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3391. Validating India's GDP Growth Estimates

Author:
Arvind Subramanian
Publication Date:
07-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
My recent research paper “India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications,” (hereafter “GDP paper”) and the associated op-ed in the Indian Express on June 11, 2019 have generated considerable debate. This is encouraging because serious argument and counter-argument are the basis for good policy-making. Since the issue itself is of great importance, the counter-arguments to my analysis warrant a considered response. That is the aim of this note, which is a complement to the original paper, addressing both the larger issues and some of the specific points that have been raised. The note is structured as follows. Section II describes my engagement with India’s GDP estimation when I was Chief Economic Adviser. Section III elaborates on the framework/approach underlying the GDP paper. Section IV makes explicit the key puzzle surrounding India’s growth estimates, and addresses the possible explanations for it. Section V explores the puzzle in greater detail. Section VI provides additional cross-country evidence on growth and price deflators, which support the findings of the original paper, namely that growth during 2011-16 was likely overestimated by a significant margin. Section VII addresses two broad objections to the main findings. Section VIII discusses some of the methodological critiques of the paper. Section IX offers some thoughts on the way forward.
Topic:
Economics, Political Economy, International Development, and Economic growth
Political Geography:
South Asia and India

3392. Trust in State and Non-State Actors: Evidence from Dispute Resolution in Pakistan

Author:
Daron Acemoglu, Ali Cheema, Asim Ijaz Khwaja, and James A. Robinson
Publication Date:
07-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Lack of trust in state institutions, often due to poor service provision, is a pervasive problem in many developing countries. It may also be one of the reasons citizens turn to non-state actors for services. This paper investigates whether information about improved public services can help build trust in state institutions and move people away from non-state actors. We focus on dispute resolution in rural Pakistan. We find that (truthful) information about reduced delays in state courts leads to citizens reporting higher likelihood of using them and to greater allocations to the state in two high-stakes lab-in-the-field games designed to measure belief in the effectiveness of state courts and willingness to contribute resources for others to access them. More interestingly, we find indirect negative effects on non-state actors in the same high-stakes settings. We show that the positive direct and negative indirect effects are both mediated by changes in beliefs about the effectiveness of these actors. Our preferred interpretation explains these behaviors as a response to improved beliefs about state actors which then motivate individuals to interact less with non-state actors and as a result downgrade their beliefs about them. We provide additional checks bolstering this interpretation and alleviating concerns about potential social experimenter effects or mechanical contrasts between the two actors. These results indicate that, despite distrust of the state in Pakistan, credible new information can change beliefs and behavior.
Topic:
Conflict Resolution, Non State Actors, Political and institutional effectiveness, State, and Legitimacy
Political Geography:
Pakistan and South Asia

3393. How Cities Erode Gender Inequality: A New Theory and Evidence from Cambodia

Author:
Alice Evans
Publication Date:
06-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Support for gender equality has risen, globally. Analyses of this trend focus on individual and/or country-level characteristics. But this overlooks sub-national variation. Citydwellers are more likely to support gender equality in education, employment, leadership, and leisure. Why is this? This paper investigates the causes of rural-urban differences through comparative, qualitative research. It centres on Cambodia, where the growth of rural garment factories enables us to test theories that female employment fosters support for gender equality: potentially closing rural-urban differences; or whether other important aspects of city-living accelerate support for gender equality. Drawing on this rural and urban fieldwork, the paper suggests why social change is faster in Cambodian cities. First, cities raise the opportunity costs of gender divisions of labour – given higher living costs and more economic opportunities for women. Second, cities increase exposure to alternatives. People living in more interconnected, heterogeneous, densely populated areas are more exposed to women demonstrating their equal competence in socially valued, masculine domains. Third, they have more avenues to collectively contest established practices. Association and exposure reinforce growing flexibility in gender divisions of labour. By investigating the causes of subnational variation, this paper advances a new theory of growing support for gender equality.
Topic:
Economics, Gender Issues, Urbanization, Women, and Inequality
Political Geography:
Cambodia and Southeast Asia

3394. When Do Development Projects Enhance Community Well-Being?

Author:
Michael Woolcock
Publication Date:
06-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Many development agencies and governments now seek to engage directly with local communities, whether as a means to the realization of more familiar goals (infrastructure, healthcare, education) or as an end in itself (promoting greater inclusion, participation, well-being). These same agencies and governments, however, are also under increasing pressure to formally demonstrate that their actions ‘work’ and achieve their goals within relatively short timeframes – expectations which are, for the most part, necessary and desirable. But adequately assessing ‘community-driven’ approaches to development requires the deployment of theory and methods that accommodate their distinctive characteristics: building bridges is a qualitatively different task to building the rule of law and empowering minorities. Moreover, the ‘lessons’ inferred from average treatment effects derived from even the most rigorous assessments of community-driven interventions are likely to translate poorly to different contexts and scales of operation. Some guidance for anticipating and managing these conundrums are provided.
Topic:
Development, Government, Infrastructure, and International Development
Political Geography:
Global Focus and United States of America

3395. India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications

Author:
Arvind Subramanian
Publication Date:
06-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth. Official estimates place annual average GDP growth between 2011-12 and 2016-17 at about 7 percent. We estimate that actual growth may have been about 4.5 percent with a 95 percent confidence interval of 3.5 - 5.5 percent. The evidence, based on disaggregated data from India and cross-sectional/panel regressions, is robust. Lending further credence to the evidence, part of the overestimation can be related to a key methodological change, which affected the measurement of the formal manufacturing sector. These findings alter our understanding of India’s growth performance after the Global Financial Crisis, from spectacular to solid. Two important policy implications follow: the entire national income accounts estimation should be revisited, harnessing new opportunities created by the Goods and Services Tax to significantly improve it; and restoring growth should be the urgent priority for the new government.
Topic:
GDP, Global Political Economy, Economic growth, and Global Financial Crisis
Political Geography:
South Asia and India

3396. The Cost of Holding Foreign Exchange Reserves

Author:
Eduardo Levy Yeyati and Eduardo Gómez
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effects empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate.
Topic:
Financial Crisis, Exchange Rate Policy, International Reserves, and Capital Flows
Political Geography:
Global Focus and United States of America

3397. Spring 2019 edition of Strategic Visions

Author:
Alan McPherson
Publication Date:
03-2019
Content Type:
Journal Article
Journal:
Strategic Visions
Institution:
Center for the Study of Force and Diplomacy, Temple University
Abstract:
Strategic Visions: Volume 18, Number II Contents News from the Director ................................2 Spring 2019 Colloquium.........................2 Spring 2019 Prizes...................................2 Diplomatic History...................................3 SHAFR Conference.................................4 Thanks to the Davis Fellow.......................4 Note from the Davis Fellow..........................5 Note from the Non-Resident Fellow...............6 News from the CENFAD Community............8 Spring 2019 Interviews...................................11 Erik Moore..............................................11 Eliga Gould Conducted by Taylor Christian..........13 Nancy Mitchell.......................................15 Book Reviews.................................................18 Jimmy Carter in Africa Review by Brandon Kinney................18 The Girl Next Door: Bringing the Home front to the Front Line Review by Ariel Natalo-Lifotn...........20 Armies of Sand: The Past, Present and Future of Arab Military Effectiveness Review by Brandon Kinney...............23 Jimmy Carter in Africa Review by Graydon Dennison...........25
Topic:
Diplomacy, Gender Issues, Power Politics, Military Affairs, and Geopolitics
Political Geography:
Africa, United States, Middle East, and Global Focus

3398. Can Transparency and Accountability Programs Improve Health? Experimental Evidence from Indonesia and Tanzania

Author:
Jean Arkedis, Jessica Creighton, Archon Fung, Stephen Kosack, Dan Levy, and Courtney Tolmie
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
We assess the impact of a transparency and accountability program designed to improve maternal and newborn health (MNH) outcomes in Indonesia and Tanzania. Co-designed with local partner organizations to be community-led and non-prescriptive, the program sought to encourage community participation to address local barriers in access to high quality care for pregnant women and infants. We evaluate the impact of this program through randomized controlled trials (RCTs), involving 100 treatment and 100 control communities in each country. We find that on average, this program did not have a statistically significant impact on the use or content of maternal and newborn health services, nor the sense of civic efficacy or civic participation among recent mothers in the communities who were offered it. These findings hold in both countries and in a set of prespecified subgroups. To identify reasons for the lack of impacts, we use a mixed-method approach combining interviews, observations, surveys, focus groups, and ethnographic studies that together provide an in-depth assessment of the complex causal paths linking participation in the program to improvements in MNH outcomes. Although participation in program meetings was substantial and sustained in most communities, and most attempted at least some of what they had planned, only a minority achieved tangible improvements and fewer still saw more than one such success. Our assessment is that the main explanation for the lack of impact is that few communities were able to traverse the complex causal paths from planning actions to accomplishing tangible improvements in their access to quality health care.
Topic:
Health, Health Care Policy, Children, and Randomized Controlled Trials
Political Geography:
Africa, Indonesia, Tanzania, and Southeast Asia

3399. How ETFs Amplify the Global Financial Cycle in Emerging Markets

Author:
Nathan Converse, Eduardo Levy Yeyati, and Tomas Williams
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Since the early 2000s exchange-traded funds (ETFs) have grown to become an important in- vestment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fund- level data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging mar- ket funds, we find that the sensitivity of investor flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global financial conditions. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the global financial cycle in emerging markets.
Topic:
Emerging Markets, International Trade and Finance, Global Political Economy, Capital Flows, and Mutual Funds
Political Geography:
Global Focus and Global Markets

3400. Smart Development Banks

Author:
Eduardo Fernández-Arias, Ricardo Hausmann, and Ugo Panizza
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
The conventional paradigm about development banks is that these institutions exist to target well-identified market failures. However, market failures are not directly observable and can only be ascertained with a suitable learning process. Hence, the question is how do the policymakers know what activities should be promoted, how do they learn about the obstacles to the creation of new activities? Rather than assuming that the government has arrived at the right list of market failures and uses development banks to close some well-identified market gaps, we suggest that development banks can be in charge of identifying these market failures through their loan-screening and lending activities to guide their operations and provide critical inputs for the design of productive development policies. In fact, they can also identify government failures that stand in the way of development and call for needed public inputs. This intelligence role of development banks is similar to the role that modern theories of financial intermediation assign to banks as institutions with a comparative advantage in producing and processing information. However, while private banks focus on information on private returns, development banks would potentially produce and organize information about social returns.
Topic:
Development, Industrial Policy, Markets, and Banks
Political Geography:
Global Focus and Global Markets