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251. Heckle and Chide: Results of a Randomized Road Safety Intervention in Kenya

Author:
James Habyarimana and William Jack
Publication Date:
04-2009
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
In economies with weak enforcement of traffic regulations, drivers who adopt excessively risky behavior impose externalities on other vehicles, and on their own passengers. In light of the difficulties of correcting inter-vehicle externalities associated with weak third-party enforcement, this paper evaluates an intervention that aims instead to correct the intra-vehicle externality between a driver and his passengers, who face a collective action problem when deciding whether to exert social pressure on the driver if their safety is compromised. We report the results of a field experiment aimed at solving this collective action problem, which empowers passengers to take action. Evocative messages encouraging passengers to speak up were placed inside a random sample of over 1,000 long-distance Kenyan minibuses, or matatus, serving both as a focal point for, and to reduce the cost of, passenger action. Independent insurance claims data were collected for the treatment group and a control group before and after the intervention. Our results indicate that insurance claims fell by a half to two-thirds, from an annual rate of about 10 percent without the intervention, and that claims involving injury or death fell by at least 50 percent. Results of a driver survey eight months into the intervention suggest passenger heckling was a contributing factor to the improvement in safety.
Topic:
Development, Economics, Political Economy, and Third World
Political Geography:
Kenya and Africa

252. What Is Poverty Reduction?

Author:
Owen Barder
Publication Date:
04-2009
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
There is a healthy debate about how to achieve poverty reduction in developing countries, but not enough discussion of what we mean by “poverty reduction.” “Poverty reduction” is often used as a short-hand for promoting economic growth that will permanently lift as many people as possible over a poverty line. But there are many different objectives that are consistent with “poverty reduction,” and we have to make choices between them. There are trade-offs between tackling current and future poverty, between helping as many poor people as possible and focusing on those in chronic poverty, and between measures that tackle the causes of poverty and those which deal with the symptoms. Because donors focus on just one dimension of poverty reduction (growth) they marginalise other legitimate objectives such as reducing chronic poverty or providing social services in countries that cannot otherwise afford them.
Topic:
Development, Environment, Humanitarian Aid, Poverty, Third World, and Foreign Aid

253. Blunt Instruments: On Establishing the Causes of Economic Growth

Author:
Michael Clemens and Samuel Bazzi
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Despite intense concern that many instrumental variables used in growth regressions may be weak, invalid, or both, top journals continue to publish studies of economic growth based on problematic instruments. Doing so risks pushing the entire literature closer to irrelevance. We illustrate hidden problems with identification in recent prominently published and widely cited growth studies using their original data. We urge researchers to take three steps to overcome the shortcomings: grounding research in somewhat more generalized theoretical models, deploying the latest methods to test sensitivity to violations of the exclusion restriction, and opening the “black box” of the Generalized Method of Moments (GMM) with supportive evidence of instrument strength.
Topic:
Development, Economics, and Political Economy

254. 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 (CGD)
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

255. Africa's Private Sector: What's Wrong with the Business Environment and What to Do About It

Author:
Vijaya Ramachandran, Manju Kedia Shah, and Alan Gelb
Publication Date:
03-2009
Content Type:
Policy Brief
Institution:
Center for Global Development (CGD)
Abstract:
Why has the private sector failed to thrive in much of sub-Saharan Africa? Drawing on a unique set of enterprise surveys, we identify inadequate infrastructure (especially unreliable electricity and poor quality roads) and burdensome regulations as the biggest obstacles to doing business. We find as well that the private sector in many countries is dominated by ethnic minorities, which inhibits competition and lowers demand for a better business environment. Solutions include investing in infrastructure, providing risk guarantees, and reforming regulations to lower the cost of doing business, as well as increasing access to education for would-be entrepreneurs.
Topic:
Development, Economics, Emerging Markets, Globalization, and International Trade and Finance
Political Geography:
Africa

256. To Formalize or Not to Formalize? Comparisons of Microenterprise Data from Southern and East Africa

Author:
Vijaya Ramachandran, Manju Kedia Shah, Alan Gelb, and Taye Mengistae
Publication Date:
07-2009
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Why do firms choose to locate in the informal sector? Researchers often argue that the high cost of regulation prevents informal firms from becoming formal and productive. Our results point to a more nuanced story.
Topic:
Development, Economics, Markets, and Labor Issues
Political Geography:
Africa

257. Criss-Crossing Globalization: Uphill Flows of Skill-Intensive Goods and Foreign Direct Investment

Author:
Arvind Subramanian and Aaditya Mattoo
Publication Date:
08-2009
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
This paper documents an unusual and possibly significant phenomenon: the export of skills, embodied in goods, services or capital from poorer to richer countries. We first present a set of stylized facts. Using a measure which combines the sophistication of a country's exports with the average income level of destination countries, we show that the performance of a number of developing countries, notably China, Mexico and South Africa, matches that of much more advanced countries, such as Japan, Spain and USA. Creating a new combined dataset on FDI (covering greenfield investment as well as mergers and acquisitions) we show that flows of FDI to OECD countries from developing countries like Brazil, India, Malaysia and South Africa as a share of their GDP, are as large as flows from countries like Japan, Korea and the US. Then, taking the work of Hausmann et al (2007) as a point of departure, we suggest that it is not just the composition of exports but their destination that matters. In both cross-sectional and panel regressions, with a range of controls, we find that a measure of uphill flows of sophisticated goods is significantly associated with better growth performance. These results suggest the need for a deeper analysis of whether development benefits might derive not from deifying comparative advantage but from defying it.
Topic:
Development, Economics, International Trade and Finance, and Foreign Direct Investment
Political Geography:
United States, Japan, Malaysia, India, South Africa, Brazil, Spain, and Korea

258. Climate Change Negotiating Positions of Major Developing Country Emitters

Author:
Jan von der Goltz
Publication Date:
08-2009
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Developing countries with large greenhouse gas emissions play a decisive role in negotiating a post-Kyoto climate agreement. No effective program to reduce global emissions is possible without their support. At the same time, developing countries face a delicate task in balancing their growing responsibility for a livable climate with the pursuit of continued economic development. This article discusses the negotiating positions major developing country emitters are taking on core issues. Among the most vital unsettled questions are burden sharing between developed and developing countries, the role of the market in the international climate architecture, as well as implementation arrangements. An annex discusses current mitigation policies of major developing country emitters, and argues that developing countries are already taking meaningful action to limit the growth of their greenhouse gas emissions.
Topic:
Climate Change, Development, Environment, Treaties and Agreements, and Third World

259. Beyond Planning: Markets and Networks for Better Aid

Author:
Owen Barder
Publication Date:
10-2009
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
The political economy of aid agencies is driven by incomplete information and multiple competing objectives and confounded by principal-agent and collective-action problems. Policies to improve aid rely too much on a planning paradigm that tries to ignore, rather than change, the political economy of aid. A considered combination of market mechanisms, networked collaboration, and collective regulation would be more likely to lead to significant improvements. A “collaborative market” for aid might include unbundling funding from aid management to create more explicit markets; better information gathered from the intended beneficiaries of aid; decentralized decision-making; a sharp increase in transparency and accountability of donor agencies; the publication of more information about results; pricing externalities; and new regulatory arrangements to make markets work. The aid system is in a political equilibrium, determined by deep characteristics of the aid relationship and the political economy of aid institutions. Reformers should seek to change that equilibrium rather than try to move away from it. The priority should be on reforms that put pressure on the aid system to evolve in the right direction rather than on grand designs.
Topic:
Development, Political Economy, and Foreign Aid

260. Countering Drug Resistance in the Developing World: An Assessment of Incentives across the Value Chain and Recommendations for Policy Interventions

Author:
Prashant Yadav
Publication Date:
09-2009
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
The emergence and spread of drug resistance is draining available resources and threatening our ability to treat infectious diseases in developing countries. Countering drug resistance requires pharmaceutical companies, government regulators, doctors, and patients to make difficult choices about drug treatment in order to balance efficacy, cost, safety, and sustainability of drugs. These complex tradeoffs are faced along the drug supply chain from the development of new products, procurement of drugs for donor and government distribution, distribution steps to ensure treatment heterogeneity along with quality and availability, and dispensing and use that requires affordability, patient adherence and rational use of drugs and diagnostics. An analysis of the incentives and risks in the drug supply chain reflects that many stakeholders who can influence optimal prescribing of existing drugs; affect higher patient compliance; and ensure the quality of drugs have weak incentives to carry out these activities optimally. This implies a high potential for drug resistance to accelerate. This paper recommends specific measures to better align the incentives of these stakeholders with resistance- countering activities.
Topic:
Development, Health, Human Welfare, and Third World