Development Economics

The Development Matrix: Wake Up

Two World Bank economists scientifically prove that first-world countries pay more than third-world countries:

Ask most people to name the most effective means of raising incomes of people in poor countries, and what would they say? Microfinance? Perhaps not after the recent experimental assessments. Deworming? It increased primary school participation and improved health, but in the short-term at least seems unlikely to raise household income. Conditional cash transfers? This might be a popular answer, with evidence from a number of countries that they have increased household expenditure , schooling, and health outcomes. But even though Governments devote significant resources to such programs, the absolute annual increases in household income and expenditure are still at most US$20-40 per capita for participating households. I bet that facilitating international migration is not very high up the list of interventions people think of. But it should be. In a new working paper, John Gibson and I evaluate the development impacts of New Zealand’s new seasonal worker program, the RSE. The figure below compares the per-capita income gain we estimate to those from microfinance, CCTs, and from my previous research giving grants of $100-200 to microenterprises. It is simply no contest!
Really?  The finding here is that seasonal migrant workers who move to developed countries make much more money than they could were they to participate in economic development projects?  The fact that this is even worth the ink it is printed on seems crazy to me.   (more…)

Development Economics

The Structure of an Agriculture Industry

I have been in Ghana now for one week, and think that it is time to give an update on what I am doing here.   I will be working on the ADVANCE project, which has the lofty goal of establishing an effective value chain in the agriculture industry.  It is a four-year, USD $30 million project with about 100 staff, including a mix of agronomists, business development people, rural finance specialists, and a handful of outside consultants providing support.  To describe the project requires providing an overview three dynamics:

  1. The structure of an agriculture industry
  2. The state of the current agriculture sector in Ghana
  3. The specific challenges in the West African context.
I will address each of these topics in three posts, beginning with an overview of how the agriculture sector works. The term “value chain” refers to the pathway that crops take in their journey from the ground to your plate, or your wardrobe, or the tires of your car.  The farmer plants the crops and tends to them sporadically throughout the growing season.  With sugar in the Philippines, the growing season is nine months.  During the first two months, the farmer spreads fertilizer, sprays the crop with pesticides and fungicide, and weeds the plot.  He then lets it sit for six months before harvest time, which lasts one month.   The amount of inputs (fertilizer, pesticides, etc.) and mechanization used by the producers depends on the location.  Most farmers in sub-Saharan Africa (SSA) are smallholders, managing less than two hectares, on average.  In contrast, the average farm size in the U.S., which is dominated by corporate giants like Archer Daniels Midland and Cargill, is 431 hectares.  These economies of scale give American agribusiness a big advantage on the global market. (more…)

Development Economics

Where's My Money, Fool: Conditional Cash Transfers

In this journal, I have discussed the different structural problems that a country faces in improving things like education, healthcare, and the economy overall.  A strong education system requires an adequate number of schools and teachers.  Likewise, good public health programs need to provide reasonable access to doctors and medical facilities.  Also, for healthcare in particular, people need to be educated about nutrition and preventive measures to avoid costly hospitalizations down the road.  But even with all of the components in place, not everyone will avail of these services.  Some people will choose to be the proverbial non-drinking horse, though usually out of necessity rather than willful ignorance.  That is because there is an opportunity cost to sending kids to school – if the child is working or watching his siblings while the parents work, going to school means lost income for the family. [caption id="attachment_1185" align="alignright" width="300" caption="Playin' with my my money is like playin' with my emotions."][/caption] So even if you have all the tools in place, it still might not be enough to effect the desired change.  One solution to this problem is conditional cash transfers (CCT).  In exchange for doing something, a person receives money.  In other words, you pay them to do the things you want, which happen to be the things that are ultimately in the best interest of them, their family, and country as a whole.  In this case, something means sending your child to school, immunizing your family, or any other behavior that will result in an improvement in “human capital.” (more…)