modern World: 1800 to the Present."

Friday, October 18, 2013

There is No Line! The Illusion of Eradicating Poverty

The momentum seems to be building for a goal to “eradicate poverty by 2030.” Reducing poverty is a noble goal, one to which I fully subscribe. But the “eradicate poverty” campaign is actually only focused on “extreme” poverty which is an absurdly low and completely arbitrary definition of the poverty. I am for eradicating poverty, but real poverty, as experienced by billions of people in the world, not on the extremist vision of “dollar a day” poverty. There is no poverty line at a dollar a day (now really $1.25 in purchasing power parity currency units). A dollar a day global poverty line exists nowhere except in the minds of elite technocrats, advocates, and donors. 
What would a “line” look like? There is line at 0 degrees Celsius. Below that line water is solid and above that line water is liquid. As water crosses the freezing point it changes states—it freezes. Similarly a person can be said to “have a fever” because we know that the normal, healthy human temperature is 37 degrees Celsius (98.6 F) and temperatures much above that are a reliable symptom of certain infections.

In contrast, as people cross the “dollar a day” poverty line…absolutely nothing special happens to anyone anywhere
There is no line at dollar a day in objective indicators of well-being. The wide availability of multi-module household data sets allows us to construct graphs showing the relationship between non-money indicators of household and child well-being--like malnutrition or health or child enrollment or access to sanitation or access to electricity--and household economic status for dozens and dozens of countries. As people get more prosperous they are nearly always better off by nearly every indicator—but there is no line. There is no discontinuity or sharp non-linearity around a dollar a day poverty line in any country for any indicator.

There is no line at dollar a day subjectively assessed well-being. In the entire research on subjective well-being or happiness no one has ever argued people are happier or feel better about life because they are “not poor” by the dollar a day standard (any more than any other gain in income). No person in history has ever celebrated crossing the dollar a day threshold—any more than any other income gain—there is no line.

There is no line at dollar a day in income dynamics. One might think a poverty line exists that demarcates a “poverty trap” and that people “in poverty” have a hard time escaping poverty—except that it doesn’t. All of the available evidence that tracks households over time finds enormous fluidity across the dollar a day threshold--and no evidence that it is harder to increase incomes from just below than just above—there is no line. ...
Only Lant Pritchett has the cahones and eloquence to say something like this. And this is why he ranks high on my list of favorite economists. There is more at the CGDEV blog.

Tuesday, October 15, 2013

What's Behind the US as a Nobel Superpower?

And why not the EU or China or Russia?

I am culling this directly from one of my favorite sources of news feed, The .Plan by James Choi. Bret Stephens from the WSJ writes:
Note to Xinhua: China, with 1.3 billion people, has produced a grand total of nine winners in its entire history. Of those nine, seven live abroad, including three in the U.S. Another, Liu Xiaobo, sits in a Chinese prison. ...

Russia, with a population of 142 million, has three living Nobel laureates, or one for every 47 million. So much for the land of Pasternak and Sakharov.

A more interesting case is Israel. The Jewish state should be a Nobel powerhouse, given that Jews, 0.2% of the world's population, have won 20% of all Nobels, including six prizes this year alone. But while Israel can claim nine living laureates, three of them live and teach mainly in the U.S. ...

Then there is Europe: Half a billion people with a comparatively minuscule Nobel representation. France has, by my count, just 10 living laureates. Germany does better, with nearly 30, although at least nine of them (including Henry Kissinger, physicist Arno Penzias, and this year's medicine winner, Thomas Südhof), have long lived in the U.S. Britain does about the same as Germany.

Why is Europe such a Nobel laggard? In hindsight, evicting and killing most of its Jewish population was perhaps not the best idea...

A more contemporary answer is the pervasive mediocrity of higher education throughout the EU. ... 
Which brings us to the Nobel superpower. Since 2000, Americans have won 21 of the 37 physics prizes, 18 of the 33 medicine prizes, 22 of the 33 chemistry prizes and an astonishing 27 of the 30 economics prizes. ...

The secret of America's Nobel sauce isn't hard to understand: an immigration culture that welcomed everyone from Ronald Coase (from the U.K.) to Subrahmanyan Chandrasekhar (from India) to Martin Kaplus (from Nazi-era Austria) to Elizabeth Blackburn (from Australia). A mostly private, highly competitive, lavishly endowed university system, juiced by federal funding for fundamental research. A culture of individualism and an ingrained respect for against-the-grain thinking.
This is far from solid proof, I agree, but this last paragraph encapsulates to me, in theory, the best of what the US can be. It isn't always that way. But it must also continue to be about the culture that welcomes, as that inscription on the statue of liberty says, the poor, the tired, the hungry, yearning to be free.

Many presage that China will soon overtake the US as the world's economic superpower, but I am still bullish on the US for three reasons: 1. Immigration 2. its University system and 3. Hollywood.

But then again here we are with such a dysfunctional government.

Monday, October 14, 2013

When Incompetence Trumps Corrupt Behavior

I am reminded of the saying that goes something like: Why blame corruption when you can easily blame incompetence? Azerbaijan releases election results before voting had even started. The Post reports:
Azerbaijan's big presidential election, held on Wednesday, was anticipated to be neither free nor fair. President Ilham Aliyev, who took over from his father 10 years ago, has stepped up intimidation of activists and journalists. Rights groups are complaining about free speech restrictions and one-sided state media coverage. The BBC's headline for its story on the election reads "The Pre-Determined President." So expectations were pretty low. 
Even still, one expects a certain ritual in these sorts of authoritarian elections, a fealty to at least the appearance of democracy, if not democracy itself. So it was a bit awkward when Azerbaijan's election authorities released vote results – a full day before voting had even started...

The data were quickly recalled. The official story is that the app's developer had mistakenly sent out the 2008 election results as part of a test. But that's a bit flimsy, given that the released totals show the candidates from this week, not from 2008.
As I said it's funny when these things happen because it makes me wonder whether what we should worry about is not corruption per se but just simply incompetence of government officials. But then again I am reminded that a lot of corrupt behavior is shrewdly done.

HT Karelle from my Twitter feed.

Saturday, October 12, 2013

Will the World Bank Become (Like) a University?

Or at least that's how it sounds to me. The NYTimes reports on the major restructuring that's taking place in the Bank:
The reorganization, Dr. Kim said, is aimed at making the bank more efficient and quicker on the ground — a more effective engine of change that is more responsive to countries’ needs in real time. He said the idea was to be a “solutions bank,” he said, offering lending or grants, consulting and technical expertise. (One of his predecessors as president, James Wolfensohn, made his goal turning the institution into a “knowledge bank” back in the 1990s.) 
The reorganized bank would focus more on working in partnership with the private sector, Dr. Kim said. It would also be more tolerant of higher-risk, higher-reward and more controversial ventures. “If you have a spectacular failure, the only thing that I would be disappointed about is if we didn’t ensure we learned from that failure,’ ” Dr. Kim said.
I really like that part about learning from failure. That is not done enough. Often, we hear about best practices but never learn about worst practices.

Some of my old colleagues/bosses are hopeful about the change. Nancy Birdsall is too.
Ms. Birdsall also said that the bank might need to do more to adapt to the world’s development needs as they change, for instance devoting money and expertise to problems like drug and human trafficking that occur outside of a single-country context. “The new development challenges are often global in nature, shared by people in the United States and Japan and so on,” she said. “Climate is the classic example.”
Let's see how this develops.

Thursday, October 10, 2013

A Restaurant Guide on Tax Cheats

Of potential tax cheaters, that is.
Next time you eat out in the Philippines, you might want to check the government's restaurant guide. It doesn't tell you where the best food is, but if you're possibly patronizing a tax cheat. 
The Bureau of Internal Revenue and the Finance Department have started running weekly ads in major newspapers and websites listing top-ranked restaurants based on TripAdvisor reviews along with the amount of tax each restaurant paid based on government figures.  
The latest ad Wednesday listed 40 top restaurants in metropolitan Manila's two cities, but only 17 of them were top tax payers — the implication is the others may be cheating. The Philippines has clamped down on rampant tax evasion, including a "Tax Watch" campaign targeting restaurants, shops, doctors, lawyers and others, in a bid to increase revenue collection.  
Finance Secretary Cesar Purisima has said the government is using statistics to reveal tax anomalies...
Smart! Will Filipinos vote with their stomachs? Someone can measure this. The full story is here.

Wednesday, October 9, 2013

The Long Term Effects of Birth Control

A hat tip to Freakonomics, where I first saw about this post. Our resident labor economist Martha Bailey here at Michigan presents new evidence on the long-term effects of birth control policy in the US from the 1960s and 1970s. And evidence suggests largely positive impacts decades later:
This paper assembles new evidence on some of the longer-term consequences of U.S. family planning policies, defined in this paper as those increasing legal or financial access to modern contraceptives. The analysis leverages two large policy changes that occurred during the 1960s and 1970s: first, the interaction of the birth control pill’s introduction with Comstock-era restrictions on the sale of contraceptives and the repeal of these laws after Griswold v. Connecticut in 1965; and second, the expansion of federal funding for local family planning programs from 1964 to 1973. Building on previous research that demonstrates both policies’ effects on fertility rates, I find suggestive evidence that individuals’ access to contraceptives increased their children’s college completion, labor force participation, wages, and family incomes decades later.
If you are willing to generalize results elsewhere, this is a blow to those who say the controversial Reproductive Health Act will have zero or no effect in the Philippines. Time will tell on this one.

(Disclaimer: I have yet to read the full paper)

The Good News About More People Dying of Cancer?

Here is an excerpt from The Emperor of All Maladies which I am in the midst of reading, an excellent book:
Cancer is an age-related disease--sometimes exponentially so. The risk of breast cancer, for instance, is about 1 in 400 for a thirty year-old woman and increases to 1 in 9 for a seventy year-old. In most ancient societies, people didn't live long enough to get cancer. Men and women were long consumed by tuberculosis, dropsy, cholera, smallpox, leprosy, plague, or pneumonia. If cancer existed, it remained submerged under the sea of other illnesses. Indeed, cancer's emergence in the world is the product of a double negative: it becomes common only when all other killers themselves have been killed. Nineteenth century doctors often linked cancer to civilization: cancer, they imagined, was caused by the rush and whirl of modern life, which somehow incited pathological growth in the body. The link was correct, but causality was not: civilization did not cause cancer, but by extending human life spans, civilization unveiled it.
Longevity, although certainly the most important contributor to the prevalence of cancer in the early twentieth century, is probably not the only contributor. Our capacity to detect cancer earlier and earlier, and to attribute deaths accurately to it, has also dramatically increased in the last century...
There are a ton of good insights here about the history of cancer research that I wish there was a comparable book on the history of poverty. Or is there already? Similar to the history of cancer, the history of poverty seems to be replete with instances where we-thought-we-know-but-actually-don't. For instance, we thought we knew that microfinance would be a magic bullet in solving poverty but the evidence on this turns out to be mixed. Lately, the latest craze is on cash transfer programs, but even this doesn't seem to be a comprehensive solution.

What is the secret to cancer or the secret to unlocking development? We are still working on it.

Sunday, October 6, 2013

Economist Nouriel Roubini, Party Animal

The economist, who became known as 'Dr Doom' after predicting the financial crisis, has been forced to remove his giant hot tub from the roof of his $5million New York penthouse, it emerged today... 
Asked about the models who attend his parties, he once told New York Magazine: 'They love my beautiful mind. I am ugly, but they’re attracted to the brains.
Now, who says economists are boring?

From the Daily Mail. Hat tip to EconJeff.

Friday, October 4, 2013

Does Winning Awards Reduce Productivity?

It appears so, according to this latest paper by Borjas and Doran. They compare the productivity over time of mathematicians who win the Fields medal (equivalent to a Nobel Prize in mathematics) to similarly brilliant mathematician contenders who just narrowly lose out on the award. Productivity is measured in terms of publication rates in mathematics journals. The results are succinctly summarized by this amazing graph:


Those who win the award have similar publication rates with those who just lose out on the award when both are still eligible (anytime prior to year 0) but productivity dramatically drops thereafter for those who go on to eventually win the award.

I caution on generalizing these results to other settings but it is a good reminder for those of us who just lose out on coveted prizes. It is not the end of the world. You may in fact be a better off losing out in the long run.

Hat tip to Marginal Revolution, where I first heard about this paper.

Thursday, October 3, 2013

Can Decentralization Increase Corruption? Evidence from Indonesia

Decentralization of power from the central government to local units is one of those things often touted as a cure to corruption and many other problems of governance. The idea is that devolving fiscal responsibility to officials in local communities who have more at stake in terms of outcomes yields better results for communities: projects getting done, and less corruption. In theory at least, this is how it is expected to work.

Today I feature another one of those favorite papers, this time on corruption. Burgess et al. (gated) test the theory with Indonesian data, exploiting the decentralization laws that were put in place post-Suharto. These laws remarkably increased the number of administrative district splits done to take advantage of these new laws, increasing the number of political jurisdictions, and effectively increasing the number of local officials within provinces enforcing forest laws. They utilize novel satellite data that tracks annual deforestation across eight years of this institutional change to examine how local officials’ incentives affect deforestation. Were more empowered provinces better able to take care of their forests? One would think that such measures would decrease illegal logging. Little did they know...

Exploiting the differential timing of administrative splits, Burgess et al. show that provinces that had more local officials enforcing local laws increased deforestation in their jurisdictions. Satellite data showed that their provinces became less green (in terms of pixel color). Moreover, price data shows that the price of timber within these areas decreased. This, they say, is consistent with local officials engaging in Cournot competition with each othe, as if they were firms. Only, in this case, the "product" they were selling were illegal logging permits. Having more local officials in an area seemed to intensify the competition for corruption. And as predicted, the price of timber decreased, its production increased, hastening deforestation.

They go on lengths to rule out alternative stories. Maybe newer administrative districts were new and so were unable to properly enforce laws in the beginning. But they show that the effects of the splits on deforestation are even stronger in the medium term, inconsistent with this story. At the same time, increased deforestation appears to occur not only in the newer administrative district but rather for the whole province, also in parts where the the district split did not occur. Perhaps provinces whose political jurisdictions increased were merely provided with more quotas for legal logging. But the result also holds for provinces where logging is completely prohibited (sanctuaries).

It is a cautionary tale for those who would, without qualifications, champion decentralization. I think the study demonstrates clearly how corrupt bureaucrats respond to incentives and how we might naively implement policy that is counterproductive when we fail to think hard about incentives.

This need not be always the case however. I know at least of a randomized control trial done by Bjorkman and Svensson for instance who find that community empowerment actually increased health outcomes but the context there is different. In contrast, the seminal paper by Olken shows how community monitoring does not actually decrease corruption as measured by "missing expenditures" from roads because monitoring is subject to elite capture and free riding at the local level. There, monitoring through a top down approach using audits by the central government worked better. I may write about this paper in the future since it is such a classic.

Tuesday, September 24, 2013

A Reversal of Fortune

What is the fundamental cause, rather than just the proximate cause, of economic development? A debate centers around whether it is geography or institutions that are paramount. On the one camp are those that say geographic features are what is essential in the long run: the disease environment, climate, whether the country is landlocked or not, whether it is has ample amount of natural resources, etc. The simple version of the view holds that time invariant characteristics of an area impose contemporaneous long term effects on economic development, a view held by Jeffrey Sachs and convincingly argued by Jared Diamond in his book Guns, Germs and Steel. On the other camp are those who highlight institutions, humanly devised constraints that shape human interaction and behavior, as the main driver of development. Geography only plays a part in its interaction with historical events.

One of my favorite big picture papers in development, written by Acemoglu, Johnson and Robinson is on the Reversal of Fortunes. It is one of those papers I wish I had written because the analysis is so simple: they document a massive change in fortunes over the course of 500 years. The civilizations that were rich in the 1500s (as proxied by urban and population density then) are now the countries that are relatively poor while those who were poor are now the countries that are relatively rich. This negative correlation over time is robust, even when controlling for a host of geographic factors normally thought of as important for development. Compare for instance, what had happened to the Mughals in India or the Aztects or Incas in the Americas versus the fate of the US, Canada, or Australia now. This disputes the geography hypothesis since those factors which had made countries relatively rich before should also make them relatively rich now while those geographic variables which had constrained development before should continue to impose its long shadow now. But this does not appear to be the case.

On the contrary, the evidence appears to side with an institutions story. The reversal seems to occur around the time of the industrial revolution. European colonialists established rent-seeking institutions in previously rich and high-density areas (e.g. high taxes, slave labor) while they had the incentive to promote growth-inducing institutions in sparser areas, because it was there that they settled and had to live themselves by these rules. The reversal seems to occur because areas with superior institutions were better able to take advantage of the technology that suddenly became available during the industrial revolution. It is a compelling argument for why institutions are the main driver of economic prosperity rather than geography.

I take this to be both humbling and empowering. Humbling because it highlights how human beings are culpable for the poor outcomes that many in society still face. Institutions after all are humanly devised rules of the game. Underdevelopment is not just caused by some exogenous factor. On the other hand, empowering because institutions can be changed, however difficult a process that may be. Poor countries are not permanently at a disadvantage. And in order to develop, society should look to reforming the rules of the game that structure incentives of human beings.

Tuesday, July 23, 2013

Blogging Break

I have decided to take a month and a half of break from blogging to try to up my focus on all things summer which for me mainly means work (getting these research projects up and running!) and then on the side: swimming, reading, and catching up with people in real life - things that I do not get to enjoy as much during the school year. It's not as if I've been writing much anyway, but still. The thought of not having to post something is peace of mind. I want to try this out and see how it goes but I hope you guys reading this stay tuned!

Sunday, July 14, 2013

There are Three Deaths


There are three deaths. The first is when the body ceases to function. The second is when the body is consigned to the grave. The third is that moment, sometime in the future, when your name is spoken for the last time.
That is from David Eagleman's Sum, a surprisingly imaginative book I have stumbled upon about the afterlife. It offers 40 fictitious tales of what life after death could be like: For example, in one, we relive all the moments of our life not in chronological order but arranged by type. So we spend two months driving in the street in front our house, seven months having sex, then thirty years asleep, three months doing laundry, etc. In another, the afterlife is composed of only the people we've ever met. How wonderful that is, except as one realizes, it could be hell.

I am in the middle of it and expect to like it even more. Recommended. And here's Ben Casnocha's book review which eventually led me to grabbing a copy of the book.

Monday, July 8, 2013

Why Hotels Don't Provide Toothpaste

And the answer is not cost. Daniel Engberg from Slate writes:
I asked this question of executives at 18 North American hotel chains, and most provided the same pair of explanations. First, they said their in-room amenities are chosen based on extensive consumer research. In other words, if the hotels aren’t giving you toothpaste, it’s because you don’t really want toothpaste. ... (Update, July 3: There is at least one major exception to the rule. A Hyatt spokesperson reports that all of that company's hotels in North America offer in-room tubes of Aquafresh toothpaste.) 
The second explanation took the form of an appeal to hospitality norms. Several sources said that their company takes its cues from rivals. “Many of our competitors do not include toothpaste as a standard amenity,” pleaded brand director Debbie Grant of InterContinental Hotels & Resorts. Others shrugged and pointed to the independent companies that assign standard ratings for quality of service. If the ratings don’t require it, the hotels won’t acquire it. 
Sure enough, the hotel-ratings firms make very precise toiletry demands, yet as a rule omit any reference to dental care products. ... 
“The diamond ratings come from what we typically see,” a AAA employee told me. “Toothpaste is not something they typically put out.” 
“So you don’t give ratings based on toothpaste because hotels don’t give toothpaste to their guests?” I asked. 
“Yes,” she said. 
“But the hotels told me the same thing—they said they don’t give toothpaste because of your ratings.” ... 
Hotel executives assured me that the price of toothpaste is generally “in line” with those of other amenities. “Toothpaste is not a cost-prohibitive addition,” said Sweeting of the Four Seasons. ... 
So if we can’t blame the missing toothpaste on the stinginess of hotel executives, the dereliction of the ratings firms, or the finicky tastes of travelers, then what’s left? Only the gloomy notion that we might all be equally to blame. Hotels could give us toothpaste but they don’t. No one knows why, and no one cares. It’s how things have always been, and how they’ll always be.
Correspondingly, I think one can extend this example to ask, why do governments fail to provide certain public goods even when they are affordable. And sometimes the answer is not as simple as cost, or even corruption.

A classic case of market failure. Also, from a development economics standpoint, this is probably how poverty traps work.

HT to James Choi's blog, where I first saw this.

Saturday, July 6, 2013

Hillary Rodham’s 1969 commencement speech

I was hoping for a video but I suppose this account by Robert Pinsky would do:
For some people the event has become legendary. Many others may never have heard of it. The commencement speaker was U.S. Sen. Edward Brooke. Brooke was— now here's a period detail—a Republican moderate. Smooth, handsome, a World War II combat veteran, he was also the first African-American popularly elected to the United States Senate. He co-authored the Fair Housing Act, and he was actively pro-choice. In other words, with the eyes of 2013, Brooke can be seen as a heroic fantasy of courage and wisdom. In the eyes of 1969, he was seen as blandly complacent.
...In his Wellesley talk, Brooke stressed his conviction that things had been getting better: “When all is said and done,” he said (quoted in the Fitchburg Sentinel of June 2, 1969), “I believe the overwhelming majority of Americans will stand firm on one principle: coercive protest is wrong, and one reason that it is wrong is that it is unnecessary.”

The senator accepted polite applause. Next, Wellesley's alumna-shocking innovation of a student speaker was briefly explained by Ruth Adams, the college president—a job made difficult by turbulent times, even on a genteel campus as pacific as Wellesley's...
Hillary Rodham came to the microphone and explained to the assembly of seniors, families, alumnae, faculty, trustees, and reporters that before her prepared remarks she would respond briefly to Brooke. What I recall vividly about her impromptu remarks is less what the 21-year-old student politician had to say than the shrewdly controlled way she formulated her objection to Brooke's performance. How could somebody so young have improvised a devastatingly courteous, even courtly critique of the senatorial bromides?

I remember a rhetoric of respectful regret, along the lines of: “Senator, we hoped you might have said something about conditions in our cities,” and “Senator, we need you to speak about the escalation of war in Southeast Asia.” She expressed sadness at her need to say that empathy was not enough, that she and the other students needed Brooke's guidance, not empty generalities. The “art of the possible” was not enough. Brooke had mentioned as good news that the percentage of Americans below the poverty line had decreased to 13.3 percent. “That's a percentage” she said, with polite disdain.

Her remarks worked, though the present Hillary Clinton might wince at young Hillary's scorn for percentages, her telling the senator he owed his audience something better than “a lot of rhetoric.” The poise, good manners, and fearless cogency of those improvised remarks gave them not just rhetorical power, but authority. Hillary Rodham's speech—the first ever given by a graduating senior at Wellesley—was interrupted by frequent applause and followed by a standing ovation that lasted (says the Fitchburg Sentinel, confirming my memory) for seven minutes.
--from Slate on the birth of a politician.

Thursday, June 27, 2013

The very deep roots of economic development

Could historical factors, determined 10,000 years ago, have some explanatory power in predicting today's levels of economic development between countries? I would not have thought so. It's too long ago that the Neolithic transition, colonization, the industrial revolution, and globalization would have wiped out any predictive power these factors had. Except this paper by Ashraf and Galor which I have just read argues that genetic diversity in a society determined 10,000 years ago, resulting from the exodus of homo sapiens from Africa, are strongly correlated with development outcomes today. What? They are using data from the Human Genome Diversity Cell Line Panel.
The level of genetic diversity within a society is found to have a hump-shaped effect on development outcomes in the pre-colonial era, reflecting the trade-off between the beneficial and the detrimental effects of diversity on productivity. Moreover, the level of genetic diversity in each country today (as determined by the genetic diversities and genetic distances amongst its ancestral populations), has a non-monotonic effect on income per capita in the modern world. While the intermediate level of genetic diversity prevalent among Asian and European populations has been conducive for development, the high degree of diversity among African populations and the low degree of diversity among Native American populations have been a detrimental force in the development of these regions.
I have my doubts mainly about the quality of the data they are using, but the paper is pretty convincing, making use presumably of the most of what historical data we have. In almost 50+ regressions where they control for other potentially confounding factors, the measure of genetic diversity remains a statistically significant predictor of economic development today. This result seems robust.

That history matters was once a strange concept in economics because the neoclassical model predicts convergence among economies. Of course, empirical papers have since provided strong evidence that particular events in history like colonization, slavery, etc. have long shadows and continue to manifest their effects even today. I suppose I just didn't think something that happened a long, long, looong time ago could still matter.

Tuesday, June 25, 2013

Why do Legal Permanent Migrants Return?

Is it because of consumption, investment, or employment in the home country? Which factors are salient? Do home country conditions even matter at all? These are questions I attempt to answer in my new paper on the return motivations of legal permanent migrants. I am pleased to finally put up a draft. 

I focus on legal permanent immigrants in Australia and their motivations for return. Are these migrants more likely to be target earners, who move abroad in order to accumulate resources to invest in some business at home, or are they life-cycle consumers, who primarily balance the marginal benefits and costs of staying abroad? One can distinguish between the two by their reactions to shocks. For instance, target earners are thought to cut their stays abroad shorter when their purchasing power for the home country increases while life-cycle migrants react by making their stays abroad longer.


I use the 1997 Asian Financial Crisis as a quasi-experiment. The figure above encapsulates the empirical strategy (exchange rates are normalized to 1 in 1996). In particular, the crisis generated varied and substantial exchange rate shocks between home country currencies of migrants and the Australian dollar. Moreover, this crisis was largely unexpected, hence plausibly exogenous. Immigrants from Australia come from different countries so it was as if they were randomly allocated different exchange rate shocks, shocks to their purchasing power. The basic approach simply looks at whether those who obtained more favorable exchange rate shocks (depreciations in their currency) returned more or less compared to those who obtained less favorable shocks.

In sum, I find that a 10% increase in the exchange rate (a home country currency depreciation) leads to a 0.37 percentage point reduction in the probability that a migrant returns. The 2-year permanent return rate in this period is small at 4.1% so this effect is almost equivalent to a considerable 10% of the return rate. That these migrants continue to be sensitive to home country conditions is a somewhat surprising result, given that these individuals are granted permission for indefinite stay in Australia. The result is robust and consistent with the story that migrants return due to life-cycle considerations. A substantially larger effect is found for migrants who have pre-determined that they would want to return, evidence that migrants optimally time their return to favorable conditions. Moreover, I show evidence that this exchange rate shock effect is not merely a proxy for the influence of other macroeconomic conditions, such as GDP per capita growth or the change in unemployment in the home country. This suggests that return is primarily a function of purchasing power and consumption rather than employment possibilities in the origin country.

 More details are in the paper. I welcome comments and suggestions at pabarcar@umich.edu.

Sunday, June 16, 2013

What I've Discovered About the Steak We Eat...

is that most of it is corn and petroleum. This I learned from Michael Pollan's, The Omnivore's Dilemma, as he talks about his visit to the factory farm thus:
“In my grandfather’s time, cows were four or five years old at slaughter,” Rich explained. “In the fifties, when my father was ranching, it was two or three years old. Now we get there at fourteen to sixteen months.” Fast food, indeed. What gets a steer from 80 to 1,100 pounds in fourteen months is tremendous quantities of corn, protein and fat supplements, and an arsenal of new drugs.
Economic efficiency indeed in its most disgusting form. I still find it hard to believe that we have managed to force feed cows corn because its faster than grass. Recommended. I've also learned much about the economics of US agriculture in the process.

Partly as a response, I have replaced all my junk food with peaches for this week's groceries. Not sure if I'm ready to replace that steak though just yet.

Saturday, June 15, 2013

Nothing is Self-Made

A while back, I wanted to write a post about how the best feeling in the world is knowing that you are "self-made." I certainly felt this way the first time I moved into my apartment in DC. It was a thrill to be in my 20s, to realize that the furniture around me was paid by my own income, and to know that my achievements were brought about by my own hard work.

I had come all the way from Manila, armed with only my college degree, from a school only a few have heard about. But somehow I landed a good job in the city.

I started feeling uneasy in the middle of composing this piece. I would never have made it in the US, if not for my dad who decided to apply to become a nurse in this country. It must have been a hard decision; he was a practicing physician back home. But this was the way to obtain green cards for the entire family. And he wanted his children to have the best opportunities, like the one I am taking advantage of now, studying in one of the leading institutions in Economics and Public Policy in the world. Now my sister is doing well at NYU on her way to being a doctor, while my younger brother is busy with an internship in the same city before he finishes up next year at Georgetown. It was because of my dad's sacrifices that we had enjoyed our successes.

That piece was never finished. It hit me, nothing is self-made.

A happy father's day to my dad.

Wednesday, June 5, 2013

Can Pegging Teachers' Salaries to Attendance Reduce Absence?

The answer seems yes and I would like to see it done in a larger scale and evaluated. This has become one of my favorite papers on education by Duflo, Hanna, and Ryan:
Many developing countries have expanded primary school access. These improvements, however, have not been accompanied by improvements in school quality. For example, in India, a nationwide survey found that 65 percent of children enrolled in grades 2 through 5 in government primary schools could not read a simple paragraph (Pratham 2006). These poor learning outcomes may be due, in part, to teacher absenteeism. Using unannounced visits to measure attendance, a nationally representative survey found that 24 percent of teachers in India were absent during school hours (Kremer et al. 2005)... 
We use a randomized experiment... In treatment schools, teachers’attendance was monitored daily using cameras, and their salaries were made a nonlinear function of attendance. Teacher absenteeism in the treatment group fell by 21 percentage points relative to the control group, and the children’s test scores increased by 0.17 standard deviations.

Monday, June 3, 2013

On Return Migration: An Anecdote is Not A Trend

An ABS-CBN news article today cites the trend of returning overseas filipino workers due to the booming Philippine economy. This is good news, except it cites *gasp* an anecdote as evidence of a trend. Hence, sample size = 1 and this is supposed to move your priors.

Note, I am actually not against Filipino migrants returning home. It may very well be happening, though there is no data at present. But I want to call out poor journalism, on a topic I am trying to specialize in, when I see one. You see, I've been watching Newsroom lately. And what I've learned is, aside from the fact that seeing Olivia Munn as economist is awesome, journalists often use misleading anecdotes, perhaps to entice emotion, but it shouldn't necessarily speak to the truth.

One of my favorite academic articles on why migrants return is Yang (2008). The author utilizes an unexpected event, the 1997 Asian Financial Crisis, when substantial and varied exchange rate shocks were realized between the Philippine peso and foreign currencies to figure out why temporary migrants return. Now, Filipino migrants work in a diverse set of countries abroad so it was as if each of them were randomly allocated different exchange rate shocks during this time. By comparing the behavior of Filipino migrants who attained greater or smaller shocks, the paper establishes how exchange rates affected the decision of these migrants to return home. The finding is that Filipino migrants are primarily driven by life-cycle considerations, prolonging their stay abroad when they experience favorable changes in their purchasing power at home (exchange rate depreciations). They return mainly because of consumption reasons and not primarily for investment.

I have an upcoming paper using the same natural experiment but this time looking at a mirror image of legal permanent residents in Australia and their motivations to return. My finding is similar, that exchange rate appreciations (unfavorable rates) encourage migrants to return, except I am able to additionally test whether this effect of exchange rate shocks simply embody other macroeconomic conditions at home, that is, is it growth rates, employment opportunities, or purchasing power that are driving return. I find evidence consistent with purchasing power as the main driver of migrant return.

Watch out for that paper. After reading this ABS-CBN article, I am even more excited to finalize it.

Sunday, June 2, 2013

The Economics of Names

The NYTimes explores the economics of names:
What’s in a name? What isn’t, these days? Baby naming has become an industry — with paid consultants, books, Web sites brimming with trend data, and academic studies exploring correlations between baby names and future success. The once-simple task of coming up with a monogram for the baby blanket has evolved into a high-stakes exercise in personal “branding.”
Surely one would think these correlations between names and success are merely correlations, right? And that names do not actually have a causal influence on economic outcomes. But you are wrong.

In their most famous study, Bertrand and Mullainathan run a field experiment where they send out fake resumes where they randomly assigned names, holding everything else constant. The question was simple: do whiter sounding names like Greg or Emily get more callbacks than names like Lakisha or Jamal, names more common for blacks. They find that white names get 50% more callbacks than black names. There are other such studies. One I like is by Carlsson and Rooth who do a similar experiment but look at the disadvantage of immigrant-sounding names in Sweden. Similarly, Swedish sounding names are 50% more likely to get a callback for a job interview than other names. It seems like there are significant economic arguments for choosing a baby's name.

Note: I do not know whether there are any economic arguments to changing your name to Metta World Peace though.

Friday, May 31, 2013

Remittances as THE Cash Transfer Program of all Programs

While the internet is abuzz with articles like this, hailing cash transfers as the radical new (or maybe not-so-new) way to do development, I am surprised nobody has yet pointed out how remittances already serve as THE cash transfer program of all programs. 250 million migrant workers are poised to send a gasp-inducing $500 billion this year to their home countries, up from $410 billion in 2012 according to IFAD. The same features that experts like about direct cash transfers are already embodied by these remittances:

1. They go directly to the hands of people who need them. Yup, no middle men here.

2. Migrant households are already the ones who need the cash the most by selection into migration (otherwise, why would they leave their families behind?). By default, remittances are properly targeted.

3. Remittances have been shown to improve household well-being and to encourage productive investments. (See for instance Yang 2008, Adams 2010, and Cox-Edwards and Ureta 2003)

4. In addition and presumably better than cash transfers, remittances serve as insurance, rising in the wake of negative shocks for households in the home country (Yang and Choi 2007).

Perhaps we should think more about this as we discuss immigration reform. How can we increase remittances and enhance their benefits? Policy-makers can do better by rallying around leveraging this already existing cash transfer program, which is the largest in the world.

Sunday, January 13, 2013

Are Political Dynasties in the Philippines Merely a Symptom of Democracy?

Those who defend political dynasties in the Philippines often argue that it's merely a symptom of democracy since most democracies possess them. For example, the US have the Kennedys, the Bush family, etc. However,
The clearest manifestation of the oligarchy in the Philippines and how it impacts politics is the existence of political dynasties. Now you’d be right in noting that every country in the world has political dynasties. The US has the Bush dynasty, the Kennedy dynasty, Colombia has the López family, the Lleras family and the grandfather of the current president of Colombia, Juan Manuel Santos, was president between 1938 and 1942. Winston Churchill’s son was even a Member of Parliament for the Conservative Party in Britain.  
But the extent of political dynasties in the Philippines is off the chart compared to any other country in the world. 60% of congress-people elected in 2007 had a previous relative who were also in congress. To give some sense of how high this is, the analogous figure in the US was 7%...
From Why Nations Fail.