1. Financial Inclusion/Household Financial Security: It seems strange that I so infrequently have items specifically on microfinance so I leap at the chance when it comes along, particularly when that chance involves one of my soapboxes. For instance: the product is what the users make of it, not what the institution wants it to be. For instance, most microcredit loans aren't investment loans, they're liquidity management tools. Which, of course, makes sense since liquidity management is a more pressing need and the structure of the basic microcredit loan is so ill-suited to business investment. But there are ways to make the standard microcredit loan structure more workable for investment purposes. For instance, borrowers from the largest MFI in China form bogus groups and then funnel all of the loans to a single member to make a larger investment. It's not a niche phenomena either: the authors estimate that 73% of groups are doing this.
Another of my soapboxes is the history of development of financial institutions that serve excluded populations, and where the modern microfinance movement fits in that history. There's a new paper from Marvin Suesse and Nikolaus Wolf on the development rural credit cooperatives in Prussia between 1852 and 1913 (I did say this was a pet interest). And here's a summary version in VoxEU. If that doesn't sound like the kind of thing you would normally click on, I beg you to reconsider. It's an interesting story about what drove the creation of a new kind of financial services institution in a setting that makes it a bit easier to disentangle causes and effects, and what effect these new institutions had on their communities. I won't spoil the ending but would encourage you to think about how their results would look if measured with an individual-focused impact evaluation.
I will spoil the beginning, though: the formation of credit cooperatives was driven by changes in the economy that increased the need for access to credit. Which brings me to a third soapbox, the Great Convergence (and there's more on that below). Here's a new report from the New York Fed on constrained access to credit in the United States, including a "Credit Insecurity Index." The premise is that access to credit is important for households to manage liquidity, manage investment and manage risk (those are my terms, theirs are "manage emergencies, take advantage of opportunities, or invest"), but that access varies geographically for lots of different reasons. The report tracks 5 tiers of credit access and changes in those tiers over time, by county. There are 11 states where more than 10% of the population lives in credit-insecure counties. It's another way to illustrate how much in common parts of the US, geographically and demographically, have in common with middle-income countries. Speaking of, I'd love to see a similar exercise done in other countries.
Finally, and keeping with the Great Convergence sub-theme, here's a new paper from Jonathan Fu looking at representative data from six "emerging economies" and five "developed economies" to look at "contextual-level" predictors of financial well-being. He finds that more sources of independent information, more competition, and specifically more competition from informal and semi-formal providers helps, and that simple access and financial literacy don't (hey, another soapbox!).
2. Digital Finance: Writing about digital finance is frequently tough because the line between what is "finance" and what is "digital finance" isn't all that clear much of the time. Thirty years ago most credit card transactions were digital (the information was passed over phone lines from modem-to-modem!) but we don't tend to think of that as "digital finance." Another of my soapboxes is that often the "digital" in "digital finance" is used as a justification to pretend the rules of finance don't apply. Here's a useful review in an unusual outlet (Computer) on the "technical potential versus practical reality" of digital finance, specifically blockchain and crypto, for low-income people. It cites some examples I was unaware of and presents the arguments for the benefits pretty clearly. But the best reason to read it is the Challenges section features a heading you almost never see from pieces that emerge from the digital side of digital finance: "Low-income groups' limited power and financial/social capital." Another thing I really like is it draws a distinction between FinTechs and TechFins, the latter being tech firms dabbling in finance.
The Economist has a piece this week on that issue specifically: "how digital financial services can prey upon the poor" with a specific focus on the potential for abuse of data gathered on poor customers who have little understanding of what is being gathered by whom or the consequences (to be fair, none of us do). To the point about the blurred line between finance and digital finance, there's not much there that hasn't been true of non-digital finance for a very long time.
The Economist piece relies heavily on CGAPs long-standing attention to these issues, and Matthew Soursourian and Ariadne Plaitakis have more to add in a look at how digital finance may require changes to competition policy in financial services, specifically as TechFins play a larger role. Oh look, they specifically call out issues of political power!
In their case it's the political power that the market power of TechFins brings, but it's not just the political power of corporations that becomes worrisome in digital finance. The political power of governments is even more concerning to the extent that it enables even more channels for surveillance, oppression and exclusion. Here's a story about Kenya's digital ID initiative that is excluding many marginalized groups from getting the IDs that will soon be necessary for many aspects of life including access to the financial system. But even those people who are included may end up excluded because the government lacks the tools and expertise to protect the very sensitive data that goes into the biometric IDs.
Week of January 24, 2020
1. SMEs: So this is kind of old, at least in faiV terms. But it's new to me, and a good illustration of one of the fundamental ideas that underpins how I look at all research/interventions related to SMEs: Reality has a surprising amount of detail. The point the author is making is quite different from what I take from it, so let me explain a bit more. Figuring out how to run a small business, in most contexts where we care about helping people running small businesses--developing countries, marginalized groups or areas in developed countries, other people markets and regulation have failed--is really, really hard because there is a surprising amount of detail at every step in the process. Product, location, competition, marketing, production, accounting, financing, investment--all of them involve a surprising amount of detail, and lots of little ways to get things wrong. But with so much detail it's hard to figure out if something is going wrong, much less what specific thing is going wrong.
At this surprising level of detail we tend to throw programs that either only address one small detail (e.g. incentives for formalization), or lots of details spread out across many tasks (e.g. business training). In both cases we see small or negligible effects for the most part (in part because most impact evaluations of training don't have nearly enough power to detect the size of change we could reasonably expect).
That's a fairly long disquisition to set up that the next faiVLive will be on the topic of SME business training specifically. On February 20th, at 10am Eastern, David McKenzie and I will discuss what we know about SME performance, management, survival and especially training. Register to join us here.
Finally, while I remain one of the holdouts against the term "financial health" (more on that another day), here's a report from my old colleague Piotr Korynski, now at The Microfinance Centre, looking at the application of financial health to SMEs. It's definitely worth a read to start peeling back layers on the surprising level of detail required to really understand what is happening inside SMEs.
2. Cash: At this point I feel like any discussion of the death of cash should come with a mandatory voiceover of Mark Twain saying "Reports of my death have been greatly exaggerated." Here's Olivier Usher from Nesta on 2020 being a tipping point in the "cash crash." There are some interesting data points here, and more importantly, some important questions about how payment mechanisms affect behavior, or allow others to control behavior.
The virtual voiceover to this particular death of cash pronouncement is from New York City, where the city council just yesterday approved a regulation requiring all businesses in the city to accept cash as payment. That means that 3 of the 15 largest cities in the US, as well as the entire state of New Jersey have banned the death of cash.
3. Financial Inclusion: Financial inclusion, like cash, has frequently been confined to the dustbin of history in recent years, in favor of other terms. As I mentioned I still prefer inclusion (while noting the irony of the name of the research center I manage) but the reasons that others don't are fair and reasonable. One of the main reasons "inclusion" replaced "access" was the recognition that opening lots of dormant accounts really shouldn't count for anything. But shifting terms didn't really blunt the criticism. Here's Bhavana Srivastava and co. from MSC on when financial inclusion is not inclusive for women, and how to change that. Here's IDEO.org on essentially the same topic, looking at what it will take to include women in the financial system in Tanzania, Bangladesh, Kenya, Nigeria, Pakistan and India. And here's Mayada El-Zoghbi on why measures of access and inclusion don't square up with each other.
Bobbi Gray of the Grameen Foundation also has some problems with financial inclusion (sort of)--here's her list of financial inclusion "notions that must die." Of particular note is the third: financial inclusion is always positive. Keep that one in mind while you read this piece on "financial inclusion will see mass market adoption in 2020." If you're wondering what that means, I'm not sure you'll gain much insight from reading it--it's another in a long line of proclamations that "new data" is going to solve all the problems of financial inclusion. But their is one particular sentence that meant I had to link it: "one can only hope that common-sense regulations will enable these technological advances to deliver on their promise of greater financial inclusion." There are so many ways to read that sentence! And most of them aren't encouraging, but are probably right.
To illuminate that somewhat obscure criticism, here's a piece on a highly effective, yet illegal, way to make lending fairer to women. There is no such thing as "common-sense" regulation. This stuff is really, really hard--this would be a good time to go back to the link to Mayada's piece above and read it if you haven't.
Week of January 10, 2020
1. Looking Ahead: I've been pretty haphazard in announcing some important new things at FAI that are going to affect the faiV, in part directly and in part because they drive how I spend my time and what I pay attention to. First, we've received a three year grant from the Mastercard Impact Fund in collaboration with the Mastercard Center for Inclusive Growth to focus on Household Financial Security and on Small and Medium Enterprises. We'll be doing some original research internationally and in the US that I'm pretty excited about. But I'm most excited about two aspects of the new grant: 1) It allows us to think about issues globally without silos about developing countries or developed countries, US or non-US (and if you read the faiV regularly you know taking that perspective is one of my soapboxes, see Great Convergence below), and 2) an explicit part of our goals is to better connect research, policy and practice through what we're calling "learning communities" (and being at the nexus of research, policy and practice has always been our goal for FAI, and I where I think our greatest value lies). If you're focused on one of those topics and would like to be part of a learning community, please do reach out.
At FAI, we've also recently received support from the Bill and Melinda Gates Foundation to follow-up on and replicate research on facilitating urban-to-rural digital remittances in South Asia. The original study, in Bangladesh, found that encouraging migrants from rural villages to Dhaka to use mobile money for remittances to their home village had substantial positive impacts on consumption and savings for both senders and receivers. We'll be following up with the subjects of the original study and trying to determine to what extent similar gains are possible in other locations. It hits squarely on some important but neglected questions on migration as a household financial security strategy.
The Gates Foundation is also supporting the faiV directly, specifically to help us increase coverage from developing country researchers and other under-represented minorities, and to expand readership outside of the US/UK. In that regard, I'd definitely like your help in 2020. Would you recommend the faiV to colleagues in other countries? And when you see research from those outside the existing development economics industrial complex that deserves more attention, please do send it my way.
2. Looking Back/In Memoriam: We start the 2020s without one of the most important and influential individuals in the modern fight against extreme poverty: Sir Fasle Abed, founder of BRAC. When I do think about it, I'm flummoxed that Sir Abed was not much, much more famous than he is. He seems to fit in a category with, say, Norman Borlaug--people who profoundly changed the lives of countless people living in extreme poverty but who is nearly anonymous. Although perhaps the better analogs for Sir Abed are Sakichi and Kiichiro Toyoda, the father and son who founded Toyota and laid the groundwork for what is now known as lean manufacturing. Unlike Borlaug whose work is easier to tie directly to millions of people avoiding starvation, the Toyodas created an institution that fundamentally changed an industry (and perceptions of an entire country), and is for all intents and purposes universally respected as a key leader and innovator in its field.
BRAC is not only arguably the largest NGO in the world, but it's deep commitment to research and innovation is as unique and path-breaking as Toyota's has been to eliminating waste and improving quality. BRAC is probably most known for pioneering and documenting Oral Rehydration Therapy, and for inventing the "graduation"/Targeting the Ultra-Poor program, and for being one of the largest microfinance institutions in the world. But there are innumerable other rigorous research collaborations. Here are just a few papers from the last year based on collaborations with BRAC: 1) a women's empowerment program in Uganda, and a similar program in Sierra Leone, 2) a community health promoter program, 3) delivering microcredit to women in a mobile money account that they individually own, and 4) agricultural extension and malaria reduction. Honestly, is there any organization in the world that can compete with a publication record like that? Are there any other NGOs that have started their own universities?
But the thing that is most impressive to me about Sir Abed is that there is little doubt that BRAC will continue as it has without him. That is the ultimate mark of long-term impact. If you'd like to part of that, BRAC is hiring researchers.
Week of December 13, 2019
1. Global Development: In my early days of blogging global development and philanthropy stuff, the Millennium Villages Project--and specifically the controversy over claims of impact and whether to measure impact at all--were a really big deal. In a true blast from the past, the impact evaluation of a Ghanaian MVP has finally been published and found little to no impact. Little to no impact on core welfare indicators and little to no impact on spillovers or "cost-saving synergies." That impact evaluation only happened because Michael Clemens and Gabriel Demombynes went to the mat to convince DfID not to fund expansion unless it included independent evaluation. Here's a thread from Demombynes on that, and one from Clemens. It's worth noting that the MVP not only actively resisted impact evaluation but threatened Clemens and Demombynes with a lawsuit to stop their efforts.
I've been thinking about this a lot in relation to criticism of the RCT movement around the recently awarded Nobel prizes. This paper isn't an RCT--it's a Diff-in-Diff with matched villages and propensity score matching! The point is the distance we have traveled in terms of demanding credible evidence on development interventions in a very short period of time is underappreciated. It was less than a decade ago that literally the highest profile development intervention in the world was insisting that there was no need for an impact evaluation, a control group, etc. and there was actual controversy over that position. And I do think that the randomistas are largely responsible for that change where the debate is about the relative credibility and cost-benefit of different approaches to measuring impact, and external validity of findings, not on whether to engage in credible impact evaluation.
There are other controversies from the global development past that are resurfacing, if only in Justin Sandefur's Twitter timeline. Justin--I presume because he's going to be teaching a development class at Georgetown this spring--has been asking some interesting questions and getting some interesting responses. Like, given the credibility revolution, and follow-on work, how should we think about Paul Collier's The Bottom Billion? Or how separable are Peter Singer's support for altruism, e.g. The Life You Can Save, and his support for murdering disabled babies. I guess I tipped my hand on how I feel about the latter. I can't exactly be objective here as the father of a 13 year old who, in a Singerian world, could have qualified for "elimination." Justin links to an amazing essay by Harriet McBryde Johnson that I had forgotten, but am very glad I read again--you should read it too regardless of whether you have or not. The question is one I'd been able to ignore for a long time--cognitive dissonance is powerful--and I'm grateful to have been forced to think about it again.
2. Digital Financial Services: Usually when we talk about digital financial services it's about delivering a specific financial service via digital channels. But here's a paper on digital delivery of guilt about the use of financial services. Specifically, it's an intervention where people are shown a Nollywood movie whose plot is driven by "bad" choices in relation to borrowing and saving. They find that watching the movie does induce people to open savings accounts but not to use them to, y'know, save. That's consistent with a lot of the research on savings (some of which was highlighted by the eMFP team last week). Clearly there are lots of nudges that can get people to open accounts and even to save in them, but those nudges rarely lead to meaningful ongoing use or significant savings balances.
There are exceptions of course, and here's a post from the A16Z FinTech blog that highlights a few of them. There's a common theme: savings encouragement works when it removes the consumer from the equation, or uses their bad decision making for good. Kinda dark, huh? Of note here is the idea of "self-driving money"--customizing the services and products to the needs and often irrational behavior of particular customers. It's a great concept, but there is a key question missing: where are the financial services firms that are going to automatically help a customer into a product that is less profitable but better for the customer? And in case you didn't know, financial services firms are already customizing products based on consumer biases: by sending credit card offers that are more likely to be profitable for the issuer.
On a more traditional digital financial services footing, here's a discussion of digital remittances and the lack of progress toward remittances that stay digital. I continue to find it remarkable that keeping transactions digital--e.g. not having users cash out--is assumed, without any explanation, to be obviously good for users. It's a particular case where the DFS community seems to consistently be ignoring the signals that customers are giving them. The explanations for why people don't stay in digital never seems to consider the most obvious answer: there's no benefit to the user. When there is actually benefit to customers of staying digital I have no doubt that they will do so.
Week of December 6, 2019
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 MoreWeek of November 21, 2019
1. 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.
Week of November 12, 2019
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.
Week of October 25, 2019
1. US Household Finance (and Great Convergence/Corrupted Economy): If you've been paying attention to global news, you have no doubt deduced a pattern that many are remarking on: mass protests in many countries that are linked in more than trivial ways to the cost of living, corrupted economies and frustration with a subverted political process: Chile, Ecuador, Lebanon, Hong Kong are just a few. Here's the New York Times on that pattern with discussion of similar situations in nearly 10 more countries.
In the sense that these episodes of mass unrest stem back to "pocketbook" issues the United States is an outlier--not that the cost of living and unequal access to opportunity aren't issues--but that they haven't yet lead to mass uprisings. There are lots of reasons for that of course, including relatively low unemployment and at least some consistent economic growth. But the underlying issues just aren't that different. Here's a new report from the JP Morgan Chase Institute on how much savings US households need to weather the typical ups and downs in their income and spending needs. There's a lot to dig into in the report, and I'm still not convinced we understand volatility enough to offer prescriptions, but this is a big step in the right direction. The report finds that US families need 6 weeks of take-home income to weather a simultaneously income dip and expense spike, and that 65 percent of households don't have that.
For a more personal take on how budgets are being squeezed, here's the NYT with a in-depth look at four households' budgets.
2. SMEs: The way I see things there are two research questions at the top of the agenda: 1) What distinguishes SMEs/entrepreneurs that grow, and create net new jobs and long-lived profitable businesses (I honestly care less about high growth because I care more about short- and medium-term income effects), and 2) What are the barriers specifically for women in becoming one of those types of entrepreneurs.
There are two new-ish papers I came across this week, one on each of those questions. First, here's a paper that tries to establish some objective criteria for distinguishing between "necessity" and "opportunity" entrepreneurs, using their prior work history as the main data source. Using data from Germany and the US they find that opportunity entrepreneurs start more growing businesses (surprise!) and that 80 to 90% of entrepreneurs are opportunity entrepreneurs. The relevance to places outside of a handful of developed countries with well-functioning and tightly-integrated labor markets notwithstanding, I don't find the approach particularly convincing. I can think of lots of different ways to conceptualize what job history means in terms of "opportunity" vs. "necessity" and it doesn't take into account that a lot of "opportunity" entrepreneurs are likely just wrong about the opportunity (or their necessity). But it's a useful paper for thinking about these issues.
The second paper is a new working paper from Seema Jayachandran that I just came across this morning, so I haven't had a chance to really look at it yet. But based on the abstract, it's definitely worth taking a look at. She "reviews the recent literature in economics on small-scale entrepreneurship (microentrepreneurship) in low-income countries" with "special attention to unique issues that arise with female entrepreneurship."
3. Digital Finance: Here are some important stories about digital finance that you may not have noticed. A major German manufacturer is still down more than a week after being hit by a ransomware attack. Seventeen iPhone apps have been removed from the app store after researchers discovered they were using a clever way to hide and deliver malware. Two of the most popular VPN providers in the world were hacked recently. A new information-gathering trojan is rapidly gaining popularity with hackers, in part because it's "malware as a service" where you can rent server space and get technical support all for just $200 a month.
Week of October 18, 2019
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.
Week of October 11, 2019
1. Microfinance: October 2nd was the 10th anniversary of what I consider to be an underappreciated but critical moment in the history of the microfinance movement--David Roodman's piece on how Kiva actually worked. David had already been working on a book about microfinance that was going to be very influential--his open book blog as a whole is a remarkable contribution to the public good, one I wish many more people had decided to replicate--but the Kiva post (based on it being one of the most read blog posts in CGD history according to Justin Sandefur) brought a huge amount of attention to questions about how not only Kiva, but microfinance as a whole, actually worked. I re-read it this week and it's as good as I remember it and definitely makes me pine for the brief glorious time where the development blogosphere was a thing.
There's another important anniversary this week for global microfinance though with a less arbitrarily neat number--Muhammad Yunus's Peace Prize was 13 years ago. Today many were surprised that Greta Thunberg didn't win. The explanation seeming to be both timing and the fact that there is not a direct link between climate change and conflict. There may be a narrowing of the scope of the Peace Prize given that there is certainly no connection between microcredit and reduced conflict. In case you didn't know the winner was Abiy Ahmed, the Ethiopian Prime Minister, who has done some pretty impressive things directly related to peace, like ending the conflict between Eritrea and Ethiopia and freeing thousands of political prisoners. For what it's worth the Economics Nobel announcement is Monday so expect to see more about that in next week's faiV. Some favorites with particular applicability to the faiV include some combination of Donald Rubin, Josh Angrist, John List and Guido Imbens for kicking off "the credibility revolution" and Michael Kremer, Abhijit Bannerjee, Esther Duflo and/or John List for kicking off the experimental revolution. Of course, I'm hoping for the latter because it would likely give a pretty significant boost to my book sales.
But back to microfinance. Banerjee, Emily Breza, Townsend and Vera-Cossio have a new paper (presented at NEUDC) that uses the Townsend Thai village data and the expansion of a credit program to further bolster what should be the clear consensus on the effect of microcredit: on average not much, but very high returns for some. In this case, they find that there are very large gains for high productivity households who get access to credit (1.5 baht increase in profits for every 1 baht increase in credit) and even higher for those outside agriculture. This is broadly similar to earlier work, now in an NBER paper form, by Banerjee, Breza, Duflo and Cynthia Kinnan on Indian microfinance. Keep in mind, as we continue to see these results, that there is another side of the coin: is there a business model that can reach the high productivity borrowers more exclusively?
2. Inequality: If you think about within-country inequality, you think about taxes. Since the United States has had a huge explosion of income and wealth inequality in the last few decades, and there is a presidential election (hopefully) just over a year away there is a lot of discussion about the US tax system and how it has contributed to the growth of inequality and how it might be used to reduce it. This week there has been a lot of focus particularly on whether the US tax system is progressive or regressive, which seems intuitively like it should be a pretty straightforward question to answer. But the US tax system is so complicated, including not only collecting but distributing cash, it's a controversial question. Emmanuel Saez and Gabriel Zucman make the case that since the 1950s the US tax system has shifted dramatically toward being regressive. Here's David Leonhardt's shorter version of their argument with cool animated graphics. But not everyone agrees and those differences can't be traced just to ideology. Here's a thread from Jason Furman, former chair of the Council of Economic Advisors under Obama debating Zucman on methodology and interpretation. Here's David Splinter with a more in-depth analysis illustrating why Saez and Zucman get such different numbers than the traditional approaches to analyzing progressivity.
Meanwhile, there is an entirely different question about whether taxes can be used to effectively address inequality (Saez and Zucman's book is all about how the wealthy evade taxes). There's a new NBER paper on the response of rich taxpayers to an increase in the California tax rate. It finds that just under 1% of those subject to the higher taxes moved out of state, and those who stayed found ways to avoid the tax, so that total income from the tax was about half of what it would have been otherwise. Here's Lyman Stone's Twitter summary.
It's not clear how to think about that 50% cut in additional revenue: on the one hand, there is a big increase in tax collection, on the other hand you have to expect that over time people are going to get even better at evading the tax. Here's Lily Batchelder and David Kamin with a comprehensive review of wealth taxation in implementation with hope that wealth taxes can work.
