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271. Income Per Natural: Measuring Development for People rather than Places - Working Paper 143

Author:
Michael Clemens and Lant Pritchett
Publication Date:
03-2008
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
It is easy to learn the average income of a resident of El Salvador or Albania. But there is no systematic source of information on the average income of a Salvadoran or Albanian. We create a first estimate a new statistic: income per natural—the mean annual income of persons born in a given country, regardless of where that person now resides. If income per capita has any interpretation as a welfare measure, exclusive focus on the nationally resident population can lead to substantial errors of the income of the natural population for countries where emigration is an important path to greater welfare. The estimates differ substantially from traditional measures of GDP or GNI per resident, and not just for a handful of tiny countries. Almost 43 million people live in a group of countries whose income per natural collectively is 50% higher than GDP per resident. For 1.1 billion people the difference exceeds 10%. We also show that poverty estimates are very different for national residents and naturals; for example, 26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States. These estimates are simply descriptive statistics and do not depend on any assumptions about how much of observed income differences across naturals is selection and how much is a pure location effect. Our conservative, if rough, estimate is that three quarters of this difference represents the effect of international migration on income per natural. This means that departing one's country of birth is today one of the most important sources of poverty reduction for a large portion of the developing world. If economic development is defined as rising human well being, then a residence-neutral measure of well-being emphasizes that crossing international borders is not an alternative to economic development, it is economic development.
Topic:
Demographics, Development, Economics, Migration, Poverty, and Population
Political Geography:
United States and Albania

272. The Place Premium: Wage Differences for Identical Workers across the U.S. Border - Working Paper 148

Author:
Michael Clemens, Lant Pritchett, and Claudio E. Montenegro
Publication Date:
07-2008
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
We compare the wages of workers inside the United States to the wages of observably identical workers outside the United States—controlling for country of birth, country of education, years of education, work experience, sex, and rural-urban residence. This is made possible by new and uniquely rich microdata on the wages of over two million individual formal-sector wage-earners in 43 countries. We then use five independent methods to correct these estimates for unobserved differences between the productivity of migrants and non-migrants, as well as for the wage effects of natural barriers to international movement in the absence of policy barriers. We also introduce a selection model to estimate how migrants' wage gains depend on their position in the distribution of unobserved wage determinants both at the origin and at the destination, as well as the relationship between these positions. For example, in the median wage gap country, a typical Bolivian-born, Bolivian-educated, prime-age urban male formal-sector wage worker with moderate schooling makes 4 times as much in the US as in Bolivia. Following all adjustments for selectivity and compensating differentials we estimate that the wages of a Bolivian worker of equal intrinsic productivity, willing to move, would be higher by a factor of 2.7 solely by working in the United States. While this is the median, this ratio is as high as 8.4 (for Nigeria). We document that (1) for many countries, the wage gaps caused by barriers to movement across international borders are among the largest known forms of wage discrimination; (2) these gaps represent one of the largest remaining price distortions in any global market; and (3) these gaps imply that imply allowing labor mobility can reduce a given household's poverty to a much greater degree than most known in situ antipoverty interventions.
Topic:
Development, Economics, and Industrial Policy
Political Geography:
United States, Nigeria, and Bolivia

273. Beyond the ABCs: Higher Education and Developing Countries

Author:
Megan Crowley and Devesh Kapur
Publication Date:
02-2008
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
This paper analyzes a relatively neglected facet of the complex debate regarding human capital – higher (or tertiary) education. It addresses five broad questions examining higher education in developing countries. One, are the economic effects of higher education on developing countries different from those in industrialized countries, with its links with labor markets of lesser importance than its impact on institutional development? Two, how does the impact of higher education depend on the type of education and its beneficiaries? Three, with the state unable to meet growing demand pressures, what should be the proper role of the state to ensure not just quality but also equity and access? Four, how should countries rethink the provision of higher education in an “open economy” from seeking education abroad or encouraging foreign providers into the country or simply linking domestic institutions with foreign quality assurance mechanisms? And five, do new technologies offer developing countries a new paradigm to expand the provision of high quality but low cost higher education? The aim is not to provide categorical answers to these complex questions, but rather highlight the analytical and empirical lacuna with regard to each of these question.
Topic:
Development and Education
Political Geography:
Africa

274. How Soon Can Donors Exit From Post-Conflict States?

Author:
Satish Chand and Ruth Coffman
Publication Date:
02-2008
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
When can a donor (successfully) exit from an on-the -ground presence in a post-conflict state? The answer, according to the analysis presented here, is in decades: figures well beyond what was originally envisioned when peacekeeping troops were first deployed. In the specific cases of Liberia, Mozambique, Solomon Islands, and Timor-Leste considered here, the best case scenario for successful exit ranges from 15 to 27 years. Successful exit, for the purposes of this paper, entails the creation of the necessary fiscal space to fund the recurrent budget from internally generated revenues. This is a necessary, albeit, not sufficient condition for donor exit. Of essence, however, is the time rather than the dollar value of support provided. An extended donor presence, it is argued, provides the space for the creation, sustenance, and maturation of institutions that are finally able to undergird the state from rolling back into state failure on donor exit.
Topic:
Conflict Resolution, Development, and Peace Studies
Political Geography:
Africa, Asia, Liberia, Mozambique, Solomon Islands, and Timor-Leste

275. 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 (CGD)
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

276. Pathways Out of Poverty During an Economic Crisis: An Empirical Assessment of Rural Indonesia

Author:
Peter Timmer and Neil McCulloch
Publication Date:
03-2007
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Most poor people in developing countries still live in rural areas and are primarily engaged in low productivity farming activities. Thus pathways out of poverty are likely to be strongly connected to productivity increases in the rural economy, whether they are realised in farming, rural non-farm enterprises or via rural-urban migration. We use cross-sectional data from the Central Statistical Board (BPS) for 1993 and 2002, as well as a panel data set from the Indonesia Family Life Survey (IFLS) for 1993 and 2000, to show which pathways out of poverty were most successful over this period. Our findings suggest that increased engagement of farmers in rural non-farm enterprises is an important route out of rural poverty, but that most of the rural agricultural poor that exit poverty still do so while remaining rural and agricultural. Thus changes in agricultural prices, wages and productivity still play a critical role in moving people out of poverty.
Topic:
Development, Economics, and Political Economy
Political Geography:
Indonesia and Asia

277. What Have IMF Programs With Low-Income Countries Assumed About Aid Flows?

Author:
David Goldsbrough and Ben Elberger
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
This paper examines the nature of aid projections in IMF programs with low-income countries. On average, IMF projections of net aid increased sharply in the first year of programs but tapered off in subsequent years. Projections were also significantly more optimistic in countries with low initial levels of aid but differed little across regions. Most notably, projections of net aid to countries in Sub-Saharan Africa following the Gleneagles Summit are significantly more pessimistic than the path implied by commitments to double aid to Africa by 2010. This pattern is strong throughout the group with only two Sub-Saharan African countries showing increases in net aid consistent with the Gleneagles commitments.
Topic:
Development, Political Economy, Poverty, and International Monetary Fund
Political Geography:
Africa

278. Income Distribution: Effects on Growth and Development

Author:
Nancy Birdsall
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
I review the literature on the effects of inequality on growth and development in the developing world. Two stylized facts emerge from empirical studies: inequality is more likely to harm growth in countries at low levels of income (below about $3200 per capita in 2000 dollars); and it is at high levels of inequality (at or above a Gini coefficient of .45) that a negative association emerges. Between 15 and 40 percent of the developing world's population lives in countries with these characteristics, depending on the inclusion of China, whose level of inequality has recently been measured at almost .45. Theory and evidence suggest that high inequality affects growth: (1) through interaction with incomplete and underdeveloped markets for capital and information; (2) by discouraging the evolution of the economic and political institutions associated with accountable government (which in turn enable a market environment conducive to investment and growth); and (3) by undermining the civic and social life that sustains effective collective decision-making.
Topic:
Development, Humanitarian Aid, Political Economy, and Poverty
Political Geography:
China

279. Performance-based Incentives for Health: Demand- and Supply-Side Incentives in the Nicaraguan Red de Protección Social

Author:
Ferdinando Regalía and Leslie Castro
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Nicaragua's Red de Protección Social (RPS) is one of the first conditional cash transfer (CCT) programs implemented in a low-income country. Demand-side incentives, in the form of monetary transfers, are provided to poor households on condition that their children attend school and visit preventive health care providers. The design of the program is unique among CCT programs because these demand-side incentives are complemented by supply-side incentives aimed at improving the provision of health care. Health care providers are paid on the basis of their performance against predetermined targets. Both private and nonprofit health care providers contracted by the government extend the coverage of services to previously underserved areas.
Topic:
Development, Health, and Humanitarian Aid
Political Geography:
Latin America

280. Performance-Based Incentives for Health: Conditional Cash Transfer Programs in Latin America and the Caribbean

Author:
Amanda Glassman, Jessica Todd, and Marie Gaarder
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
In order to support poor families in the developing world to seek and use health care, a multi-pronged strategy is needed on both the supply and the demand side of health care. A demand-side program called Conditional Cash Transfers (CCTs) strives to reduce poverty and also increase food consumption, school attendance, and use of preventive health care. Since 1997, seven countries in Latin America have implemented and evaluated CCT programs with health and nutrition components. The core of the program is based on encouraging poor mothers to seek preventive health services and attend health education talks by providing a cash incentive for their healthy behavior (with healthy behavior representing performance). Evaluations of these programs measured outputs in the utilization of services; health knowledge, attitudes, and practice; food consumption; the supply and quality of services; as well as outcomes in vaccination rates; nutritional status; morbidity; mortality; and fertility.
Topic:
Development, Health, and Humanitarian Aid
Political Geography:
Latin America