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Marc F. Bellemare Posts

Published January 6, 2011

Microfinance: The End of an Era?

Today’s New York Times had an article about microfinance’s woes:

“Microcredit was once extolled by world leaders like Bill Clinton and Tony Blair as a powerful tool that could help eliminate poverty, through loans as small as $50 to cowherds, basket weavers and other poor people for starting or expanding businesses. But now microloans have met with political hostility in Bangladesh, India, Nicaragua and other developing countries.”

The government of Bangladesh is apparently investigating Grameen Bank (although the “present campaign against Yunus doesn’t ring true” to Kristof); lending has contracted in India; and the president of Nicaragua has urged borrowers not to repay their microloans.

Continue readingMicrofinance: The End of an Era?
Published January 5, 2011

When Geography Shapes Culture and Institutions

The Economist‘s Democracy in America blogs has an interesting post on how Nevada has come to specialize in sin:

“What was to be the good or service that [Nevada] could provide relatively (as opposed to absolutely) more efficiently than any other place? The state has little water, so agriculture was hardly the likely answer. In fact, there seemed to be no obvious answer at all. Until the penny dropped. The answer was legislative: “We created our own comparative advantage; we embraced sin,” says Mr Herzik. It started with prize fighting (think of the now-legendary bout between Jack Johnson and James Jeffries in Reno on Indpendence Day in 1910). Then came easy divorce. Then came gambling. And, of course, prostitution, which is legal in all of Nevada’s rural counties (although it can allegedly be found even in cities such as Las Vegas). Nevada’s economy today is based on sin. For example, about half of the state’s revenue comes, directly or indirectly, from gambling in the form of casino taxes or the sales taxes of tourists.”

This is a nice example of how geography can influence institutions and, eventually, culture. But the reasoning really does beg the question of why neighboring Utah, which as far as I know is as resource-poor as Nevada, ended up becoming almost the complete opposite as regards its culture and institutions?

Generally speaking, however, it looks as though institutions are a more important determinant of economic development than geography, as per this paper.

Published January 4, 2011

Conditional Cash Transfers in Brazil

The New York Times has an article by Tina Rosenberg on the Bolsa Familia program in Brazil, which is modeled after the Oportunidades program in Mexico.

Both programs are conditional cash transfer (CCT) programs, which means that individuals or households receive a cash transfer if they statisfy fulfill requirements. In the case of Oportunidades, Rosenberg writes that “families must keep their children in school and go for regular medical checkups, and mom must attend workshops on subjects like nutrition or disease prevention.”

The empirical evidence on CCT programs is pretty solid. But as I tell the students in my development seminar, the problem with CCT programs is that they are very expensive: Duflo (2010) notes that it costs $1,000 to keep a child in school one more year under Oportunidades, whereas it costs $3.50 to do so under a deworming program.

During the first few weeks of the fall semester, I spend a lot of time teaching the students in my development seminar about the various ways in which we can assess the effectiveness of policy interventions.

To convince the most resilient of them — those who may be tempted to think that instrumental variables, randomized controlled trials, identification, etc. are eggheaded concerns — I tell them that knowing what works is useful because it allows policy makers — and thus presumably — taxpayers to get the best bang for the buck.

In the case of Bolsa Familia, I am for poverty reduction via policies that work, but I am also for poverty reduction via cost-minimizing (i.e., wealth-maximizing) policies that work. I am not familiar enough with the Brazilian evidence so as to be sure that Bolsa Familia is such a policy.

(HT: @poverty_action)