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1. Commitment to Development Index 2012

Author:
David Roodman
Publication Date:
10-2012
Content Type:
Policy Brief
Institution:
Center for Global Development
Abstract:
Why does the CDI matter? Because in an increasingly integrated world, the behavior of rich countries can profoundly affect the lives of people in poor countries and because poverty and weak institutions in developing countries can breed public health crises, security threats, and economic crises that know no borders. Committing to policies that promote develop- ment and well-being is a global imperative—no human being should be denied the chance to live free of poverty and oppression and to enjoy a basic standard of education and health. The CDI countries, all democracies, preach concern for human life and dignity within their own borders; the Index looks at whether rich countries' actions match their words.
Topic:
Development, Economics, Education, Health, and Poverty

2. Europe Beyond Aid: Assessing Europe's Commitment to Development

Author:
David Roodman, Owen Barder, Julia Clark, Alice Lépissier, and Liza Reynolds
Publication Date:
12-2012
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
European countries pride themselves on being leaders in spurring development within poor countries. We find that Europe's approach to development could be characterised as energetically tackling the symptoms of poor economic opportunities for developing countries by providing effective aid, while doing relatively little to tackle the underlying structural causes of poverty. We use the Center for Global Development Commitment to Development Index (CDI) as a tool to examine Europe's performance overall. We combine the scores for the twenty-one European countries which are included in the 2012 edition of the Commitment to Development Index to calculate the single score they would have obtained if they had been a single country. This represents the combined commitment to development of these countries, by giving appropriate weight to the larger, more populous countries in Europe, which tend to have less development-friendly policies than the Nordic countries and the Netherlands. Our calculations show that compared to the other countries in the CDI, Europe as a whole performs better than most CDI countries on aid and environment, but less well in other dimensions such as trade and security. This paper provides the background to a series of more detailed studies of the policies of European countries, individually and collectively through the European Union, in each dimension of the CDI, which the Center for Global Development in Europe is coordinating.
Topic:
Development, Political Economy, Poverty, and Foreign Aid
Political Geography:
Europe

3. Due Diligence: An Impertinent Inquiry into Microfinance

Author:
David Roodman
Publication Date:
01-2012
Content Type:
Policy Brief
Institution:
Center for Global Development
Abstract:
Microfinance: Few development ideas have been so buoyed by high expectations in recent decades, and few have been so buffeted by difficulties in recent years. Images of microfinance lifting people out of poverty now compete with ones of the poor driven by debt to suicide. Where does the truth lie? David Roodman investigates in Due Diligence. He finds no evidence that small loans lift people out of poverty en masse but argues that financial services, like clean water and electricity, are essential to a modern life. The practical question is not whether microfinance should continue, but how it can play to its strengths, which lie in providing useful services to millions of poor people in a businesslike way. Due Diligence is the most complete investigation ever into the sources and consequences of microfinance. Rood - man explores the financial needs of poor people, the history of efforts to meet those needs, the business realities of doing so, and the arguments and evidence about how well modern microfinance is succeeding.
Topic:
Debt, Development, Economics, Globalization, Poverty, and Foreign Direct Investment

4. The Arc of the Jubilee

Author:
David Roodman
Publication Date:
10-2010
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The Jubilee 2000 movement, which called for the cancellation of the foreign debts of the poorest nations, reached its zenith in the late 1990s and 2000-and then, by design, shut down. In the space of a few years, it became one of the most successful international, nongovernmental movements in history. As part of a larger, ongoing project to understand the consequences and lessons of the episode, David Roodman provides thumbnail assessments of Jubilee 2000 from several perspectives, deemphasizing anecdotes and statistics in favor of major themes.
Topic:
Debt, Development, Economics, and Non-Governmental Organization

5. Twenty Concrete Steps to Improve the United States' Commitment to Development

Author:
David Roodman and Cindy Prieto
Publication Date:
07-2010
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The Commitment to Development Index (CDI) ranks 22 rich countries on their dedication to policies that benefit poor nations. Looking beyond standard comparisons of foreign aid flows, the CDI measures national policies on aid, trade, investment, migration, environment, security, and technology. The United States ranked 17th overall in 2009, strong in trade and security but less competitive in aid and environment. This memo describes how to boost the U.S. score and links to CGD materials with more detail.
Topic:
Development, Foreign Aid, and Foreign Direct Investment
Political Geography:
United States

6. Estimating Fully Observed Recursive Mixed-Process Models with cmp

Author:
David Roodman
Publication Date:
04-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
At the heart of many econometric models is a linear function and a normal error. Examples include the classical small-sample linear regression model and the probit, ordered probit, multinomial probit, Tobit, interval regression, and truncated-distribution regression models. Because the normal distribution has a natural multidimensional generalization, such models can be combined into multi-equation systems in which the errors share a multivariate normal distribution. The literature has historically focused on multi-stage procedures for estimating mixed models, which are more efficiently computationally, if less so statistically, than maximum likelihood (ML). But faster computers and simulated likelihood methods such as the Geweke, Hajivassiliou, and Keane (GHK) algorithm for estimating higher-dimensional cumulative normal distributions have made direct ML estimation practical. ML also facilitates a generalization to switching, selection, and other models in which the number and types of equations vary by observation. The Stata module cmp fits Seemingly Unrelated Regressions (SUR) models of this broad family. Its estimator is also consistent for recursive systems in which all endogenous variables appear on the right-hand-sides as observed. If all the equations are structural, then estimation is full-information maximum likelihood (FIML). If only the final stage or stages are, then it is limited-information maximum likelihood (LIML). cmp can mimic a dozen built-in Stata commands and several user-written ones. It is also appropriate for a panoply of models previously hard to estimate. Heteroskedasticity, however, can render it inconsistent. This paper explains the theory and implementation of cmp and of a related Mata function, ghk2(), that implements the GHK algorithm.
Topic:
Development, Humanitarian Aid, Poverty, and Third World

7. The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence

Author:
David Roodman and Jonathan Morduch
Publication Date:
06-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The most-noted studies on the impact of microcredit on households are based on a survey fielded in Bangladesh in the 1990s. Contradictions among them have produced lasting controversy and confusion. Pitt and Khandker (PK, 1998) apply a quasi-experimental design to 1991–92 data; they conclude that microcredit raises household consumption, especially when lent to women. Khandker (2005) applies panel methods using a 1999 resurvey; he concurs and extrapolates to conclude that microcredit helps the extremely poor even more than the moderately poor. But using simpler estimators than PK, Morduch (1999) finds no impact on the level of consumption in the 1991–92 data, even as he questions PK's identifying assumptions. He does find evidence that microcredit reduces consumption volatility. Partly because of the sophistication of PK's Maximum Likelihood estimator, the conflicting results were never directly confronted and reconciled. We end the impasse. A replication exercise shows that all these studies' evidence for impact is weak. As for PK's headline results, we obtain opposite signs. But we do not conclude that lending to women does harm. Rather, all three studies appear to fail in expunging endogeneity. We conclude that for non-experimental methods to retain a place in the program evaluator's portfolio, the quality of the claimed natural experiments must be high and demonstrated.
Topic:
Development, Economics, Foreign Aid, and Foreign Direct Investment
Political Geography:
Bangladesh, South Asia, and Asia

8. Through the Looking-Glass, and What OLS Found There: On Growth, Foreign Aid, and Reverse Causality

Author:
David Roodman
Publication Date:
01-2008
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The cross-country literature on foreign aid effectiveness has relied on the use of instruments to distinguish causality from mere correlation. This paper uses simple non-instrumental techniques in the spirit of Granger to demonstrate that the main aid-growth connection is a negative causal relationship from growth to aid—aid, that is, as a fraction of recipient GDP. Coarsely, when GDP goes up, aid/GDP goes down. The endogeneity of aid, long-suspected, is real. Less understood is that adding certain common controls to regressions puts this relationship through the looking-glass, flipping both its sign and apparent direction: aid seems to cause growth. Ideally, instrumentation expunges the endogeneity shown here. In practice, estimates of aid's impact have run into problems. Autocorrelation in the errors is widespread, and can render endogenous lagged variables used as regressors or instruments. The pitfalls of “difference” and “system” include invalidity and proliferation of instruments. Multicollinearity in term pairs of interest, such as aid and aid or “project” and “program” aid, can amplify endogeneity bias. The combination of specification problems and widespread fragility (shown in earlier work) leads to pessimism about the ability of cross-country econometrics to demonstrate aid effectiveness. This does not rule an average positive effect, nor does it contradict the fact that aid has saved millions of lives, but it does suggest that the average effect on economic growth is too small to be detected statistically.
Topic:
Economics, Humanitarian Aid, and International Political Economy

9. How Do the BRICs Stack Up? Adding Brazil, Russia, India, and China to the Environment Component of the Commitment to Development Index

Author:
David Roodman
Publication Date:
10-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The Commitment to Development Index (CDI) ranks 21 of the world's richest countries on their dedication to policies that benefit the five billion people living in poorer nations. Moving beyond simple comparisons of foreign aid, the CDI ranks countries on seven themes: quantity and quality of foreign aid, openness to developing-country exports, policies that influence investment, migration policies, stewardship of the global environment, security policies and support for creation and dissemination of new technologies.
Topic:
Environment and Industrial Policy
Political Geography:
Russia, China, Europe, India, Asia, and Brazil

10. A Short Note on the Theme of Too Many Instruments

Author:
David Roodman
Publication Date:
08-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The “difference” and “system” generalized method of moments (GMM) estimators for dynamic panel models are growing steadily in popularity. The estimators are designed for panels with short time dimensions (T), and by default they generate instruments sets whose number grows quadratically in T. The dangers associated with having many instruments relative to observations are documented in the applied literature. The instruments can overfit endogenous variables, failing to expunge their endogenous components and biasing coefficient estimates. Mean while they can vitiate the Hansen J test for joint validity of those instruments, as well as the difference-in-Sargan/Hansen test for subsets of instruments. The weakness of these specification tests is a particular concern for system GMM, whose distinctive instruments are only valid under a non-trivial assumption. Judging by current practice, many researchers do not fully appreciate that popular implementations of these estimators can by default generate results that simultaneously are invalid yet appear valid. The potential for type I errors—false positives—is therefore substantial, especially after amplification by publication bias. This paper explains the risks and illustrates them with reference to two early applications of the estimators to economic growth, Forbes (2000) on income inequality and Levine, Loayza, and Beck (LLB, 2000) on financial sector development. Endogenous causation proves hard to rule out in both papers. Going forward, for results from these GMM estimators to be credible, researchers must report the instrument count and aggressively test estimates and specification test results for robustness to reductions in that count.
Topic:
Development, Economics, Political Economy, and Third World