Poverty, inequality, and development through the lens of inclusive finance.
Editor's Note: Of particular note, this Tuesday (September 15th) at 10am Eastern there is a special edition of faiVLive in Spanish covering Digital Financial Services in Latin America. I'll be hosting with Gabriela Zapata moderating, and Kiki DelValle, Barbara Magnoni, and Xavier Faz will be joining us. Register here.
I apologize in advance if the final links on resilience undermine your resilience at the beginning of the week.
–Tim Ogden
Read MoreEditor's Note: I feel like the typical "everyone is gone in August" thing hasn't been happening this year, but there is so much that's different that I can't really tell. And while I took some time off in July, and even went somewhere, it didn't feel like a vacation since there was still so much effort needed figuring out what the boys and I could do in a time of distancing and lockdowns. I hope you have had some time mentally away, but you know, not all of your time mentally away.
--Tim Ogden
1. Trends: Futurism has always come more easily to technologists than policy wonks (probably because it’s easier). But big gatherings are a good chance to look ahead to how the whole inclusive finance ecosystem, getting more complex each year, will evolve. e-MFP’s annual survey of financial inclusion trends – the Financial Inclusion Compass 2019 – was launched during EMW2019, and tries to do just this. If there were a single theme to this paper, it’s the disconnect between, on the one hand, individual stakeholders with their own interests and objectives, and on the other a collective confusion, a ‘soul-searching’ of sorts, for financial inclusion’s purpose amidst the panoply of initiatives and indicators in a sector of now bewildering complexity.
Digital transformation of institutions ranked top, a theme that dominated last year’s European Microfinance Award (EMA) and EMW, with Graham Wright’s keynote call for MFIs to “Digitise or Die!” (and see also the FinDev webinar series on the subject). Client protection remains at the forefront, (second in the rankings, see point 4 below for more going on here) and client-side digital innovations, despite the ubiquitous hype, is only in third overall – and only 7th among practitioners, who actually have to implement FinTech for clients. Do they know something that consultants and investors do not? Among New Areas of Focus (which looks 5-10 years down the track), Agri-Finance is clearly top. The Rural and Agricultural Finance Learning Lab, Mastercard Foundation and ISF Advisors’ Pathways to Prosperity presents the current state-of-the-sector. It’s worth looking at. Finally, Social Performance and/or Impact Measurement is 5th out of 20 trends. There’s too much to choose from here. But the CGAP blog on impact and evidence digs into the subject from a whole range of angles. And check out Tim’s CDC paper [No quid pro quo!--Tim] from earlier this year on the impact of investing in financial systems. Good to see that financial regulators are also giving this the attention it needs.
Finally, finance for refugees and displaced populations generated a lot of comments in the Compass - and was the biggest jumper in the New Area of Focus rankings. It’s been a big part of EMW for the last few years; climate migration was the theme of the excellent conference opening keynote by Tim McDonnell, journalist and National Geographic Explorer, and there’s lots of recent data (here in a World Bank blog) showing refugee numbers at (modern) record levels. Migration of course is inextricably linked to labor conditions. Low paid and low quality work drives migration [maybe we should have more research on migration as a household finance strategy--Tim]. For more on the ‘World of Work’ in the coming century, see below.
2. Climate Change: There may be more evolution in climate change/climate finance than any other area of financial inclusion today. From our side, the European Microfinance Award 2019 on ‘Strengthening Climate Change Resilience’ wrapped up last month, with APA Insurance Ltd of Kenya chosen as the winner for insuring pastoralists against forage deterioration that result in livestock deaths due to droughts . Forage availability is determined by satellite data, via the Normalized Difference Vegetation Index (NDVI). A short video on the program can be seen here.
The severity of climate change and the increasing impact it has on the world’s most vulnerable hardly needs outlining here. Progress has been excruciatingly slow. But a new report by the Global Commission on Adaptation, headed by Bill Gates and former U.N. Secretary-General Ban Ki-moon, aims to change that. Released in September 2019, it mapped out a $1.8 trillion blueprint to ready the world to withstand intensifying climate impacts. The Commission launched the report in a dozen capitals, with the overarching goal of jolting governments and businesses into action.
A bunch of recent publications illustrate the overdue acceleration of responses. The Economist Intelligence Unit’s Climate Change Resilience Index is pretty stark reading. Africa will be hit the hardest by climate change according to the Index – with 4.7% real GDP loss by 2050 (well supported by the rankings in the ND-Gain index from Notre Dame Global Adaptation Initiative (ND-GAIN), which summarizes countries’ vulnerability to (and readiness for) climate change. The EIU index shows that institutional quality matters a lot in minimising the effects. The paper also presents three case studies that highlight the importance of both economic development and policy effectiveness to tackle climate change. It’s worth a (fairly frightening) read. So is AFI’s new paper “Inclusive green finance: a survey of the policy landscape”, which asks and answers why financial regulators are working on climate change, how they have been integrating climate change concerns in their national financial inclusion policies and other financial sector strategies, and how they are collaborating with national agencies or institutions. Blue Orchard has also just published "Rethinking Climate Finance" which points to a US$400 billion shortfall by 2030 in climate finance, just to keep global temperatures within the 1.5 Celsius limit. The authors advocate various blended-finance products to encourage private sector investment, which, their survey reveals, is woefully low considering how significantly those investors perceive climate change risk to their portfolios.
Read More1. Microfinance: It's not often that I have a plain microfinance item these days, but there are some important specifically microfinance points of interest this week. First it's the 10th anniversary edition of the Microfinance Barometer. There's an interesting piece in it on the evolution of the Barometer's coverage, and one on "digitalisation: risk or opportunity?" which I automatically like because of the framing. Also, there's an article asking whether financial inclusion and microfinance are the same thing, which I was kind of taken aback by since I mostly hear these days about whether there is a meaningful and useful difference between inclusion and health. I didn't know anyone was still equating microfinance with inclusion. But perhaps the most interesting thing is a small snippet of data on Portfolio at Risk: the trend is definitely upward toward 7% PAR30, which is well above the historic range of "good practice" microcredit. Is it a sign of MFIs learning to take more risk? Or that they are being pressured by digital entrants to be more aggressive? Or something else?
This week the European Microfinance Platform released Financial Inclusion Compass 2019, the report on their annual survey of trends in financial inclusion (note, not trends in microfinance). You'll hear more about Compass in coming weeks as the eMFP team will be taking over the faiV one week soon. In my quick initial look through the thing I found most interesting is the divergence between how MFIs and investors are rating various issues. Specifically, MFIs still put human resources issues at the top of their list of concerns--it's still a problem attracting, training and retaining staff apparently. Which should raise questions of digital security: if MFIs can't retain basic banking staff, what hope do they have of attracting and retaining cybersecurity staff? (Yes, I'm going to keep banging on this drum for a long time to come.)
Speaking of digital finance, one more thing for this week: MicroSave's full report on the state of digital credit in Kenya is full of fascinating (and scary) details. Like, "Between 2016 and 2018, "86% of loans that Kenyans took were digital in nature." Yes, indeed, it sounds like the MFIs are under significant pressure. But so you don't think I'm letting my confirmation bias run totally rampant, here's a recent blog post from MicroSave highlighting the positive trends in digital credit in Kenya, which include rising loan quality (that is, if you consider repayment rates a pure measure of loan quality; sorry, not sorry). Especially since there is also a new report from FSDKenya "evaluating the conduct and practice of digital lending" there. It includes fun stories like relatives of borrowers being threatened with being blacklisted at credit agencies if they don't compel repayment. Loan quality is definitely improving.
2. Migration: Did I mention I have a new paper with Michael Clemens on reframing the migration research agenda? Oh yes, I'm sure I did, but nevertheless, here it is again.
But there is also some brand new stuff. First, here's a look at the impact of massive out-migration from Galicia since 1860. The initial outflow lowered literacy rates for about a decade but then the trend reversed with large gains in human capital at origin that have persisted for more than a century. The mechanism: both remittances from the migrants to fund education back in Galicia and the transmission of norms about the importance of education.
There's also a new study of the impact of the end of the Bracero program which allowed Mexicans to migrate for agricultural jobs in the United States beginning during World War II. When the program ended, there was a sudden massive drop in migrants. What happened? Well, awhile ago, Michael, Ethan Lewis and Hannah Postel had a paper showing there was no effect on employment or wages for native-born workers. This new paper by Muly San explains why: large investment in technology to reduce the labor needed to harvest the crops that Bracero's had been employed harvesting (and not in other crops.)
Drawing heavily on Michael's research there's also a new special report from The Economist making the case for more migration to make the world a better place. And it doesn't even include how migrants seem to be the best defenders America's institutions have right now.
And here's a story about how the huge inflow of Venezuelan refugees into Colombia has made it the fastest growing country on the continent--and apparently about the most stable country on the continent right now.
Meanwhile, if you're wondering what's wrong with America you're not alone. Here's a partial answer that I've featured before: Americans keep setting new records for immobility.
1. Good Economics: I’m pretty jealous of the luck that the editor who signed Esther and Abhijit to write a new book with a big picture view of economics and development and managed to have it scheduled to come out just a few weeks after they won the Nobel has (or alternatively I’m not jealous at all of the eternity of suffering they will have from selling their soul to make this happen). It is pretty remarkable timing regardless of how it came about.
The official release isn't until later this week, but there’s already a good amount of stuff out there, and the book seems likely to generate a lot of conversation. Here’s an excerpt that outlines their perspective on migration (it’s good and there should be more of it). Here’s an excerpt of their perspective on trade (it’s not as good as you’ve heard). Here’s a thread from David McKenzie contrasting the two.
I’m told a review copy is headed my way, and if so I’m sure I’ll have more to say about the book in future weeks.
2. Global Development: It feels like quite some time since I’ve been able to feature some big picture things happening in the development space. So here’s a round-up of some pretty diverse things on that front.
David Malpass has been in charge at the World Bank for long enough to start seeing some changes. Here’s a perspective on how the annual meetings were different this time around. And here’s a piece on how Malpass seems to be trying to shift toward more attention at the individual country level than on global or regional issues. I guess no one will be surprised if the Bank does little on the climate change front while he is in charge.
It’s been well more than a decade of pretty remarkable economic growth on average in sub-Saharan Africa. In some countries that has meant substantial progress on reducing poverty headcounts; in others not so much. Via Ken Opalo here’s a paper that proposes an explanation for the pretty bi-modal distribution of countries that have made progress on poverty and those that haven’t. Spoiler: Acemoglu and Robinson and those who like path dependence stories probably agree.
Bolivia is in crisis right now with real uncertainty about what the next few weeks, much less months, will hold. It would be interesting to see a systematic review of outcomes for countries where there have been coups and ones where there's been "sort of" a coup. But Bolivia is in remarkably better shape than some of the other countries in Latin America that elected populist lefitsts around the same time. Here’s a Twitter conversation between Justin Sandefur, Dany Bahar and Alice Evans (and later Pseudoerasmus weighs in) on the pretty unique set of economic policies and macro-conditions that account for that.
China’s efforts to play a large role in developing countries has been a topic for awhile now. But there’s still a lot of questions about what exactly China’s influence and impact on developing countries will be. Here’s a CGD piece on what the Belt and Road Initiative will look like in 10 years.
Russia is the new scary story in African "investment." A few weeks ago Russia hosted a summit with leaders of African countries. So what does Russian involvement in Africa look like? Here's a claim that Russia is sending mercenaries to Libya with the intention of increasing migrant flows to Europe to destabilize countries there. What are the chances that the Banerjee and Duflo chapter on migration will be wildly influential and cause the Russian strategy to backfire?
On the migration front, here’s Michael Clemens and Jimmy Graham on how demographics are going to change the flows of migrants to the United States from Central America--I don’t think they factor in the possible impact of Russian mercenaries.
3. Digital Finance: Here are some important stories about digital finance that you may not have noticed. If that sounds like a familiar opening, well, yes, OK, I’m going to hammer on this theme for a bit--be prepared it’s likely to be a regular fixture, at least until I feel like it’s gets regular enough attention in conversations about fintech, mobile money and other things digital.
Nikkei--the Japanese financial news organization and owner of the FT--lost $29 million in a phishing scam. UniCredit--the Italian bank--exposed 3 million customer records in a data breach. Web.com, one of the largest domain name registrars in the world, was hacked a few weeks ago and exposed 22 million records. What'sApp was also hacked, apparently by an Israeli firm that proceeded to spy on 1400 people in 20 countries.
Anyone feeling confident that microfinance institutions or even major mobile money providers are really immune to these security breaches that are affecting even highly sophisticated companies spending multi-millions on cybersecurity? If you are, please print out this tweet and tape it to your monitor.
OK, here's something not on the security question: a paper on the economic effects of money based on Spanish history: whether or not shipments of silver made it back to Spain from the New World had a big impact on the literal supply of money. So what does this have to do with digital finance? I think it's a useful explanation for the Jack and Suri finding about the growth effects of mobile money in Kenya.
1. Nobel Prizes: It's a little weird writing about the Nobel going to Banerjee, Duflo and Kremer in the faiV--this is mostly stuff we cover all the time, and it's probably not news at this point to anyone who cares. So it's not entirely clear what to write. But here goes.
First, I have to point out that 1 in 5 people I interviewed for my book have gone on to win a Nobel. So any of you who aspire to future laureate status should probably make time for me (Yes, I'm talking to you Sendhil). All I'm saying is that both an event study or an RDD would show strong indications of causality. Given that my ability to predict the winner of the prize also is remarkable, wouldn't you say now is a great time to recommend subscribing to the faiV to all of your friends?
More seriously, I suppose I should link to some of the responses. From the "pro" camp here's Karthik Muralidharan and here's Pam Jakiela who notes that Esther is the first woman with an economics Ph.D. to win (Elinor Ostrom's Ph.D was in political science) while also noting the quite different family structure of this set of winners in comparison to many in the past (though not, it should be noted, the other Nobelist who won after appearing in my book, Angus Deaton). Here's Tim Harford, who unusually, quickly shifts the focus to Kremer's O-ring theory. On the more neutral side, here's Maitreesh Ghatak.
There's a critical side as well. For example, here's Duvendack, Jolly, Mader and Morvant-Roux on how the prize reveals the "poverty of economics." And here's Grieve Chelwa and Sean Muller with "the poverty of poor economics." I have serious issues with both of these. The Duvendack et al. piece seems to intimate that Esther and Abhijit were pro-microcredit and tried to rescue the sectors reputation from their unexpected results. That is just bizarre--the title of their paper "The Miracle of Microfinance" could be better described as an intemperate twisting of the knife; that's certainly how the microfinance industry felt. Chelwa and Muller accuse the randomistas of "imitating" science but not doing it--which can only mean they are paying very little attention to what happens in other domains of science. Here's a Twitter thread of response to Chelwa and Muller from Oyebola Okunogbe. As Okunogbe points out while pushing back, each of the essays make some good and reasonable points, which is part of what makes the critiques of the RCT movement so maddening: the blending of good points with silly ones blunts the impact of the critics, in my opinion.
Now if you're interested in a long and more balanced, but still critical (in the better, broader sense) take, here's Kevin Bryan's overview at A Fine Theorem.
The next big question for me is what comes next for the RCT movement and it's critics. There are several possible futures. One is that the prize permanently solidifies the value of RCT movement and allows more constructive engagement by proponents with critics since the randomistas no longer have to worry about an existential threat to their work and legacy. Another is that the critics will realize that their long rearguard campaign against the movement has been lost, and rather than devoting energy to grand sweeping critiques of the movement as a whole, will focus on more specific critiques of individual studies, designs, interpretations and findings and the application of research to policy, yielding better overall outcomes. And of course, there is the possibility that this changes nothing and we'll be still be having these same conversations about the use or uselessness of randomized trials in development economics 10 and 20 years from now.
2. Migration: It's here, at long last. Something like 7 years ago, I was talking with Michael Clemens about households, finances, migration and remittances. We got ourselves in a good dudgeon about the way most research approached remittances and agreed we should write a paper about re-conceiving migration as an investment and remittances as a cash flow return on that investment. It took us, I think, about 2 years to actually write the thing. That version turned into a couple of Lego stop motion videos--it was a weird time in the development internet back then--and we submitted it to a journal. Then, 5 years later we got a response. I'm not kidding.
But there's a happy ending. We were invited to revise and update (there was of course a lot to update after 5 years) and re-submit. And this week the finished product is finally published: Migration and Household Finances: How a Different Framing Can Improve Thinking About Migration (though I'll keep thinking of it as "Migration as a Household Finance Strategy").
And since Michael is so prolific on questions of migration, here's a thread from this week, with papers, on the old argument that physically coercing people to stay where they are is justifiable. (Spoiler: it's not).
3. US Inequality: Since the US Financial Diaries, a common refrain around here has been the hidden dimensions of inequality in the US--not just the easily quantifiable things like income or wealth, but the life and work circumstances that amplify and entrench income and wealth inequality. Things like irregular work schedules.
Kristen Harknett and Danny Schneider have been investigating the prevalence and impact of irregular work schedules for a few years. Earlier this year they had a paper about the consequences of irregular schedules on worker health and well-being. They have a new report out on how schedule irregularity "matters for workers, families and racial inequality." Here's an overview of their whole research program with links to other papers, and a very consumable summary from the Center for Equitable Growth.
I mentioned the strange times a few years ago as we all struggled with how to use the tools the internet was serving up to us to better communicate research and ideas. I have to say I'm impressed by the what is in evidence here in the partnership between Harknett and Schneider and the Center for Equitable Growth to get these ideas out through multiple channels.
On not just a US inequality note, I'll be at the Global Inclusive Growth Summit hosted by the Mastercard Center for Inclusive Growth and the Aspen Institute on Monday and a Center event on driving financial security at scale on Tuesday. If any faiV readers will be there, be sure to say hello.
1. Evidence-Based Policy: So this may seem pretty off-topic as a way to start, but here's a story about the very slow moving revolution in soccer/football analytics, told from the perspective of attending a "bootcamp" put on by one the leading firms in the field. Why is it in the faiV? Because I think there is a lot for those of us who think about evidence-based policy to learn from watching how evidence infiltrates other domains. [Side-note: the RCT apologetics that appeal to "the way it's done in medicine" annoy me to no end, because the use of evidence in medicine is terrible.] And I think in many ways the sports world is a useful mirror to the policy world--if only because there are a lot of people who care a lot, have strong opinions but relatively little expertise. Here's a story about that specifically: what it means to be a fan, psychologically, when there is increasing distance between you and the people who are making decisions (or put another way, how does it feel to live in a technocracy?). Which also allows me to slip in Glen Weyl's recent essay, "Why I Am Not a Technocrat."
I don't worry that much about the pros and cons of a technocracy as we are so far away from living in one--many of the people in positions to make decisions are still a long way away from adopting the evidence that is available, even when their job would seem to depend on listening.
Of course there is another factor delaying evidence-based policy in many domains: the poor quality of the evidence. Here's a newly revised paper from Bradley Shapiro, Gunter Hitsch and Anna Tuchman about, of all things, advertising effectiveness(Twitter thread here). I find it interesting because this is a place where you would expect that there is lots of demand for high quality evidence. And yet, with really painstaking work, the authors are able to show that the published literature is quite biased, and therefore wrong. So wrong that the maxim should possibly be not that "half of my advertising budget is wasted, I just don't know which half", but "Three quarters of my budget is wasted...". Waiting for the revolution indeed.
Finally, since I expressed growing skepticism about nudging last week, here's a paper that finds an effect in a place I would not have expected it at all: remindingseniors with reverse mortgages to pay their property taxes.
2. SMEs: Thanks to David McKenzie, I just learned about a relatively new "book" from the World Bank on High Growth Firms: Facts, Fiction and Policy Options for Emerging Economies. It's a terrific effort to pull together a lot of research from different countries and account for how uneven the data is. Two important evidence-based takeaways: past episodes of high growth are not predictive of future ones, and not even that predictive of survival; and, the link between high growth and productivity is really weak. The only quibble I have with it is that it is framed too much for "emerging economies." Everything I see here is relevant to the US and other developed economies as well, where the thinking on SMEs can be just as wrong.
Policy prescriptions in the book include focusing on managerial skill, which I am increasingly convinced is the crux of the matter. Another is to focus on market linkages, particularly export markets. Here's a J-PAL report on helping small-scale Egyptian rugmakers connect to export markets, which boosts their profits and productivity (2017 QJE paper here). For one more aspect of SME development and policy implications, see item 5 below.
1. Economics: The dismal science doesn't often generate positive reviews from outside the discipline, so when it does happen it's worth noting. Julia Rohrer, who in addition to having one of the best titled blogs I've ever seen, is a psychology graduate student who procrastinated on her dissertation by attending a summer program in economics. Here is her list of things she appreciated in economics as a positive contrast to her experience in psychology.
On the other hand (hah!), economists typically have a lot to say about what is wrong with economics--certainly I encounter more "friendly-fire" in the econ literature than when I dip my toes in other disciplines (though this is perhaps my favorite example of the intra-disciplinary critique). There's an ongoing discussion about the future of economics going on in the Boston Review--I don't know if that counts as friendly-fire in terms of the outlet, but the participants are economists--starting with an essay by Naidu, Rodrik and Zucman, Economics after Neoliberalism. Then there are responses from Marshall Steinbaum, who notes that "every new generation proclaims itself to have discovered empirical verification for the first time," and from Alice Evans who focuses on the nexus of economics and political power in the form of unions.
But, because it's me writing this, I have to close on a new paper in JDE, that finds that communal land tenure explains half of the cross-country agricultural productivity gap. And here's a piece about how small teams of researchers are more innovative than large teams. generate much more innovation than big teams Neo-liberalism won't go down without a fight!
2. Migration: I haven't touched on migration for a while so it felt serendipitous that Michael Clemens and Satish Chand put out an update to their paper first released in 2008(!) on the effects of migration on human capital development in Fiji. The basic story is that in the late 80's formal discrimination against Indian-Fijians increased sharply, causing the community to both increase emigration and investment in human capital to aid emigration prospects. The net effect, rather than the dreaded "brain drain," was to increase the stock of human capital in Fiji. grapes
Cross-border migration is really the only option in Fiji, but in many countries, like Indonesia, there are lots of internal migration options. Since there is typically a large gap in productivity within countries as well as between countries, internal migrationhas always been a part of the development story. Bryan and Morten have a new article in VoxDev about this process in Indonesia, looking at the productivity gains possible from removing barriers to internal migration.
Since we started off talking about Economics, here's a post from David McKenzie considering the effects of migration on economists--or more specifically, how to think about job market papers about a candidate's country-of-origin. True to his style, David goes deep, including a model, and a survey. The post was inspired by a tweet from Pablo Albarcar who later noted it was mostly a joke about "brain drain" worries.
It is surprising to me how tenacious the brain drain idea is. When I have conversations about it, I try to cite the literature like Clemens and Chand, but I rarely find that makes a dent. People can always find an objection. So I've taken to just asking people how they feel about the "destruction" of Brazilian soccer/football culture and skill due to the mass emigration of the most skilled players. Typically, that leads to several moments of silent blinking. If you're interested here's a paper about "Rodar" the circular human capital investment, migration and development among Brazilian footballers.
3. US Poverty and Inequality: I typically try to avoid the grab-bag approach to items of interest but I'll confess this one is a bit of a grab bag with a variety of connecting threads. We'll start by connecting to a piece I included last week about tax refunds and saving. If you haven't read that, you should. I noted I was grateful for the piece because it meant I could skip the annual ritual of linking to a piece I wrote for SSIR several years ago about rethinking tax refunds. But I should have known that the zombie idea of tax refunds being bad personal finance wouldn't die so easily. Here's Neil Irwin from the NYT on how people being angry about lower refunds shows that "humans are not always rational." I'm struck by the irony that the continuing common use of "rational" in economics requires zero-cost attention, while a foundational truth of the discipline is "nothing is zero-cost." There is nothing irrational about paying a very small fee (in foregone interest) for the valuable service of helping you to save when other services are ineffective. That's especially true if you include, as you should, the cost of the tax advisors and financial advisors required to accurately calculate the proper amount of withholding and to choose the right investment/savings account in which to store those savings. So I guess that connects to the thread about economics maybe not being post-neoliberalism quite yet. And here's a column from the Washington Post's personal finance columnist withpush back on the "refunds are bad" idea from readers who explain their rational choices in their own words.
1. Household Finance: One of the trips keeping me busy was to Mexico City for the PRONAFIM conference. Here's a video version of my current thinking on household finance, in Spanish.
Of course, one of the key questions in household finance is to what extent a household is a household. I've had a hard time not thinking about this recent paper from Afzal et al, which through a series of "lab in the field" experiments, shows there are a lot of schisms in the household. Let me just quote from the abstract: "Subjects are often no better at guessing their spouse's preferences than those of a stranger, and many subjects disregard what they believe or know about others' preferences when assigning them a consumption bundle." Is there some explanation there for the puzzle in the Graphic of the Week (see below?).
In the household finance realm I often pick on financial literacy--specifically as a bellweather for evidenced-based policy (if money is going into financial literacy, evidence isn't making a dent on policy). Here's some interesting new evidence on financial literacy and why it doesn't seem to work, from Carpena and Zia. They are looking for what parts of financial education might affect behavior, and find attitudes matter more than awareness or numeracy. I feel like that connects to this new paper from Gine and Goldberg documenting endowment effects in account choice in Malawi, and that the endowment effect can be overcome with experience, but maybe not.
2. Inequality: Teaching a class on wealth inequality and policy makes anything on the topic grab my attention just a bit more. And there is a lot out there. On the downside, there's a lot out there and my attention is drawn to all of it. Here's a handy Twitter thread guide (and in a perhaps easier to follow/read format) to the global inequality literature that I found very helpful. Here's a new paper from Ayyagari, Demirguc-Kunt and Maksimovic calling into question the idea that a group of "star" firms are pulling away from others and boosting inequality. You probably already know about this, but the Chetty team has published their Opportunity Atlas. And here's a recent paper from Card et al. on the role of school quality in transmitting economic inequality in the US during the 20th century (in digest form here).
3. Our Algorithmic Overlords: Nothing particular profound here but I couldn't resist pairing these two pieces together: a) "China’s brightest children are being recruited to develop AI ‘killer bots’" and b) A list of artificial intelligence programs that do "what their creators specify, not what they mean." I suppose since the actions of the AI programs sound a lot like children trying to annoy their parents, China's approach seems optimal?
1. Financial Inclusion and Digital Finance: The last time I was writing the faiV, various takes on the Global Findex data were being featured prominently. So it only seems fitting to come back to that as I return. Greta Bull of CGAP has a two-part blog, part I and part II, reacting to Beth Rhyne's and Sonja Kelly's take (may I take a moment to smile at the inclusion that sentence reveals?) on the Hype vs. Reality of inclusion. Bull argues that the Findex data shows greater progress on inclusion than Rhyne and Kelly see. For what it's worth I lean to toward Bull in this debate. It would be surprising, given the incredibly rapid progress in access, if the access-use gap wasn't growing, especially in countries with relatively low levels or recent gains in access as network effects won't kick in for awhile.
There is another concern beyond the use/access gap--does use of the available accounts make people better off. Here's a new paper from Kast and Pomeranz showing that providing free savings accounts in Chile led to lower debt burdens (and some additional evidence on rotten kin). On the other hand here's an open letter from Anup Signh to Kenyan Central Bank governor Patrick Njoroge making the case for urgent regulatory action on digital credit to protect borrowers. On the third hand (hat tip to Brad DeLong) mobile money seems to have saved lives (note no counterfactuals there, but it seems plausible) during Ebola outbreaks in Liberia and Sierra Leone during Ebola outbreaks by ensuring that response workers got paid.
Of course, benefit depends not just on use, but on who is using the services. Microsave found that 80% of the "addressable LMI market" in India was not being served by fintechs, and, with CIIE's Bharat Inclusion Initiative, has launched a "Financial Inclusion Lab" to help Indian fintech's address that market.
2. Our Algorithmic Overlords: If you've gotten out of the habit of reading the faiV, what better way to grab your attention back than sexbots! Here's Marina Adshade, an economist at UBC, with a thoroughly economic argument about how sexbots could make marriage better (by changing how it works and what it does). And here's Gabriel Rossman, a sociologist at UCLA, making the counterargument. Apparently he reads Justin Fox.
On a much more prosaic, and more urgent, front, there have been a raft of stories on the increasingly alarming situation in Northwest China where the tech-driven panopticon seems to be racing ahead in the service of persecution of Muslims and ethnic minorities. Here is the NYTimes "inside China's Dystopian Dreams". Here's Reuters on the "surveillance state spread[ing] quietly." MIT Technology Review asks, "who needs democracy when you have data?" And here's Foreign Affairs on the "coming competition between digital authoritarianism and liberal democracy." If I have a bone to pick it's the lack of attention to the possibility of "authoritarian democracy" that comes along with a surveillance state and AI overlords.
3. Global Development: If sexbots don't get your attention, what about hyperselectivity of migrants? I think, quite a while ago, I linked to Hicks, et al. on the systematic differences between those who migrate from rural to urban Kenya, and those who stay on the farm, finding that urban productivity is a factor of the traits of the workers who migrate.
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NYU Wagner Graduate School
295 Lafayette Street, Second Floor
New York, NY 10012-9604
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