When we write a dynamic model in economics, we typically use the subscript t to denote a given time period, and we usually say that t = 1, 2, …, T, where T denotes the last time period considered by our model. Likewise, we usually use T to denote the number of time periods considered in a longitudinal data set.
With that in mind, the World Bank’s David McKenzie argues for more T in the experiments conducted by development economists in a forthcoming article in the Journal of Development Economics:
The vast majority of randomized experiments in economics rely on a single baseline and single follow-up survey. If multiple follow-ups are conducted, the reason is typically to examine the trajectory of impact effects, so that in effect only one follow-up round is being used to estimate each treatment effect of interest. While such a design is suitable for study of highly autocorrelated and relatively precisely measured outcomes in the health and education domains, this article makes the case that it is unlikely to be optimal for measuring noisy and relatively less autocorrelated outcomes such as business profits, household incomes and expenditures, and episodic health outcomes. Taking multiple measurements of such outcomes at relatively short intervals allows one to average out noise, increasing power. When the outcomes have low autocorrelation and budget is limited, it can make sense to do no baseline at all. Moreover, I show how for such outcomes, more power can be achieved with multiple follow-ups than allocating the same total sample size over a single follow-up and baseline. I also highlight the large gains in power from ANCOVA analysis rather than difference-in-differences analysis when autocorrelations are low and a baseline is taken. This article discusses the issues involved in multiple measurements, and makes recommendations for the design of experiments and related non-experimental impact evaluations.
This brings to mind what one of my friends who works in the microfinance industry had told me the last time we argued about the effects of microfinance on poverty: “It can take a long time to get out of poverty even in the best of scenarios, so evaluating the impact of microfinance after just one or two years tends to shortchange microfinance.”
Moreover, this makes me less worried about not having had the luxury of conducting a baseline survey for the randomized controlled trial I am conducting with Michael Carter and Catherine Guirkinger on the impacts of crop insurance on the welfare of cotton producers in southern Mali. Thankfully, we will be doing at least two rounds of follow-up survey in order to study the dynamic effects of our intervention, and we are working on finding funding for a third round.
UPDATE: In the time between the moment I wrote this post on Sunday morning and the moment it was published, David offered his own blog post on his paper on the World Bank’s Development Impact blog.
Does President Obama Understand the Forces of Globalization?
(Note: I wrote this post last Sunday, long before last night’s State of the Union speech. For my reactions to the State of the Union, see my Twitter feed.)
When I was about 20 and in college in Montreal, I bought Verbatim, by Jacques Attali, an economist who, among other things, served as special advisor to French President François Mitterrand. The book is a memoir of Attali’s time at the Élysée.
Verbatim opens with Mitterrand’s election in 1981, when the Western world was experiencing a recession. Early on in his presidency, Mitterrand asks Attali: “Why aren’t we making VCRs in France?,” implying that France should be making VCRs.
I hadn’t taken a single college-level class at that point, but I still realized that Mitterrand’s question was an astonishing display of economic illiteracy.
Fast forward to last Sunday, when I read the following article on the front page of the New York Times:
When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.
But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?
Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.
Why can’t that work come home? Mr. Obama asked.
Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.
The article is a great read, but I really am at a loss as to what to think about the President’s question.
On the one hand, he might understand economics and know that those jobs are not coming back, but he might have asked the question so as to be perceived as caring about creating jobs in the US.
Color me cynical, but my belief that the President is a very smart man — I would have voted for him if I could vote in this country, and my wife not only voted for him but contributed to his campaign — has a hard time co-existing with the belief that his question might have been asked in earnest, so my mind defaults to “he was just politicking.”
On the other hand, he might completely misunderstand economics, and just how powerful the forces of globalization are.
If the President’s question was asked in earnest, we are in trouble. Those jobs are indeed not coming back. Much like the US economy went from being an agrarian economy to being a manufacturing economy in the 19th century, the US economy went from being a manufacturing economy to being a service and research and development economy in last quarter of the 20th century.
We are at a point in history where our comparative advantage lies in the tertiary and quaternary sectors of the economy. Forget secondary-sector jobs. Those went the way of the dodo sometime in the 1970s. Let’s focus our attention on developing the services and research and development sector of the US economy rather than lamenting the disappearance of agricultural and manufacturing jobs.
Getting those manufactured jobs back would mean that the US economy is regressing and that real incomes are not only stagnating, but decreasing more than they already did. If that is truly what the President wants, he should prepare for a revolution.