Foreign Aid and Human Rights

Posted on January 22, 2013 by Ken

A new paper exploring the link between aid and governance, by Arinow, Carnegie and Marinov.

abstract
Does foreign aid promote good governance in recipient countries? We help arbitrate the debate over this question by leveraging a novel source of exogeneity: the rotating presidency of the Council of the European Union. We find that when a country’s former colonizer is the president of the Council of the European Union during the budget-making process, the country is allocated considerably more foreign aid than are countries whose former colonizer does not hold the presidency. Using instrumental variables estimation, we demonstrate that this aid has positive effects on multiple measures of human rights and governance, although the effects are short-lived after the shock to aid dissipates. We then disaggregate aid flows, present evidence for the causal mechanism at work, and offer directions for future advances.

Paper available through SSRN

h/t to Chris Blattman

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Credence Goods, CSR, NGO’s

Posted on January 17, 2013 by Ken

The quality of manufactured goods, both directly, and in terms of perceived environmental or social costs involved in manufacturing are interesting issues of incomplete information. Two related papers that might be of interest to EC470 students thinking about paper topics:

A survey of the economic literature on Corporate Social Responsibility
Economic Perspectives on Corporate Social Responsibility by Markus Kitzmueller and Jay Shimshack
Paper available here through the Journal of Economic Literature (gated)

and a new paper by Krautheim and Verdier on credence goods and the role of NGO’s in international trade:
Paper available through the Center for Economic Policy Research

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The Historical Fertility Transition

Posted on January 15, 2013 by Ken

Today in EC307, I was discussing changes in fertility and population growth, in relation to economic growth. For students (or others) interested in the topic, here is a recent literature survey on the topic.

The Historical Fertility Transition: A Guide for Economists, by Timothy W. Guinnane, Journal of Economic Literature, 2011.

Abstract
The historical fertility transition is the process by which much of Europe and North America went from high to low fertility in the nineteenth and early twentieth centuries. This transformation is central to recent accounts of long-run economic growth. Prior to the transition, women bore as many as eight children each, and the elasticity of fertility with respect to incomes was positive. Today, many women have no children at all, and the elasticity of fertility with respect to incomes is zero or even negative. This paper discusses the large literature on the historical fertility transition, focusing on what we do and do not know about the process. I stress some possible misunderstandings of the demographic literature, and discuss an agenda for future work.

Paper available at the Journal of Economic Literature (gated)

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Non-Cognitive Ability, Test Scores and Teacher Quality

Posted on January 14, 2013 by Ken

A primarily empirical paper about the multi-task principal problem that we will be looking at in a theoretical context in EC470. A key message of the paper:
“In sum, the results indicate that a teacher’s effect on test scores and other non-cognitive outcomes are largely orthogonal, such that teachers who tend to improve test scores are no more or less likely to improve non-test score outcomes…. This implies that roughly half of teachers classified as above average at improving test score will be below average at improving non-cognitive ability and roughly 25 percent of teachers in the top 25 percent of improving test scores will be in the bottom 25 percent at improving non-cognitive ability. (p.23)”

Link to the NBER paper here (gated)

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30 Years of Prospect Theory

Posted on January 13, 2013 by Ken

Students interested in behavioural economics may find this review of prospect theory interesting.

Abstract
Prospect theory, first described in a 1979 paper by Daniel Kahneman and Amos Tversky, is widely viewed as the best available description of how people evaluate risk in experimental settings. While the theory contains many remarkable insights, economists have found it challenging to apply these insights, and it is only recently that there has been real progress in doing so. In this paper, after first reviewing prospect theory and the difficulties inherent in applying it, I discuss some of this recent work. While it is too early to declare this research effort an unqualified success, the rapid progress of the last decade makes me optimistic that at least some of the insights of prospect theory will eventually find a permanent and significant place in mainstream economic analysis.

30 Years of Prospect Theory – NBER paper (gated)

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Africa Can Help Feed Africa

Posted on January 11, 2013 by Ken

We often worry about international barriers to trade and their effect on food security – with a focus on developed country policy. What are the effects of regional policy within the developing world?

Africa can help feed Africa: Removing barriers to regional trade in food staples

Africa is not achieving its potential in food trade, increasing the risk of widespread hunger and malnutrition. This column argues that the most serious problems for the continent are problems of political economy and barriers along the value chain. The good news is that, despite demand for food throughout Africa predicted to double over the next decade, governments can act now to overcome these problems. With a regional approach to food security, African governments can spur on benefits to farmers and consumers as well as job creation along the value chain of staples.

Africa Can Help Feed Africa – VoxEU article

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Growth Slowdowns Redux: New Evidence on the Middle-Income Trap

Posted on January 11, 2013 by Ken

Also of interest to EC307 students – a new NBER paper looking at growth slowdowns in middle income countries.

Highlight:

But in contrast to our earlier analysis which pointed to the existence of a single mode at which slowdowns occur in the neighborhood of $15,000-$16,000 2005 purchasing power parity dollars, new data point to two modes, one in the $10,000-$11,000 range and another at $15,000-$16,0000.

NBER paper (gated)
or
VoxEU summary (ungated)

ht to Marginal Revolution

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Growth Forecasts by Credit Suisse

Posted on January 11, 2013 by Ken

Of interest to students in my economic growth class – the predictions of Credit Suisse for 2013 growth. Unless you live in Europe,the forecasts look fairly posititve.

The key question for students in EC307 – what reflects long term growth patterns, and what is business cycle fluctuation?

Growth Forecast

Ht to Phil for the pointer.

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Misconduct in Credence Good Markets

Posted on January 10, 2013 by Ken

Some students in my EC470 class may be interested in this paper.

Abstract
We study how monitoring, expert skill and consumer awareness affect the level of misconduct in markets with asymmetric information and price-taking experts. Theoretical predictions show that experts subject to more intense monitoring may be less ethical in equilibrium. Similarly, more experienced experts are predicted to exhibit greater levels of misconduct. We test these predictions in the insurance sales industry and find that monitored experts are 21 to 98% more likely to take advantage of customers, relative to unmonitored experts. We also find empirical evidence that more experienced experts are significantly more likely to mislead their customers.

Full paper available here via the NBER (gated)

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Conflict, Trust and Ethnicity – Some unsurprising results?

Posted on January 9, 2013 by Ken

A new paper by Rohner, Thoenig and Zilibotti with results that are probably not surprising – conflict reduces generalized trust, and increases the relevance that people place in ethnic identity.

Abstract

We study the effect of civil conflict on social capital, focusing on the experience of Uganda during the last decade. Using individual and county-level data, we document large causal effects on trust and ethnic identity of an exogenous outburst of ethnic conflicts in 2002-05. We exploit two waves of survey data from Afrobarometer 2000 and 2008, including information on socioeconomic characteristics at the individual level, and geo-referenced measures of fighting events from ACLED. Our identification strategy exploits variations in the intensity of fighting both in the spatial and cross-ethnic dimensions. We find that more intense fighting decreases generalized trust and increases ethnic identity. The effects are quantitatively large and robust to a number of control variables, alternative measures of violence, and different statistical techniques involving ethnic and spatial fixed effects and instrumental variables. We also document that the post-war effects of ethnic violence depend on the ethnic fractionalization. Fighting has a negative effect on the economic situation in highly fractionalized counties, but has no effect in less fractionalized counties. Our findings are consistent with the existence of a self-reinforcing process between conflicts and ethnic cleavages.

Link to full paper.

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