The Changing Attitudes Edition
Editor's Note: Let's kick-off with a couple of public service announcements: The Household Finance Research Initiative at Dvara Research has a call for research proposals on household finance in India that is due on the 31st. The "tracks" are applied data science and primary research and there are 10 total grants available. Apply!
In the US, the Mastercard Center for Inclusive Growth, the Gates Foundation and the Walmart Foundation also have a new RFP for research projects focused on "stabilizing workers during the Covid-19 crisis and offer pathways for longer-term economic security and mobility." For the first time ever, the BREAD conference on Development Economics will be live streamed. It's today and tomorrow at 11am Eastern. Here's the link for today, and the one for tomorrow. This morning Emma Riley will be presenting her work on providing microcredit to women business owners via mobile money accounts; others are on "Rationing the Commons" and "Manipulation Proof Machine Learning." Tomorrow, Morgan Hardy will present her paper with Gisella Kagy and Lena Song on bargaining behavior among microentrepreneurs, followed by papers on state capacity and taxation; and inequality and place-based policy.
—Tim Ogden
1. Household Finance:
Asking how the pandemic is affecting household finances seems a bit obtuse at this point. Incomes, particularly for the people below the upper tier of any economy, have fallen. How well are households able to cope? Lots of folks are trying to answer that now with rapid response surveys. Jonathan Morduch and FAI's newest addition, research associate Michelle Kempis, looked at Findex data to better understand resilience to economic shocks for households around the world, before the pandemic. There's a lot to unpack there since there are a lot of ways to look at the data (How big is a shock? Do you normalize around PPP or median wages or something else?). Around the world, lower-income people are more likely to rely on friends and family to cope with a disaster—a strategy that really doesn't work when everyone is affected by the same disaster.
Jonathan and Michelle speculate about what the pandemic might mean for household finance strategies in the future, particularly saving. I think that's a question that is worth turning to already, because the success of recovery policies will depend not just on a household's present situation but on how they think about the future. And there is evidence that economic shocks permanently change household financial attitudes and behaviors.
I don't know of much being done on such questions in developing countries—how attitudes are changing (though here's a forecast for what's next for Kenya from FSDKenya)—but there is some suggestive evidence in the US. The issues are especially acute for Millennials who are now living through the second major recession of their adult lives. And since it's such a large generation, and followed by another graduating into a recession, their attitudes are going to shape the American economy and definitions of household financial security for a long time.
2. Remittances and Migration:
he economic prospects for a lot of developing countries are dependent on the future of migration and remittances. We've talked here several times in the last few weeks about the effects on migration and the expected effects on remittances. Some of those issues are coming more into focus. Here's Michael Clemens on the global effects of a major decline in international remittances. It draws on the latest World Bank report on migration and remittances. Here's the IMF on the macro effects of a 20% drop in remittances in the Middle East and North Africa.
This isn't just a question of international migration and remittances. Rural-to-urban migration and the remittances that follow are important parts of household budgets. Recall the several papers on how mobile money increased resilience to disasters because of remittances—that likely no longer holds. With so much reverse migration, the question of the gains from rural-to-urban migration (and the costs of returning) loom especially large. Here's a new paper on trying to make sense of the costs and returns of rural-to-urban migration.
I have to believe that there is going to be a huge opportunity in smoothing domestic and international (re)migration in the wake of the pandemic. Especially as there are going to be huge headwinds from racist/nationalist factions using the pandemic as an excuse to limit migration.
3. Crisis Roundup:
A goal of mine in the faiV is to avoid becoming a simple list of interesting links. I try to find ways to pull things together, to make larger points, to put things in context. But even I am now defeated by the situation. So, with some measure of shame, here are a few things I haven't been able to properly arrange and contextualize but are worth paying attention to.
Coronavirus isn't the only biblical plague. Locusts continue to spread and have now invaded India. They are still on the rampage in East Africa too, consuming more crops each day than Kenyans do. Oh and there's the small matter of a potential border war between India and China. While China doesn't have to worry about locusts, yet, it does have a looming crisis with it's Belt and Road Initiative loans, virtually all of which seem to be at risk of default.
OK, back to the crisis that we're usually talking about. Here's a statement from many of the largest MFIs and and MFI networks inviting essentially the whole sector to join a coalition to "make their voices heard." And here is their statement that the DFIs, bilaterals and multilaterals are not doing enough to save the sector. Here's a report on the current state of the microfinance sector in Bangladesh.
4. Mobile Money:
Something like 10 years ago now I started writing a paper called "Mobile Money and Savings: You Know Less than You Think." The point was, back in the early days of enthusiasm for mobile money, that the little data we had was consistent with a lot of stories, and certainly didn't match up best with the hope that people would use mobile money accounts to save.
All this time later, and I'm still struck by how little we know about how mobile money affects financial choices. That feeling is amplified by a raft of new-ish mobile money papers (including the above referenced paper by Emma Riley and the savings paper linked last edition). The new AEA Papers and Proceedings has four papers on mobile money in sub-Saharan Africa. Here's a quick run-down. In Mozambique, mobile money adoption is skewed toward the more educated and those already included. In Malawi, in a companion to that savings paper, training on mobile money leads to significant adoption (similar to results in Bangladesh), reallocation of labor from business to agriculture (!), and apparently saving but not transfers (!). But in Kenya, a promotion to increase use of digital credit and digital savings leads to permanent increases in credit use, but savings rates decline quickly after the promotion ends (consistent with a lot of savings interventions). In Niger, there is significant demand for mobile money for transfers, and apparent willingness to pay, but low adoption.
But wait there's more (from other sources)! In the Gambia, there's also little adoption, but not much willingness to pay and training doesn't seem to do anything about that. In Peru, training on mobile money adoption works much better when it is done by trainers already known to the individuals, who apparently distrust the motives of stranger-trainers.
If you can help me make sense of all of this, please reach out.
5. in Memoriam:
Several influential economists have passed away in the last few weeks. Alberto Alesina probably was best known among them. Here's an appreciation from his frequent co-author Ed Glaeser. Olivier Williamson also passed away recently. Here's Kevin Bryant tying Alesina's and Williamson's work together through the lens of frictions. And there's a special issue of Health Economics honoring Adam Wagstaff.
Video of the Week:
David Evans takes us into a world ravaged by disease, specifically pneumococcus, and how economics created a tool for doing something about it. Hope this makes you smile.
