21
May 13

The Miracle of Microfinance?

This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on “temptation goods” declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.

A new working paper (older, ungated copy here) by Duflo et al. The emphasis is mine.

This is consistent with another careful study (link opens a .pdf file) by Crépon et al. of the impact of microfinance in Morocco, where there authors also find that microfinance has no discernible impact on the usual development indicators (i.e., consumption, health, education, etc.)

To be sure, microfinance does appear to have some impacts, as the abstract above indicates — just not the miraculous impacts that are often touted by microfinance advocates.


20
May 13

Managing Basis Risk with Multiscale Index Insurance

That’s the title of my article with Ghada Elabed, Michael Carter, and Catherine Guirkinger, which was just published online in Agricultural Economics. Here is the abstract:

Agricultural index insurance indemnifies a farmer against losses based on an index that is correlated with, but not identical to, her or his individual outcomes. In practice, the level of correlation may be modest, exposing insured farmers to residual, basis risk. In this article, we study the impact of basis risk on the demand for index insurance under risk and compound risk aversion. We simulate the impact of basis risk on the demand for index insurance by Malian cotton farmers using data from field experiments that reveal the distributions of risk and compound risk aversion. The analysis shows that compound risk aversion depresses demand for a conventional index insurance contract some 13 percentage points below what would be predicted based on risk aversion alone. We then analyze an innovative multiscale index insurance contract that reduces basis risk relative to conventional, single-scale index insurance contract. Simulations indicate that demand for this multiscale contract would be some 40% higher than the demand for an equivalently priced conventional contract in the population of Malian cotton farmers. Finally, we report and discuss the actual uptake of a multiscale contract introduced in Mali.

The article discusses the index insurance contract my coauthors and I have developed for and sold to cotton producer cooperatives in southern Mali. The rest of this post is more technical, as it goes into the details of the two contributions I’ve highlighted above. Continue reading →


01
May 13

Does International Child Sponsorship Work?

We have all seen the commercials on television. Many of them readily fall under the broad name of “poverty porn,” and most of them feature resigned-looking developing-world children set against a sad soundtrack. All of them ask us to help by sponsoring a child in a developing country.

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But does international child sponsorship work? In a new article (older, ungated copy here) in the Journal of Political Economy, Bruce Wydick, Paul Glewwe, and Laine Rutledge give an answer that is bound to surprise many development cynics:

Child sponsorship is a leading form of direct aid from wealthy country households to children in developing countries. Over 9 million children are supported through international sponsorship organizations. Using data from six countries, we estimate impacts on several outcomes from sponsorship through Compassion International, a leading child sponsorship organization. To identify program effects, we utilize an age-eligibility rule implemented when programs began in new villages. We find large, statistically significant impacts on years of schooling; primary, secondary, and tertiary school completion; and the probability and quality of employment. Early evidence suggests that these impacts are due, in part, to increases in children’s aspirations.


31
Jan 13

The Demand for Food of Poor Urban Households in Mexico

A cool new article in the American Economic Journal: Economic Policy by Manuela Angelucci and Orazio Attanasio:

We use Oportunidades, a conditional cash transfer to women, to show that standard demand models do not represent the sample’s behavior: Oportunidades increases eligible households’ food budget shares, despite food being a necessity; demand for food and high-protein food changes over time only in treatment areas; the treatment effects on food and high-protein food consumption are larger than the prediction from the Engel curves at baseline; and the curves do not change in eligible households with high baseline bargaining power for the transfer recipient. Thus, handing transfers to women is a likely determinant of the observed nutritional changes.

Some of this might be a bit too technical for non-economists, so let’s take a closer look at their findings: Continue reading →


22
Jan 13

Quinoa Nonsense, or Why the World Still Needs Agricultural Economists

RedQuinoa

Cooked Red Quinoa. (Source: WikiMedia Commons.)

 

 

 

 

 

 

 

 

First came this post by Joanna Blythman on The Guardian‘s Comment Is Free blog:

Quinoa was, in marketing speak, the “miracle grain of the Andes,” a healthy, right-on, ethical addition to the meat avoider’s larder (no dead animals, just a crop that doesn’t feel pain). Consequently, the price shot up – it has tripled since 2006 – with more rarefied black, red and “royal” types commanding particularly handsome premiums.

But there is an unpalatable truth to face for those of us with a bag of quinoa in the larder. The appetite of countries such as ours for this grain has pushed up prices to such an extent that poorer people in Peru and Bolivia, for whom it was once a nourishing staple food, can no longer afford to eat it. Imported junk food is cheaper. In Lima, quinoa now costs more than chicken. Outside the cities, and fueled by overseas demand, the pressure is on to turn land that once produced a portfolio of diverse crops into quinoa monoculture. Continue reading →