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11. How to Do xtabond2: An Introduction to "Difference" and "System" GMM in Stata

Author:
David Roodman
Publication Date:
12-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The Arellano-Bond (1991) and Arellano-Bover (1995)/Blundell-Bond (1998) linear generalized method of moments (GMM) estimators are increasingly popular. Both are general estimators designed for situations with “small T, large N” panels, meaning few time periods and many individuals; with independent variables that are not strictly exogenous, meaning correlated with past and possibly current realizations of the error; with fixed effects; and with heteroskedasticity and autocorrelation within individuals. This pedagogic paper first introduces linear GMM. Then it shows how limited time span and the potential for fixed effects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it shows how to apply these estimators with xtabond2. It also explains how to perform the Arellano-Bond test for autocorrelation in a panel after other Stata commands, using abar.
Topic:
Development, Economics, and Science and Technology

12. An Index of Donor Performance

Author:
David Roodman
Publication Date:
11-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The Commitment to Development Index of the Center for Global Development rates 21 rich countries on the “development-friendliness” of their policies. It is revised and updated annually. The component on foreign assistance combines quantitative and qualitative measures of official aid, and of fiscal policies that support private charitable giving. The quantitative measure uses a net transfers concept, as distinct from the net flows concept in the net Official Development Assistance measure of the Development Assistance Committee. The qualitative factors are: a penalty for tying aid; a discounting system that favors aid to poorer, better-governed recipients; and a penalty for “project proliferation.” The charitable giving measure is based on an estimate of the share of observed private giving to developing countries that is attributable to a) lower overall taxes or b) specific tax incentives for giving. De-spite the adjustments, overall results are dominated by differences in quantity of official aid given. This is because while there is a seven-fold range in net concessional transfers/GDP among the scored countries, variation in overall aid quality across donors appears far lower, and private giving is generally small. Denmark, the Netherlands, Norway, and Sweden score highest while the largest donors in absolute terms, the United States and Japan, rank at or near the bottom. Standings by the 2006 methodology have been relatively stable since 1995.
Topic:
International Relations, Development, Economics, and Humanitarian Aid
Political Geography:
United States, Japan, Norway, and Netherlands

13. Microfinance as Business

Author:
David Roodman and Uzma Qureshi
Publication Date:
11-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
IN THIS PAPER, we analyze microfinance institutions (MFIs) as businesses, asking how some MFIs succeed in reducing and covering costs, earning returns, attracting capital, and scaling up. We are interested in MFIs that are financially self-sufficient (covering the cost of daily operations as well as the cost of capital at a commercial rate) or merely operationally self-sufficient (not covering capital costs) or only, say, 90% operationally self-sufficient. All such MFIs strive for efficiency and are in many respects businesslike.
Topic:
Civil Society, Development, Economics, and Markets

14. Competitive Proliferation of Aid Projects: A Model

Author:
David Roodman
Publication Date:
06-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The proliferation of aid projects may overburden recipient governments with reporting requirements, donor visits, and other administrative overhead, siphoning off scarce domestic recipient resources, such as tax revenue or the time of skilled government officials, from directly productive use. But greater oversight may also improve the administration of projects, increasing development. I present a model of aid projects that reflects both sides of this coin. It posits a distinction between national-level governance and project-level governance. A donor can raise project-level governance above the baseline national level by requiring oversight activities of the recipient, although the benefits from doing so are less where national-level governance is already high. The model assumes that larger projects demand proportionally less oversight activity from the recipient. Comparative statics analysis suggests that to maximize development, projects should be larger where aid volume is higher, to avoid overburdening recipient administrative capacity; where recipient resources are scarcer, for the same reason; and where national governance is good, since the marginal benefit of oversight is then lower. A multi-donor generalization shows how donors that are imperfectly altruistic, caring most about the success of their own projects, will tend to sink into competitive proliferation, in which each donor subdivides its aid budget into smaller projects to raise the marginal productivity of the recipient's resources in those projects and attract them away from other donors. The inefficiency arises from the lack of a market among donors for recipient resources. In a Nash equilibrium, competitive proliferation reduces overall development. But the smallest (selfish) donors can gain. This would discourage them from cooperating with other donors to contain competitive proliferation.
Topic:
Development, Economics, Government, and Humanitarian Aid

15. Tax policies to promote private charitable giving in DAC countries

Author:
David Roodman and Scott Standley
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Researchers have written hundreds of papers on the causes and consequences of official foreign aid, while paying almost no attention to private overseas giving, by individuals, universities, foundations, and corporations. Yet private giving is significant—some $15.5 billion/year, compared to more than $60 billion/year in public giving—and is in no small part an outcome of public policy. In most rich countries, tax deductions and credits lower the “price” of charity to donors. And governments with low tax revenue/GDP ratios leave more money in private pockets for private charity. To correct the near-complete lack of information on this de facto aid policy, we survey officials of 21 donor nations on the use of tax incentives to promote private charity. From the results, we develop an index of the overall incentive for private charity, expressed as a percentage increase over the hypothetical giving level absent incentives. France's tax code creates the largest price incentive while those of Austria, Finland, and Sweden offer none. Factoring in the income effect of the tax ratio, Australia, Ireland, Germany, and the United States move to the top, with combined price and income effects sufficient to double private giving. As a result, tax policy appears to have nearly doubled private overseas giving from donor countries in 2003, from a counterfactual $8.0 billion. Two-thirds of the $7.5 billion increase occurred in the United States. Of that, nearly 40% appears to be U.S. charity to Israel. According to 21-country scatter plots, countries with lower church attendance and more faith in the national legislature have lower taxes (stronger income effect), but average levels of targeted tax incentives. Income (GDP/capita) does correlate with private overseas aid/capita, but also with public aid/capita, so that the two aid flows are complementary in magnitude.
Topic:
Debt, Economics, Humanitarian Aid, and International Trade and Finance
Political Geography:
United States, Finland, Germany, Australia, Sweden, Ireland, and Austria

16. Aid Project Proliferation and Absorptive Capacity

Author:
David Roodman
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Much public discussion about foreign aid has focused on whether and how to increase its quantity. But recently aid quality has come to the fore, by which is meant the efficiency of the aid delivery process. This paper focuses on one process problem, the proliferation of aid projects and the associated administrative burden for recipients. It models aid delivery as a set of production activities (projects) with two inputs—the donor's aid and a recipient-side resource—and two outputs—development and 'throughput', which represents the private benefits of implementing projects, from kickback s to career rewards for disbursing. The donor's allocation of aid across projects is taken as exogenous while the recipient's allocation of its resource is modelled and subject to a budget constraint. Unless the recipient cares purely about development, an aid increase can reduce development in some circumstances. Sunk costs, representing for the recipient the administrative burden of donor meetings and reports, are introduced. Using data on the distribution of projects by size and country, simulations of aid increases are run in order to examine how the project distribution evolves, how the recipient's resource allocation responds, and how this affects development if the recipient is not a pure development optimizer. A threshold is revealed beyond which marginal aid effectiveness drops sharply. It occurs when development maximization calls for the recipient to withdraw from some donor-backed projects, but the recipient does not, for the sake of throughput. Donors can push back this threshold by moving to larger projects if there are scale economies in aid projects.
Topic:
International Relations, Debt, Economics, and Humanitarian Aid