Normality and sanity

I am still reading Aid on the Edge of Chaos. The book is divided in three parts: the first one describes how international aid works; the second one explains complexity ideas, covering concepts such as networks and power-law distributions; and the third one applies ideas of complexity to international aid. 

Power-law distributions are interesting--this kind of distribution is an initial indicator that a phenomenon is complex. The basic concept is that some variables do not have a normal distribution, instead very few observations are extreme and have low frequency, most observations are not extreme--the distribution of earthquakes is one example. The distribution of homicides in the world (see figure 1 here) by country, and also of malnutrition, seem to have a power-law distribution, which means that there are many feedback effects between these variables and others--there is a lot going on behind the distribution. 

To be sure, just the fact that a variable has a power-law distribution does not mean that it is complex. 

The author writes:

Perhaps clinging to the mast of normality is the only way to stay sane in a world of extremes and outliers. But it also means we are consigned to treating the irregular and extremes as continuous shocks. p. 219.

Aid on the Edge of Chaos

This is the book I am reading. One good sentence:

To sum-up the core message: there is far more policy-based evidence than evidence-based policy.

The website of the book is here, and the first chapter is available. You can follow Ben Ramalingam on Twitter. 

 

International aid and financial crises in donor countries

This paper estimates how donor-country banking crises have affected aid flows in the past, using panel data from 24 donor countries between 1977 and 2010. We find that banking crises in donor countries are associated with a substantial additional fall in aid flows, beyond any income-related effects, at least in part because of the high fiscal costs of crisis and the debt hangover in the post-crisis periods. Aid flows from crisis-affected countries are estimated to fall by 28% or more (relative to the counterfactual) and to bottom out only about a decade after the banking crisis hits.

From a paper by Hai-Anh Dang, Stephen Knack, & F. Halsey Rogers. A draft is here.

Aid comes back and to a higher level . . .

Good countries or good projects?

From a paper by Cevdet Denizera, Daniel Kaufmannb, & Aart Kraayd

This paper investigates macro and micro correlates of aid-financed development project outcomes, using data from over 6000 World Bank projects evaluated between 1983 and 2011. Country-level “macro” measures of the quality of policies and institutions are strongly correlated with project outcomes, consistent with the view that country-level performance matters for aid effectiveness. However, a striking feature of the data is that the success of individual development projects varies much more within countries than it does between countries. A large set of project-level “micro” variables, including project size, project length, the effort devoted to project preparation and supervision, and early-warning indicators that flag problematic projects during the implementation stage, accounts for some of this within-country variation in project outcomes. Measures of World Bank project manager quality also matter significantly for the ultimate project outcomes. We discuss the implications of these findings for donor policies aimed at aid effectiveness.

In draft that for some reason I can not find now, they claim that 80 per cent of the variation in outcomes in the sample is due to factors within countries.  

On the Negative Returns of Owning Cows and Buffaloes

Santosh Anagol, Alvin Etang, & Dean S. Karlan claim in a new paper:

We examine the returns from owning cows and buffaloes in rural India. We estimate that when valuing labor at market wages, households earn large, negative average returns from holding cows and buffaloes, at negative 64% and negative 39% respectively. This puzzle is mostly explained if we value the household’s own labor at zero (a stark assumption), in which case estimated average returns for cows is negative 6% and positive 13% for buffaloes. Why do households continue to invest in livestock if economic returns are negative, or are these estimates wrong? We discuss potential explanations, including labor market failures, for why livestock investments may persist.

Instead of providing an answer the authors put forward the puzzle, they explain:

In Hinduism, the cow is a symbol of wealth, strength, abundance, selfless giving and a full earthly life.20 As almost all the sampled households reported that they were Hindu, they may also derive spiritual returns from cattle ownership. The foregone returns compared to their next best investment alternative would effectively be the cost of religiosity in this context. This of course does not explain the results for buffaloes. P. 14.

 And the implications for aid:

Our results suggest that merely transferring an asset alone may not be sufficient to generate higher income (beyond the value of the transferred asset). P. 15.

Public Choice: Political Aid Cycles

Researchers have scrutinized foreign aid’s effects on poverty and growth, but anecdotal evidence suggests that donors often use aid for other ends. We test whether donors use bilateral aid to influence elections in developing countries. We find that recipient country administrations closely aligned with a donor receive more aid during election years, while those less aligned receive less. Consist with our interpretation, this effect holds only in competitive elections, is absent in U.S. aid flows to non-government entities, and is driven by bilateral alignment rather than incumbent characteristics.

That is from a new paper in the AER by Faye & Niehaus (December 2012). The authors explain (p. 2):

. . . In these [2006 Palestinian] elections the U.S.-backed incumbent Palestinian Authority (P.A.) faced strong opposition from Hamas. In the weeks preceding the elections the United States Agency for International Development Assistance (USAID) funded several development programs in Palestine including the distribution of free food and water, a street-cleaning campaign, computers for community centers, and even a national youth soccer tournament.

The full paper (draft: June 2011).   

The end of aid boom?

OECD Countries: Official Development Assistance: 

The graph is from the Development Policy Blog. The US and Spain have the highest reductions for 2012. Only the UK and Australia have increases in aid estimated for 2012 (very small increases for Belgium and Switzerland, relatively speaking). 

It seems like foreign aid is a luxury good for most OECD countries. This is bad news for some programs that are actually making a difference in the developing world [probably good news for development in countries where aid create dependency, crowd-out local capabilities, or fuel corruption - of course it is hard to generalize]. However, this is not necessarily bad since the few money that is actually available now must be carefully monitored and scrutinized - and it its impact evaluated [or so one would hope], which might actually set up a culture of efficiency in the management of aid programs in the future. 

Thanks to Kathryn Zealand for the pointer.