Search

A large literature focuses on the biases of individuals and consumers, as well as "nudges" and other policies that can address those biases. Although policy decisions are often more consequential than those of individual consumers, there is a dearth of studies on the biases of policy professionals: those who prepare and implement policy on behalf of elected politicians. Experiments conducted on a novel subject pool of development policy professionals (public servants of the World Bank and the Department for International Development in the United Kingdom) show that policy professionals are indeed subject to decision making traps, including sunk cost bias, the framing of losses and gains, frame-dependent risk-aversion, and, most strikingly, confirmation bias correlated with ideological priors, despite having an explicit mission to promote evidence-informed and impartial decision making. These findings should worry policy professionals and their principals in governments and large organizations, as well as citizens themselves. A further experiment, in which policy professionals engage in discussion, shows that deliberation may be able to mitigate the effects of some of these biases.

We explore how to measure poverty over time, by focusing on trajectories of poverty rather than poverty at a particular point in time. We consider welfare outcomes over a period in time, consisting of a number of spells. We offer a characterization of desirable properties for measuring poverty across these spells, as well as an explicit discussion of three issues. First, should there be scope for compensation so that a poor spell can be compensated for by a non-poor spell? Second, is there scope for discounting or should all spells be equally valued? Third, does the actual sequence of poor spells matter, for example whether they are consecutive or not? We offer a number of measures that implicitly offer different answers to these questions, in a world of certainty. Finally, we also offer an extension towards a forward-looking measure of vulnerability, defined as the threat of poverty over time, that incorporates risk. An application to data from Ethiopia shows that especially the assumption of compensation results in different inference on poverty.

We study two interventions for underemployed youth across five Ethiopian sites: a $300 grant to spur self-employment, and a job offer to an industrial firm. Despite significant impacts on occupational choice, income, and health in the first year, after five years we see nearly complete convergence across all groups and outcomes. Shortrun increases in productivity and earnings from the grant dissipate as recipients exit their micro-enterprises. Adverse effects of factory work on health found after one year also appear to be temporary. These results suggest that one-time and one-dimensional interventions may struggle to overcome barriers to wage- or self- employment.

This chapter looks at trends in poverty and inequality at national and regional levels in Ethiopia during the period 1995/6–2015/16. The data indicate that poverty in Ethiopia has shown a substantial decline over this period, with the share of population living under the national absolute poverty line reduced from almost one in two Ethiopians in 1995/6 to about one in four in 2015/16. Results from growth–inequality poverty decomposition indicate that the declines in the absolute poverty rates are accounted for by changes in the rate of economic growth rather than by distribution of wealth. While Ethiopia still has a low level of income inequality, the upward trend in the Gini coefficient from 0.29 in 1995/6 to almost 0.33 in 2015/16 may constrain the scope for further poverty reduction, suggesting a need for policies that consider growth and redistribution at the same time.

We report on an experiment with poor rural households in Ethiopia, which aimed to boost aspirations for a better future through exposure to documentaries featuring local male and female role models. We explore effects on parents' educational aspirations and investment in children's education. At baseline, educational aspirations are high but biased against girls. At a six-month follow-up, the intervention increased parents' aspirations for their children's education and increased enrollment, time spent in school, and schooling expenditures. There was no catching up of girls relative to boys. Results are consistent with broader local social norms that value education but disfavor women.

As low-income countries industrialize, workers choose between informal self-employment and low-skill manufacturing. What do workers trade off, and what are the long run impacts of this occupational choice? Self-employment is thought to be volatile and risky, but to provide autonomy and flexibility. Industrial firms are criticized for poor wages and working conditions, but they could offer steady hours among other advantages. We worked with five Ethiopian industrial firms to randomize entry-level applicants to one of three treatment arms: an industrial job offer; a control group; or an “entrepreneurship” program of $300 plus business training. We followed the sample over a year. Industrial jobs offered more hours than the control group’s informal opportunities, but had little impact on incomes due to lower wages. Most applicants quit the sector quickly, finding industrial jobs unpleasant and risky. Indeed, serious health problems rose one percentage point for every month of industrial work. Applicants seem to understand the risks, but took the industrial work temporarily while searching for better work. Meanwhile, the entrepreneurship program stimulated self-employment, raised earnings by 33%, provided steady work hours, and halved the likelihood of taking an industrial job in future. Overall, when the barriers to self-employment were relieved, applicants appear to have preferred entrepreneurial to industrial labor.

Are markets in developing and transition economies over‐regulated or under‐regulated? This is a perennial question in the development discourse, but one for which answers appear to come more from preset ideology than from context‐specific analysis and evidence. These issues become even more pressing when the debate turns to the links between regulation, deregulation and inequality. The recent experience of rising inequality in many countries has also brought to the fore predictable policy positions. A key aspect of labor regulation in developing countries, and one becoming more prominent in the era of rising inequality, is the minimum wage. The range of issues around regulation, minimum wage and informality was addressed by papers presented to a conference held in New Delhi on December 17–18, 2014. The conference was co‐sponsored by the World Bank, UK Department for International Development, Cornell University and Columbia University. The organizers of the conference were Kaushik Basu, Stefan Dercon, Ravi Kanbur and Jan Svejnar. A selection of papers from the conference which passed the usual review procedures of the Review of Development Economics, and a further selection of papers from those submitted to the journal, form this symposium.

With serious impacts of climate change looming in a few decades, but current poverty still high in the developing world, we ask how to spend development aid earmarked for the poor. Poverty reduction tends to be strongly linked to economic growth, but growth impacts the environment and increases carbon-dioxide emissions. So can greener growth that is more climate-resilient and less environmentally damaging deliver large-scale poverty reduction? Can aid be used for effective poverty reduction now without affecting carbon emissions substantially? We argue that there are bound to be trade-offs between emissions reductions and a greener growth on the one hand, and growth that is most effective in poverty reduction. We argue that development aid, earmarked for the poorest countries, should only selectively pay attention to climate change, and remain focused on fighting current poverty reduction, including via economic growth, not least as future resilience of these countries and their population will depend on their ability to create wealth and build up human capital now. The only use for development aid within the poorest countries for explicit climate-related investment ought to be when the investments also contribute to poverty reduction now, including for increasing resilience to current impacts of environmental shocks, or when the investments done now have serious intertemporal ‘lock-in’ problems so that they have implications also for when climate change bites by 2050. In an annex, we offer a series of concrete principles to judge development spending.

We study changes in living conditions using longitudinal data covering 30 years in six villages in Andhra Pradesh and Maharashtra, initially surveyed during 1975–1984, and resurveyed in recent years, as part of the ICRISAT Village Level Studies. Monetary welfare indicators (such as incomes, assets, consumption and poverty) and non-monetary indicators of well-being (such as basic literacy, education, health and subjective well-being) have improved considerably. Consumption growth is linked to literacy and education at baseline. Other assets, such as land, have a neglible impact, suggesting that labour and human capital have been instrumental for growth in these villages.Change involved a large increase in various off-farm activities.

After decades of armed conflict, during the first part of 1990s, about half a million ex-soldiers were demobilized in Ethiopia. This chapter provides an analysis of the consequences of this demobilization. It looks at the impact on the ex-soldiers, on their households and on society at large. After looking at the context in which demobilization took place, the second section presents a profile of the ex-combatants, the assistance that was provided, and the impact of the assistance on the ex-soldiers. It also looks at the government expenditure and security consequences of the demobilization. In a third section, micro-level evidence from ex-soldiers who returned to rural areas is presented, to assess the welfare effects of the demobilization.1

This article investigates whether public investments that led to improvements in road quality and increased access to agricultural extension services led to faster consumption growth and lower rates of poverty in rural Ethiopia. Estimating an Instrumental Variables model using Generalized Methods of Moments and controlling for household fixed effects, we find evidence of positive impacts with meaningful magnitudes. Receiving at least one extension visit reduces headcount poverty by 9.8 percentage points and increases consumption growth by 7.1 percentage points. Access to all-weather roads reduces poverty by 6.9 percentage points and increases consumption growth by 16.3 percentage points. These results are robust to changes in model specification and estimation methods. Copyright 2009, Oxford University Press.

Much has been written on the determinants of input and technology adoption in agriculture, with issues such as input availability, knowledge and education, risk preferenc es, profitability, and credit constraints receiving much attention. This paper focuses on a factor that has been less well documented-the differential ability of households to take on risky production technologies for fear of the welfare consequences if shocks result in poor harvests. Building on an explicit model, this is explored in panel data for Ethiopia. Historical rainfall distributions are used to identify the counterfactual consumption risk. Controlling for unobserved household and time-varying village characteristics, it emerges that not just ex-ante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertilizer. The lack of insurance causes inefficiency in production choices.

This article presents unique evidence that orphanhood matters in the long run for health and education outcomes in a region of northwestern Tanzania. We study a sample of 718 non-orphaned children surveyed in 1991–1994 who were traced and reinterviewed as adults in 2004. A large proportion, 19%, lost one or more parents before age 15 in this period, allowing us to assess permanent health and education impacts of orphanhood. In the analysis, we control for a wide range of child and adult characteristics before orphanhood, as well as community fixed effects. We find that maternal orphanhood has a permanent adverse impact of 2 cm of final height attainment and one year of educational attainment. Expressing welfare in terms of consumption expenditure, the result is a gap of 8.5% compared with similar children whose mothers survived until at least their 15th birthday.

As low-income countries industrialize, workers choose between informal self-employment and low-skill manufacturing. What do workers trade off, and what are the long run impacts of this occupational choice? Self-employment is thought to be volatile and risky, but to provide autonomy and flexibility. Industrial firms are criticized for poor wages and working conditions, but they could offer steady hours among other advantages. We worked with five Ethiopian industrial firms to randomize entry-level applicants to one of three treatment arms: an industrial job offer; a control group; or an “entrepreneurship” program of $300 plus business training. We followed the sample over a year. Industrial jobs offered more hours than the control group’s informal opportunities, but had little impact on incomes due to lower wages. Most applicants quit the sector quickly, finding industrial jobs unpleasant and risky. Indeed, serious health problems rose one percentage point for every month of industrial work. Applicants seem to understand the risks, but took the industrial work temporarily while searching for better work. Meanwhile, the entrepreneurship program stimulated self-employment, raised earnings by 33%, provided steady work hours, and halved the likelihood of taking an industrial job in future. Overall, when the barriers to self-employment were relieved, applicants appear to have preferred entrepreneurial to industrial labor.

This article has two related objectives. First, it offers a critique of the way poverty and inequality have become central in the development discourse of donors and international agencies. Second, it offers a review of the World Development Report 2006 on Equity and Development and its emphasis on the instrumental role of inequality in development. The reduction in poverty is obviously important in discussing and analyzing development, but it is only a proxy measure of what successful development achieves. As such, targeting it induces some errors just as it eliminates others. So central has the concept become, aided by the fact that it poses intriguing challenges of measurement, that these errors have been forgotten. The addition of equity as a concern unfortunately reinforces the errors that are made by privileging poverty, prioritizing strategies that reduce poverty in the short term over long-term development. The World Development Report 2006 overextends the role of inequality and redistribution in development processes by overemphasizing relevant but particular efficiency-equity complementarities, by conflating domestic and international equality issues, and by naively integrating economic and political equalities.

Empirical work in labor economics has focused on rent sharing as an explanation for the observed correlation between wages and profitability. The alternative explanation of risk sharing between workers and employers has not been tested. Using a unique panel data set for four African countries, Authors find strong evidence of risk sharing. Workers in effect offer insurance to employers: when firms are hit by temporary shocks, the effect on profits is cushioned by risk sharing with workers. Rent sharing is a symptom of an inefficient labor market. Risk sharing; by contrast, can be seen as an efficient response to missing markets. Authors evidence suggests that risk sharing accounts for a substantial part of the observed effect of shocks on wages.

Most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods, suggesting substantial short-run movements in and out of poverty. The consequence is that cross-section poverty research may not be able to identify the poor. In this study, we explore this short-run variability further. We use a data set on a panel of 1450 households in different communities in rural Ethiopia, surveyed thrice, over 18 months. On average year-to-year poverty is very similar. However, we find high variability in consumption and poverty, over the seasons and year-by-year. Econometric analysis suggests that consumption is affected by idiosyncratic and common shocks, including rainfall and household-specific crop failure, while households respond to seasonal incentives related to changing labour demand and prices. The results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics, while some of the non-poor in these statistics are in fact otherwise poor households temporally boosting their consumption as an optimal response to changing seasonal incentives.

Much of the literature on consumption smoothing and on risk sharing has focused on the ability of the household as a unit to protect its consumption. Little is known about the ability of individual members of the household to keep consumption smooth over time or relative to other members of the household. We use data on adult nutrition in Ethiopia to investigate whether individuals are able to smooth their consumption over time and within the household. We find that poorer households are not able to do so. Furthermore, poor southern households do not engage in complete risk sharing; women in these households bear the brunt of adverse shocks. This result implies that the collective model of household organization, which imposes Pareto efficiency on allocations, is rejected for these households. Finally, we obtain estimates of the relative Pareto weights in household allocation. We find that a wife's relative position is better if customary laws on settlements at divorce are favorable or if she comes from a relatively wealthy background and that poor southern women have lower Pareto weights in allocation.

Macro policy has changed the real exchange rates for African countries dramatically in the 1990s. In this paper the possible impact of macroeconomic policy on firms in the manufacturing sector is considered based on a panel survey of such firms in Cameroon. Kenya, Ghana and Zimbabwe. The data show that most large African manufacturing firms do export, but most do not specialize in exporting. An export equation is estimated both for the propensity of the firms to export and the percentage of output exported. It is shown that a stable export function can be estimated for all four countries over the three rounds of the survey. While there is no evidence that real devaluations have effected a general rise in manufactured exports there is evidence from the surveys of a rise in the percentage of output exported from the Cameroon. Reasons for the lack of a general response to macro policy are suggested. In the Cameroon, large firms did increase their propensity to export. Understanding the links between macro policy and firm performance may require an understanding of how such policies impact on different types of firms.

This paper analyzes the experiences of demobilization and reintegration of about half a million ex-soldiers during the first part of the 1990s in Ethiopia. We use rural household data on ex-soldier and non-soldier households to assess whether reintegration has been successful. We find that the targeting efficiency of the demobilization program has not been as good as generally claimed. Ex-soldiers have welfare levels similar to non-soldiers. They are generally considerably better educated but have fewer assets than non-soldiers. Using a “treatment effects” model, we find that returns to labor and assets for ex-soldiers are indistinguisable from those of non-soldiers' families. This suggests that ex-soldiers have been successfully reintegrated in the rural economy, even though this means they are sharing the low standards of living of the rest of the rural population.

Imperfect credit markets force households to use their savings for investment. Profitable activities often require lumpy investments, limiting entry by poorer households, resulting in increasing welfare differences. In Tanzania, cattle are a profitable but lumpy investment and a liquid asset for consumption smoothing. Richer households own substantial cattle herds, while poorer households specialize in low return, low risk activities. A dynamic programming model and simulations are presented to analyze entry into asset accumulation under income risk. The evidence suggests that households with lower endowments are less likely to own cattle and returns to their endowments are lower.

Summary Following the disputed 2007 Kenyan Presidential election unprecedented levels of violence erupted across the country adding to the history of troubled elections in Africa. This paper offers quantitative and qualitative evidence on the issues that triggered the electoral violence, its incidence, and impacts. Using two surveys conducted before and after the election we find that one out of three Kenyans was affected by the violence regardless of their ethnicity and wealth. The chances of being a victim of violence were higher in areas with land conflicts and where politically-connected gangs operated. Violence, which was mainly triggered by the perception that the election had been rigged, increased support toward lawlessness, reduced trust and social capital among communities.

This paper presents unique evidence that orphanhood matters in the long-run for health and education outcomes, in a region of Northwestern Tanzania. We study a sample of 718 nonorphaned children surveyed in 1991-94, who were traced and reinterviewed as adults in 2004. A large proportion, 19 percent, lost one or more parents before the age of 15 in this period, allowing us to assess permanent health and education impacts of orphanhood. In the analysis, we can control for a wide range of child and adult characteristics before orphanhood, as well as community fixed effects. We find that maternal orphanhood has a permanent adverse impact of 2 cm of final height attainment and one year of educational attainment. Expressing welfare in terms of consumption expenditure, the result is a gap of 8.5 percent compared to similar children whose mother survived till at least their 15 th birthday.

This paper examines changes in living conditions in the six villages in Andhra Pradesh and Maharashtra, initially surveyed during 1975-84. We link the original Village Level Survey (VLS) households to a new survey in the villages conducted during 2001-04 and further extensive survey work in 2005-06, including tracking survey of all individuals ever interviewed in the original VLS. Despite issues related to attrition and changes in the survey instruments, we find that monetary welfare indicators (such as incomes, assets, consumption and poverty), and non monetary indicators of well-being (such as basic literacy, education and health outcomes) have improved considerably. We find the considerable attrition rates observed can be linked to within-household relational variables such as gender, relationship to the head and birth order. Migrants have experienced faster welfare improvements than non-migrants, but more analysis is needed to confirm whether this is due to their initial characteristics or due to their migration. Finally, we explore the correlates of consumption and income growth, and changes in poverty. We find that consumption growth is linked to initial households characteristics, in particular the presence of high literacy in the household, and of young children, especially boys, in the baseline year (1983) is strongly correlated with growth. Other assets, such as land, have a negligible impact, suggesting that labour and human capital have been instrumental for growth. Poverty declined in all villages, but especially in the Mahbubnagar villages in Andhra Pradesh. Labour endowments and literacy appear to have been crucial. Surprisingly, lower caste groups have experienced faster poverty declines, although this effect is largely confined to Mahbubnagar in Andhra Pradesh.

Using panel data from villages in rural Ethiopia, the paper studies the determinants of consumption growth (1989-97), based on a microgrowth model, controlling for heterogeneity. Consumption grew substantially, but with diverse experiences across villages and individuals. A key focus is on whether shocks affect growth. Rainfall shocks have a substantial impact on consumption growth, and its impact presists for many years. There also appears to be a significant, persistent growth impact from the large-scale famine in the 1980s, as well as substantial externalities from the presence of road infrastructure. The findings related to the persistent effects of rainfall shocks and the famine crisis imply that welfare losses due to the lack of insurance and protection measures are well beyond the welfare cost of short term consumption fluctuations.

Identifying the pattern of change in welfare and poverty over time is of increasing importance in the policy debate about reform in Africa. It is recognised that the reform programmes are sustainable only in the long run if they also result in poverty alleviation. However, the data available on changes in poverty in Africa is surprisingly limited compared to Asia. Despite the various household surveys recently implemented (Deaton 1997), problems ranging from access to data to incompatible surveys, have meant that few studies on the changes in welfare since the 1980s have been attempted.1 Cross-section data could be used to perform this task, provided coverage and sampling are done with great care (Deaton 1997). Panel data, although not without their own methodological problems, are more reliable in establishing changes at least within the sample collected. In the context of Africa, with the exception of the rolling panels in some LSMS surveys, such as in Cote d’ Ivoire (Grootaert and Kanbur 1995), the number of panel data sets that could be used for assessing the changes in welfare are limited.

We use firm-level panel data for the manufacturing sector in four African countries to investigate whether exporting impacts on efficiency, and whether efficient firms self-select into the export market. Based on simultaneous estimation of a production function and an export regression, our preferred results indicate significant efficiency gains from exporting, which can be interpreted as learning by exporting. We show that modelling unobserved heterogeneity by a flexible approach is important for deriving this conclusion. A policy implication of our results is that Africa would gain from orientating its manufacturing sector towards exporting. © 2004 Taylor and Francis Ltd.

This paper examines the contractual practices of African manufacturing firms using survey data collected in Burundi, Cameroon, Côte d’Ivoire, Kenya, Zambia, and Zimbabwe. Descriptive statistics and econometric results are presented. They show that contractual flexibility is pervasive and that relational contracting is the norm between manufacturers, their suppliers, and their clients. The existence of long-term relations between firms helps them deal with contract non-performance through negotiation. Confrontational methods such as lawyers and courts are used only by large firms and when negotiations fail. Whenever confrontation can be avoided, business is resumed. Of the six studied countries, incidence of breach and the use of lawyers and courts are highest in Zimbabwe which is also the country with legal institutions that best support business. Our favored interpretation is that good legal institutions incite firms to take more chances, thereby encouraging trade and leading to more cases of breach and more recourse to courts and lawyers. A high frequency of contract non-compliance should thus not be interpreted as a sign of imperfect legal institutions.