Análisis de Redes y libros de desarrollo económico

Sigo leyendo el libro Aid on the Edge of Chaos, específicamente la parte donde habla sobre análisis de redes y desarrollo económico. Un ejemplo que da el autor es el de una ONG en Ghana que trabajaba en temas de salud. La ONG obtuvo buenos resultados, pero cuando dejó Ghana esos resultados desaparecieron. Se perdió el buen trabajo. ¿Por qué paso esto? 

La ONG había construido una red muy activa de personas y organizaciones y era el centro de conectividad. Cuando se fué dejo un vacío que no se pudo llenar y el sistema, por decirlo de alguna manera, colapsó. Esto no se supo hasta que se hizo un análisis de redes. 

Me interesó el tema e hice un análisis simple de redes con datos que tengo al alcance: libros de desarrollo económico en amazon.com. 

Supongamos que alguien desea leer sobre desarrollo económico y busca "economic development" en Amazon. El primer libro que Amazon presenta es el texto de Todaro y Smith, Economic Development, y las personas que compran este libro también compran: Poor Economics, The End of Poverty, Development as Freedom, The Tyranny of Experts, Into de Mud, y Community Development. Estos libros representaran "el corazón" de mi red. 

Para cada uno de estos libros Amazon sugiere otros (lo que sería ya el "tercer nivel", por llamarlo de alguna manera), y así sucesivamente. Yo incluí los libros hasta el "cuarto nivel" de recomendación. En la red cada nodo representa un libro y está vinculado a otros si los consumidores que el primero compraron también el segundo. Esta es la red: 

Hay varias cosas que vale la pena notar:

• Los libros con la mayor cantidad de conexiones son el 16, 4, 12, 2, 3, y 7, es decir: Edge at the Age of Chaos, Development as Freedom, Death Aid, Poor Economics, End of Poverty, and Community Development. 
• Es interesante que después de dos sugerencias los libros cambian de tema hacia temas espirituales (el cluster del 56 al 61 y del 62 al 66) . . . [el desarrollo es algo complejo]. 
• Después de dos niveles (desde la búsqueda inicial) se encuentran libros desde la perspectiva de la sociología del autor Zygmunt Bauman (el cluster del 50 al 55), quien resalta temas de desigualad, incertidumbre, felicidad, y muchos otros.
• Otro cluster interesante está  formado por los libros del 74 al 78. Alli tenemos a autores como Harvey, Polanyi, y Chomsky. 
• Development as Feedom es el libro que mas conecta a los demas. 
• Es posible que buena parte de la manera en que vemos el mundo, en este caso el desarrollo económico, esté marcado por el path dependence de los primeros libros que leímos sobre el tema. 

Hay que aclarar que solo he visto a una minúscula parte de la red. Esta red es enorme y ni puedo imaginar lo que Amazon puede hacer con sus datos. 

Por otro lado, estos resultados son dependientes de la búsqueda inicial que partió del libro de Todaro y Smith, que es un texto clásico en el campo del desarrollo económico. Es posible también que los resultados que yo obtuve de las búsquedas sean diferentes a las que otras personas pueden obtener. 

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. 

 

"Mommy, the President is drinking my chocolate milk!"

“Men in Black III” came out May 25^th of 2012, almost seven months before Barack Obama was elected president for his second time November 6^th. 

Surfing and zapping through TV channels, I´ve frequently stumbled upon Hollywood blockbuster "Men in Black III", and actually watched it for a couple of times for mere entertainment. Yesterday, I ventured into watching it for a third (or fourth) time and it surprised me with dialogues crammed with great deal of social criticism and political and economical satire. Certainly, the movie could have been a great success without those elements of criticism and spoof but, for whatever reason, (I’m thinking the sense of “making extra box-office money over viewers’ laughter” prevailed) the director and the producers chose to include such likable ingredients.

Despite their motivations, it is interesting that such explicit allusions to the past and present circumstances of politics and economics (if you watch the movie again you’ll know what I’m talking about) make it to the big screen and I believe they respond to a widespread fear that has virally infected the conscience of the American citizens and the not-so-citizens (they call them “immigrants”; some of us think of them of an important part of the labor supply of the United States of America).  People are confused and they feel that they live governed by uncertainty and inconsistency, two phenomena that work subconsciously against the interests of the rule of law and a dynamic, productive market.

"Mommy, the President is drinking my chocolate milk!”, said a young little girl in the arms of her mother, confusing “Agent ‘K’” (Will Smith) with president Obama. “And he didn’t say thank you”…  What I hear is: “Mommy, the President is taking things away from us and he is being rude!” I believe that most of us think of government just like this little girl; this administration has made decisions without transparency, righteousness or any sort of reliable and consistent criteria. And this feeling reveals itself in polls like the ones published by Gallup and the Washington Post.

President Obama’s administration has had its ups and downs like any other presidency but, in this case, hazardous characteristics have perpetrated as distinctive traits of his government: the lack of consistency in management horizontally through his collaborates, uncertainty and the erosion of trust and confidence from the American citizens and citizens and leaders from the rest of the world. I’m afraid that his administration will transcend and critically affect the next government, interrupting economic development and political efficency. Obamacare, NSA, CIA, Syria, Iran, War, Snowden, Migratory policies, Benghazi, shutdown… Stop lying! Stop saying you are sorry! Stop stealing our chocolate milk! 

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.  

Development Economics: Where to Start?

A student asked for guidance to study development economics on her own - "where to start?" I recommended these very good sources:

Dean Yang's Development Economics class.

Chris Blattman's Political Economy of Development class. 

The development economics class at Marginal Revolution University. 

Bill Easterly's Economic Development classes.

Interdependencies in comparative historical economic development

There are many examples of these interdependencies. For example, Europe’s ability to colonize and rule the African continent depended critically on the discovery of the chincona tree in the Andes and its mass production in Asia by the British. This is because quinine, the first effective protection against malaria, is derived from the bark of the tree. 

Similarly, European knowledge of how to effectively process wild rubber obtained from Native Americans, had important consequences for the millions of Africans that were tortured and killed in King Leopold’s Congo. 

Another example is the interdependence between the printing press and both the Protestant Reformation (Dittmar, 2011, Rubin, 2011) and the Atlantic trade (Dittmar, 2011). We have also seen that Catholic conflict with the Ottoman Empire helped enable the spread of the Protestant religion across Europe (Iyigun, 2008). 

We have seen that the presence of the tsetse fly in Africa resulted in less intensive agriculture that did not use the animals or the plough (Alsan, 2012). Because the plough was not adopted, women participated actively in agriculture, which generated norms of equality, which continue to persist today (Alesina et al., 2013). 

This an important explanation for the high levels of female labor force participation that is observed in Africa today. We have seen that Africa’s slave trades resulted in underdeveloped pre-colonial states (Nunn, 2008a), which in turn are associated with less post-colonial public goods provision and lower incomes (Gennaioli and Rainer, 2007, Michalopoulos and Pappaioannou, 2013).

That is from a paper by Nathan Nunn.  

Values and Economic Outcomes

Macroeconomic textbooks discuss economic growth in terms of the Solow Model (factors of production and technology). Some textbooks do a better job and indicate that incentives and institutions affect the productive capacity of a country. The graph below goes one step farther and includes values which along with institutions affect behavior. Although incentives are missing in the graph, the inclusion of values is an step ahead. Behavioral factors (individual or collective) affect economic outcomes. 

The graph is from this paper by Janice Boucher Breuer & John McDermott. A draft is here. 

The authors explain

This paper continues recent work on the search for deep determinants of economic development. We show that two core values - respect for others and responsibility - are almost always highly significant and of sizeable magnitude in explaining productivity, capital, human capital, output per worker, and institutions. We suggest that these core values are fundamental and exogenous, and work on behavior - both directly and indirectly through institutions. Our empirical results are strong and consistently support our contention. . . 

We also examined whether institutions embed core values. We considered four institutions: social infrastructure (as measured by Hall and Jones, 1999), the index of economic freedom, property rights, and civil liberties. In all cases, both core values respect for others and responsibility were positively and strongly correlated with better institutions and explained 34% or more of the variation in institutions. P. 21. 

Probably the next challenge of development economics is to study values deeper, how they change, and what makes them change. I see Breuer and McDermott's paper as a step in the right direction. 

It might well be that there is feedback from increases in income (y) and values via education and technology, and more indirectly via religion and ideology. Of course very important work has been done on these topics, by Douglass North and many others. Several questions remain however, which is exciting. Next time you see an explanation of economic growth and development ask: "What role do values play in your model?" and "What type of values does your model assume?"    

Economic Development in the Very Long Run

From a paper by Enrico Spolaore Romain Wacziarg 

. . . we provided a theoretical framework and empirical evidence to shed light on a fundamental question: What barriers prevent the diffusion of the most productive technologies from the technological frontier to less developed economies?

The authors argue

. . . populations that share a more recent common history and are therefore closer in terms of vertical traits [that is, the transmission of characteristics which are passed on vertically across generations within a population over the very long run] tend to face lower costs and barriers to adopting each other's technological innovations.

Intelligence and the Wealth of Nations

The abstract of a recent paper by Vittorio Daniele in the JSE (October 2013):

Can the average intelligence quotient (IQ) of populations be considered the root cause of international development inequalities? Psychologists and some economic studies have proposed the existence of a link between intelligence quotient and economic development. The paper tests this hypothesis, using different measures of economic development for the year 1500. Consistent with Jared Diamond's (1997) hypothesis, the paper shows how the differences in the timing of agriculture transition and the histories of States, not population IQ differences, predict international development differences before the colonial era. The average IQ of populations appears to be endogenous, related to the diverse stages of nations’ modernization, rather than being an exogenous cause of economic development.

Economic Development: Societies can escape the straightjacket of history

Firstly, long-term history, while very important, is not a deterministic straightjacket. Historical variables do not explain all of the variation in income per capita. In Putterman and Weil (2010), the R-squared on state history, agriculture adoption and the fraction of European descent jointly does not exceed 60%. In Comin, Easterly and Gong (2010), the R-squared in regressions of current income or technological sophistication on lagged technologies is never greater than 40%, depending on the exact time frame (see their Table 8B). In Spolaore and Wacziarg (2009), a standard deviation change in genetic distance relative to the world technological frontier accounts for about 35% of the variation in income differences. That leaves a large fraction of variation to be explained by other factors and forces, suggesting that many societies can escape the straightjacket of history. Persistence does not mean perfect, deterministic persistence. While there is significant persistence in the use of advanced technologies over time and space, there have also been significant shifts in the technological frontier, with populations at the periphery becoming major innovators, and former frontier societies falling behind. In a nutshell, while long-term history matters, there is much scope for variations, exceptions and contingencies.

That is from a new published paper by Spolaore & Wacziarg. A draft is here.  

Mexico: Municipal Human Development Index

The graph is from the paper "Using Census Data to Explore the Spatial Distribution of Human Development" by Iñaki Permanyer. A draft is here and it is published in World Development (June 2013). The abstract:

The human development index (HDI) has been criticized for not incorporating distributional issues. We propose using census data to construct a municipal-based HDI that allows exploring the distribution of human development with unprecedented geographical coverage and detail. Moreover, we present a new methodology that allows decomposing overall human development inequality according to the contribution of its subcomponents. We illustrate our methodology for Mexico’s last three census rounds. Municipal-based human development has increased over time and inequality between municipalities has decreased. The wealth component has increasingly accounted for most of the existing inequality in human development during the last twenty years.

Does Elite Capture Matter? (Indonesia)

From a new and intriguing paper by Alatas et al (February 2013):

This paper investigates the impact of elite capture on the allocation of targeted government welfare programs in Indonesia, using both a high-stakes field experiment that varied the extent of elite influence and non-experimental data on a variety of existing government transfer programs. Conditional on their consumption level, there is little evidence that village elites and their relatives are more likely to receive aid programs than non-elites. However, this overall result masks stark differences between different types of elites: those holding formal leadership positions are more likely to receive benefits, while informal leaders are less likely to receive them. We show that capture by formal elites occurs when program benefits are actually distributed to households, and not during the processes of determining who should be on the beneficiary lists. However, while elite capture exists, the welfare losses it creates appear small: since formal elites and their relatives are only 9 percent richer than non-elites, are at most about 8 percentage points more likely to receive benefits than non-elites, and represent at most 15 percent of the population, eliminating elite capture entirely would improve the welfare gains from these programs by less than one percent.

Returns to English-language skills in India

Another interesting paper in the most recent number of Economic Development and Cultural Change looks at the returns to English-language skills in India:

Abstract

India’s colonial legacy and linguistic diversity give English an important role in its economy, and this role has expanded due to globalization in recent decades. In this paper, we use individual-level data from the India Human Development Survey, 2005 to quantify the effects of English-language skills on wages. After controlling for age, social group, schooling, geography and proxies for ability, we find that hourly wages are on average 34% higher for men who speak fluent English and 13% higher for men who speak a little English relative to men who do not speak English. The return to fluent English is as large as the return to completing secondary school and half as large as the return to completing a Bachelor’s degree. Additionally, we find that more experienced and more educated workers receive higher returns to English. The complementarity between English skills and education appears to have strengthened over time–only the more educated among young workers receive a premium for English-speaking ability, whereas older workers across all education groups do.

Download the draft.
Did you see "The economics of language"?

Latin America Development Problem and the Solution

In this paper I make two main points. First, I showed that low GDP per capita in Latin America relative to the United States (what I call the development problem of Latin America) is due to low relative total factor productivity. In other words, the development problem of Latin America is a productivity problem. I calculate that in order to explain a factor of 1 to 4 difference in GDP per worker between Latin America and the United States only a 1 to 1.6 difference in TFP would be needed. The larger difference in labor productivity arises as an amplification of productivity through physical and human capital accumulation. Second, I considered a framework where institutions and policy distortions create a misallocation of factors across heterogeneous producers that can potentially explain the low relative productivity in Latin America. Barriers to formal market entry, regulation and barriers to competition, trade barriers and employment protection, and general policies that discriminate against productive establishments may be at the core of productivity differences between Latin America and the United States. Removing these barriers can lead to an increase in long-run labor productivity in Latin America relative to the United States of a factor of 4. This increase in income amounts to 70 years worth of U.S. post-WWII development. 

That is from a new paper by Restuccia (October 2012).

Econ Development: As if it weren't complicated enough

Water supply investments in developing countries may inadvertently worsen sanitation if clean water and sanitation are substitutes. This paper examines the negative correlation between the provision of piped water and household sanitary behavior in Cebu, the Philippines. In a model of household sanitation, a local externality leads to a sanitation complementarity that magnifies the compensatory response. Empirical results are consistent with the hypotheses that clean water and sanitation are substitutes and that neighbors’ sanitation levels are complements. In this situation, clean water may have large unintended consequences.

From a paper by Bennett in The JHR (2012). An early draft is here (2011).  

How to do development?

If I were to do it all again, I wouldn't design a solution. It isn't my place to do that. What I'd do is try and be a useful resource for a group of people or a community that have a much better understanding of their problems than I do, and want to work together toward finding solutions. I wouldn't come in as the guy with the answer. I'd come in as the guy willing to try and help them in any way possible as they find their own answer, and act as the bridge between that answer, and the money and resources needed to make it happen.

That is Quinn Zimmerman who describes his experiences doing development work in Haiti. It is worth reading the whole post, including the comments. 
He continues:

Or, perhaps if I really wanted to help, I wouldn't ever come to Haiti to begin with.

An NPR interview with Zimmerman is here.  
HT: @viewfromthecave

Pritchett on economic development (and on how to fix Guatemala)

This is a very good talk by Lant Pritchett on different topics of economic development: migration, charter cities and institutions, education policy, his attraction for "intractable problems," etc. I found interesting that he did not link education with health policies. The video is worth watching. 
HT: Ed Al-Hussainy.

Do Community Driven Development Projects reach the very poor?

Examining a large social funds project in Tanzania, we find that project applications are much more likely to come from wards in richer districts. This regressive pattern in applications is strongly correlated with access to media and information, as well as political activity measured by voter registration and turnout rates.

That is from this interesting paper by Baird et al.  

Acemoglu criticizes Randomized Control Trials (RCTs)

RCTs (or Randomized Control Trials) are probably one of the most important methods in economic development nowadays. They are used to evaluate the impact of social programs (but they can also be used to evaluate NGOs' programs or even new projects by private companies). For example, how do we know that giving a subsidy to poor families to motivate them to send their kids to school actually has a positive impact on education. Or how do we know that a government program that gives food to the poor actually is accomplishing the final goals (improved nutrition, for example). The RCTs method has been used for example to evaluate the impact of social programs like Progresa in Mexico. 

In this paper (2010) Daron Acemoglu probably makes the most serious criticism of RCTs (or counterfactual analysis, as he calls it). 

Abstract: I discuss the role of economic theory in empirical work in development economics with special emphasis on general equilibrium and political economy considerations. I argue that economic theory plays (should play) a central role in formulating models, estimates of which can be used for counterfactual and policy analysis. I discuss why counterfactual analysis based on microdata that ignores general equilibrium and political economy issues may lead to misleading conclusions. I illustrate the main arguments using examples from recent work in development economics and political economy.

An example: 

As an example of composition effects, consider the problem of estimating the importance of credit market imperfections. Banerjee and Duáo (2005) survey a large body of evidence that small and medium-sized businesses in less-developed economies are credit constrained and an extension of credit to these businesses will make them increase production. Now consider the effect of a large-scale policy of credit expansion to small- and medium-sized businesses. This policy could lead to a different type of composition effect than the one operating in partial equilibrium. For example, it may be the case that in partial equilibrium estimation focusing on firm-level variation we found that firms with better access to credit expanded, but this was at the expense of other firms that did not have access to credit (that is, partly by ìstealing businessî from others). And yet, the same response cannot take place in general equilibrium. As a consequence, when additional credit becomes available to a large fraction of firms, total output may not increase by as much or at all. One could thus imagine a situation in which partial equilibrium estimates of relaxing credit constraints are large, while the general equilibrium e§ects would be small.

This is a very constructive criticism and a call to include into RCTs well specified theory, general equilibrium considerations, and political economy factors. 


A well specified theory prior to test an econometric model is very important according to Acemoglu because if a theoretical model is not well specified prior to analyzing the data, the results of the regression analysis can be misleading. For example, we can conclude that giving a subsidy is a good thing, but actually we did not take into account that we will not have the physical infrastructure to accommodate more students. This is an application of the Lucas Critique in the context of partial equilibriums as Acemoglu calls the changes introduced by policies motivated by RCTs. 


I wonder however if Randomized Control Trials as they work right now can be a mechanism for theory building or theory enhancing, because they can give feedback on variables or interactions that current theoretical models do not include. This might be indeed a very valuable function of RCTs, helping improve current theories of economic development and growth. This paper gives a pretty good description of what theory building is from the perspective of political sciences. 


I learned about Acemoglu's paper thanks to Peter Boettke in Facebook. 

What I have learned about economic development

In a rainy and cloudy afternoon in Guatemala City, while reading this book, thought about writing what I have learned about economic development. This learning comes not necessarily from textbooks, books, or articles, but from observations, and also from the experience of living in developing countries almost all my life. So this is the very subjective list:

"Economic development" does not mean anything, but specific issues such as quality of education, malaria prevention, child mortality, HIV contagion and prevention, work ethic, etc., mean a lot. 

Traditional theories like entrepreneurship, innovation, and technological change are important but usually their effectiveness depend on other elements that are more complex. For example, it is not very clear why some societies or communities are more entrepreneurial than others, even when they share a similar institutional framework. 

The "right type of leadership" (at the local and national levels) is one of the most important elements, but it is very hard to include in analytical models. Leadership can shape institutions but what makes some leaders to be born and succeed in some countries and not in others seems like a matter of luck. 

Practitioners and academics of economic development have very different profiles and skills, it is rare to see a successful practitioner who is also a successful academic, and vice-versa. If you find one who is good at both you have found a gem. 

At the individual level, to develop economically is a consequence of intelligence and hard work (assuming a lot of things). One needs to be physically healthy to work effectively, but also one needs to be emotionally and spiritually healthy as well. Very often the heaviest burdens are in the spirit and the heart, not in the material constraints. 

A society whose members tell the true to each other prospers. Telling the true is very important to generate trust. Unfortunately very little has been written in the importance of honesty for economic development. 

Strong marriages and strong families, where both parents are present have a strong and positive effect on character. Societies where for one reason or another there is a large proportion of separated families have a difficult time finding the path to peace and economic prosperity. 

Ambition of power is very damaging at the national level as it is at the micro-organizational level. Many opportunities are lost because people want to do everything on their own without sharing the benefits and the costs; without understanding the benefits of team work. 

The poor, like the rich, need enjoyment, that is why some proportion of their very minimal income goes to festivals, etc. 

There has been a huge improvement in living standards that are not necessary reflected in income. 

Ideology is both positive and negative. Positive because it gives a shortcut to think about social issues, but it is negative because it prevents critical thinking. Some regions of the world, like Latin America, are so ideological fragmented that this even creates social paralysis. 

Every country is different, and even if one does not want to accept it, history matters. With every generation that comes the past is less influential, but some societies still need to find themselves [yes, existentially speaking]. 

To have local examples of success is extremely important. Some kids and adolescents work hard and succeed because they have seen others within their own community succeed as well. 

One of the best ways to teach the complexities of economic development is through fiction. This is because in a work of fiction social, economic, historical and other variables mix together so brutally that the combination of all these elements resembles reality closer than does a mathematical, econometric, or experimental models. Although these models have an important role to play to understand specific problems.

Sometimes there is an obsession with economic development when what really matters is happiness. There isn't a straight correlation between income and happiness [at least not after some threshold].