Temporary Protection and Technology Adoption: Evidence from the Napoleonic Blockade - Job Market Paper

Industrial policy is always a contentious argument in development economics between free-marketers and state intervention. Réka Juhász's Job Market Paper "TemporaryProtection and Technology Adoption: Evidence from the Napoleonic Blockade" brings historical evidence to that debate through an interesting natural experiment from the early 19th century.

Abstract

"This paper uses a natural experiment to assess whether temporary protection from trade with industrial leaders can foster development of infant industries in follower countries. Using a new dataset compiled from primary sources, I find that in the short-run regions (départements) in the French Empire which became better protected from trade with the British for exogenous reasons during the Napoleonic Wars (1803-15) increased capacity in a new technology, mechanised cotton spinning, to a larger extent than regions which remained more exposed to trade. Temporary protection had long term effects. In particular, by exploiting the fact that the post-war location of the cotton industry was determined to a large extent by the historical accident of the wars, I first show that the location of cotton spinning within France was persistent, and firms located in regions with higher post-war spinning capacity were more productive 30 years later. Second, I find that after the restoration of peace, exports of cotton goods from France increased substantially, consistent with evolving comparative advantage in cottons. Third, I show that as late as 1850, France and Belgium - both part of the French Empire prior to 1815 - had larger cotton spinning industries than other Continental European countries which were not protected from British trade during the wars; this suggests that adoption of the new technology was far from inevitable."

Interestingly, the paper studies the effects of an event and policy that was not designed for industrial purposes: the Napoleonic Wars and the Continental Blockade. While the Continental Blockade had the foreign policy purpose of undermining Britain's trade advantage/power and not necessarily a protectionist measure for French industry (in this case cotton). Probably the most interesting case may be that of Belgium and not that of France. During the Napoleonic Wars, Belgium was under French control (1794-1815) until it became part of the Netherlands. However, cotton industry grew more in Belgium than in the Netherlands in the post-Napoleonic period.. pointing out to the second issue: Technology Adoption

The results show there may be some role to be played for protectionist policies for infant industries not only to establish productive capacity but also the be able to adopt/adapt new technologies more successfully. On the other hand, the temporary protection was not sector-specific but across the board, leading to the interpretation that industrial policy may be more effective by focusing on the general environment rather than specific industries, allowing for an efficient internal reallocation of resources.

To note that the study focuses on a successful case and does not look at the industries that may have been wiped out after the lifting of the blockade, so we should be careful in making general economic welfare interpretations at country level.

Give Everybody a Voice! The Power of Voting in a Public Goods Experiment with Externalities - Working Paper

While, in general, I am not keen on social science results coming out of controlled lab experiments, Engel and Rockenbach's "Give Everybody a Voice! The Power of Voting in a Public Goods Experiment with Externalities" offer an interesting though with potential large implications (if proven by field testing) for development practitioners.

 
Abstract:  

"We study the effect of voting when insiders’ public goods provision may affect passive outsiders. Without voting insiders’ contributions do not differ, regardless of whether outsiders are positively or negatively affected or even unaffected. Voting on the recommended contribution level enhances contributions if outsiders are unaffected and internalizes the negative externality by lowering contributions when outsiders are negatively affected. Remarkably, voting does not increase contributions when it would be most desirable, i.e. with a positive externality. Here, participants vote for high contributions, yet compliance is poor. Unfavorable payoff comparisons to the outsiders that gain a windfall profit drive contributions down."

In many development interventions, specially with the popularity of Community Driven Development (CDD), communities are asked to chose priorities and, in some cases, also contribute to them. Those priorities usually reflect public goods (or rather public services that can have a public good component, like schools, medical posts, markets, community centers) that do have externalities on other communities (or even within the community). Unfortunately, in development we tend to treat externalities either as a risk (other communities/actors reacting negatively, spoilers) or as a multiplier-effect (bonus points because there is a positive spill-over beyond the community) but rarely as something integral to the design of the decision-making process and the community contribution (both at initial stage and on running costs).

The study shows that enforcement of decisions is key (nothing new there) but also that voting and the nature of the externality have an effect on contributions: If negative it lowers (acknowledgement of impact on others?), if positive it also lowers!! (why should we pay for those free riders?) and if neutral increases (it is all ours?).

In my view policy implications are multiple: 

1) we need to field test this hypothesis, 

2) we may need to tailor decision-making processes and corresponding contributions according to externalities (assuming we want to maximize community contribution). Of course this is easier said that done, specially in CDD settings where the prioritization outcome is not necessarily known beforehand (although the guessing can be quite narrow),

3) extend voting to all contributors. While this point is not looked into by the study, the fact that there might be contributor not participating in the decision-making (indirectly so, through the non-binding phase), we can assume that shifting them from semi-bystanders to decision-makers/contributors would increase the compliance (a point made in many studies in political science on broadening the voting franchise AND the tax base),

4) in stable systems, both and positive negative externalities are dealt by shifting the decision-making process to a higher level (district, region, nation) that can provide for a compensatory system (insurance, investments, balancing out positive and negative externalities). However, in many development settings a 'bump-up the ladder' is not an efficient option (and a whole different 'governance' debate). Clustering (identifying and including affected parties) for decision-making and contributions (in the case of positive externalities) would make the public good neutral (and raise contributions). For negative externalities it is much harder unless the potential damage has been pre-identified and a compensatory mechanism already established (i.e. another development project in the affected community, mitigation measures).

School Competition and Product Differentiation - Job Market Paper

School competition is widely presented as a model for improving educational outcomes. Ongoing debates on school vouchers, charter schools and the role of private education show an increased focus on the use of market forces in the education sector. Bau's "School Competition and Product Differentiation" takes a slightly different approach, instead of the 'traditional' comparison between public and private schools, she looks into the effect of competition within the private sector.

Abstract

"Policies that encourage school competition in hopes of improving school quality are increasingly popular in both rich and poor countries. In this paper, I establish that schools may respond to increased competition by catering to wealthier students, at the expense of poorer students. I develop a model of school competition in the presence of differential information.

If (1) the match between a school and a student affects learning, and (2) wealthier students' enrollment decisions are more responsive to their match to schools, then schools cater more to the needs of wealthy students. Therefore, the entry of an additional school can reduce the quality of the match for poorer students. I show that the key mechanism of the theoretical model - that wealthier student are more responsive to their predicted test score gains when choosing schools - is consistent with the data by estimating a structural model of school choice in Pakistan. Exploiting the exit and entry of private schools and an instrumental variable that affects the cost of opening a private school, I find that competition increases private schools' targeting of wealthy students and reduces their targeting of poor students. An additional private school in the market increases within-school inequality in yearly test score gains by 0.1 standard deviations."

Many arguments promoting school competition are framed as pro-poor (elitist arguments are bad form these days), however the study shows that there might be diminishing returns and actually reduce learning for already enrolled poor students. Unfortunately the author does not follow up on one stark implication: the increased focus on wealthier students when the competition rises (as indicated in her own model). Therefore the issue does not seem to be informational (poor students choices are a worse match) as stated, but rather the schools own focus. These two issues might need to be disentangled further.

An interesting note, especially for fans of path-dependence, is that the presence of private schools is correlated to girls' government secondary school in the village (promoted mainly in 1980s through the Pakistan Social Action Program). Secondary-school educated young women are a key labor source for private school teaching, bringing on board another variable for education policy and territorial coverage of competition.

HT Development Impact

Inheritance Law Reform, Empowerment, and Human Capital Accumulation: Second-Generation Effects from India - Working Paper

Policy effects across generations are sometimes difficult to measure, however "Inheritance Law Reform, Empowerment, and Human Capital Accumulation: Second-Generation Effects from India" by Deininger et al. does offer an interesting example.

Abstract:     

"This paper uses evidence from three Indian states, one of which amended inheritance legislation in 1994, to assess first- and second-generation effects of inheritance reform using a triple-difference strategy. Second-generation effects on education, time use, and health are larger and more significant than first-generation effects even controlling for mothers' endowments. Improved access to bank accounts and sanitation as well as lower fertility in the parent generation suggest that inheritance reform empowered females in a sustainable way, a notion supported by significantly higher female survival rates."

Inheritance Law is inter-generational by definition (unless it has a strong bias towards widows, but then it becomes a question of patience). India, with its different speed of adoption of the law, allows for a interesting natural experiment, that the authors take a step further by measuring impact on second generation. The study finds large effects on multiple variables, probably due to an increased intra-household bargaining power by women (first generation) that benefit their offspring (second generation). While there are potential indicators for sexual selection (the cost of a female born increases), the survival rates and welfare effects on daughters are noticeable.

The fact that second generation effects are not only measurable but also large, should lead to a rethink on how to time and expect results from such policies. This further adds to the female empowerment literature, the potential for sustained change through policy reform and its welfare related effects.

The Second Wave of Independence: Shopping for Solutions - Working Paper

From time to time there is a paper that aims at the foundational dynamics of the development industry, this time it is Gaarder and Bartsch's "The Second Wave of Independence: Shopping for Solutions"
Abstract:     

"In the 21st century, many developing countries will become emerging markets and will no longer be in need of the carrot-and-stick approach to development assistance most prevalent today: development financing made available conditional on certain policies and interventions. This paper suggests that interactions between development agencies and recipient governments are mostly about inputs deemed (but not known) to contribute to improvements in living standards in recipient countries, rather than outcomes. The paper argues that the development marketplace is beset by market imperfections because of externalities, principal-agent problems, and decision making under uncertainty, which not only make it difficult to achieve the right outcomes, but also take away incentives to learn about outcomes. A fundamental rethink of responsibilities and accountabilities in the development business would make sure that development outcomes are traded in the development marketplace. It would put recipient countries in charge of contracting development agencies to provide these outcomes. Development agencies would commit to and be held financially accountable for outcomes, that is, real improvements in welfare indicators. The paper describes the role of the evaluation function in aligning incentives with the ultimate goal of improving lives and provides examples of emerging solutions."

 

The authors use an economic analysis of the interaction of development agencies, donor and recipient countries, identifying three key issues (market imperfections):

- Externalities. The focus on inputs (funds, resources) and outputs (stuff built, people trained, gadgets distributed) instead of outcomes (improved health, better access) creates a singular kind of externality, not as an unintended consequence but rather an acknowledged but not fully included in the transaction

- Principal-Agent. A classic issue in economics literature, the misalignment of interests between the contracting parties, compounded by the fact that they are entering the agreement on behalf of third parties (be that recipient's poor or donor's rich)

- Uncertainty. In many cases we don't have strong evidence that an specific intervention in a given context will bring the stated outcomes. Theories of change are full of assumptions of assumptions that are unable to address causal relationships, specially within the timelines that many development projects operate

The proposed solution is to internalize the externalities by a tendering process focused on outcomes. The recipient country would contract out the delivery of outcomes to the development agency. This would create an interesting dynamic in relations between development actors and recipient countries... however it requires some assumptions and does raise some questions. While the Principal-Agent issue is sorted in one part of the equation, it still remains that the recipient country in representing the final set of beneficiaries. It also requires an alignment of interest between donor and recipient, and the internal governance of the recipient... or rather, how is the contractee (development agency) is going to interact with different parts of the recipient country that may not have been party to the original negotiation. In an input-ouput model it is easier to deal with institutions as they can be co-opted with more tangible things.

Also the paper tends to make loans and grants equal, while the negotiation dynamics would clearly be different if repayment is on the table or not. I also have trouble defining as donor a provider of a loan, but that may be a personal issue.

Finally there is a call for more rigorous evaluation and improvement of M&E. On face value it is a winning formula, and it would be hard to argue against, but at the same time it feels like the common opt-out 'more research is required'. I would say the key issue is not necessarily M&E but rather to be clear (and humble) on both the intervention objectives and the learning outcomes. RCT is not the magic wand that will answer all the questions.

A good read that keeps the discussion open, whether you agree with the authors or not.

The Economic Value of Breaking Bad: Misbehavior, Schooling and the Labor Market - Working Paper

 The working paper "The Economic Value of Breaking Bad Misbehavior, Schooling and the Labor Market"  by Papageorge, Ronda and Zheng does raise an interesting point on behavior, schooling model and outcomes. We all have anecdotal evidence of rebellious kids (usually male) with bad grades and yet quite smart, the initial response usually is to reduce the misbehavior so the kid can adapt to the schooling system and bring the grades up. This study turns the assumption around. Abstract:     

"Prevailing research argues that childhood misbehavior in the classroom is bad for schooling and, presumably, bad overall. In contrast, we argue that childhood misbehavior reflects underlying traits that are potentially valuable in the labor market. We follow work from psychology and treat measured classroom misbehavior as reflecting two underlying non-cognitive traits. Next, we estimate a model of life-cycle decisions, allowing the impact of each of the two traits to vary by economic outcome. We show the first evidence that one of the traits capturing childhood misbehavior, discussed in psychological literature as the externalizing trait (and linked, for example, to aggression), does indeed reduce educational attainment, but also increases earnings. This finding highlights a broader point: non-cognition is not well summarized as a single underlying trait that is either good or bad per se. Using the estimated model, we assess competing pedagogical policies. For males, we find that policies aimed at eliminating the externalizing trait increase schooling attainment, but also reduce earnings. In comparison, policies that decrease the schooling penalty of the externalizing trait increase both schooling and earnings."

The fact that schooling promotes, hinders and/or tries to stamp out  both cognitive and non-cognitive traits is, I believe, general knowledge. Stories about successful entrepreneurs, inventors, artists and other that had low grades or difficult schooling abound. And yet, school systems are generally build around a specific set of traits they want to promote and note necessarily to help develop the full potential of the student.

This study highlights the impact of one non-cognitive skill, the externalizing trait of antisocial behavior and conduct disorders, usually displayed through aggression, delinquency and hyperactivity (the disruptor in a classroom environment). While this externalizing trait is generally seen as negative (as does reduce educational attainment, in the current schooling model), it also increases earnings overtime (it is a skill that adds value some employment sectors). Based on the non-linearity of this skill, the authors then compare two schooling policies: trait policy (teaching methods aimed at conforming the child to the desired/established behavior - structure centered) and schooling policy (focusing on the learning of the student - child centered)."Results from policy simulations show that the schooling policy delivers considerably higher earnings than the trait policy for boys". However, there is a gender bias in the results. For girls, the outcome results (in terms of earnings) are similar but with a different mix of wages and working hours (under the trait policy female work fewer hours and earn higher wages). To note that this comparison is done for boys and girls that display this trait and the results may not be equally applicable for children with a different set of traits.

Policy and programming implications include:

- Juvenile and 'youth at risk' interventions may need to be tailored specifically around the dominant trait they display. Also they will need to be gender specific.

- A school system that has a diversity of schooling methods may bring the full potential of students while minimizing negative effects of anti-social behavior (of course this assumes that the students will end up in the schools most apt to their trait)

- This finding may have large effects on other policy areas, from health, labour, welfare, to justice. One-size-fits-all approaches may actually be counter-productive and a careful re-evaluation of welfare/utility gains will be needed.

Interestingly there is no mention of the Stanford Marshmallow Experiment.

HT to Marginal Revolution

UNHCR Policy on Alternatives to Camps - Finally!!

There are few times that a change in policy by a UN Agency can have (potentially) such far reaching impact. The United Nations High Commissioner for Refugees has changed its Policy on Alternatives to Camps:
 
"UNHCR's policy is to pursue alternatives to camps, whenever possible, while ensuring that refugees are protected and assisted effectively and are able to achieve solutions.... [it] applies in all UNHCR operations and in all phases of displacement from contingency planning and preparedness to emergency response to stable and protracted refugee situations and the pursuit of durable solutions"

Camps are no more (in theory) the go-to response to a refugee crisis. Of course this doesn't mean that camps will completely disappear, but the incentive to campasize  the refugees will decrease.  
This has been a policy change long time in the making, but why that long? Here different actors (governments, politicians, UNHCR, NGOs, gatekeepers, etc..) have different incentives to promote the establishment of camps, and in many cases in contradiction with the potential long term solution.

Visibility: Camps are very visible and they can easily represent the misery (to attract funds and resources) and the success (to show the providers of funds what has been done). A non-camp setting is much less visible, and sometimes indistinguishable from the host population (specially urban poor). Camps offer extremely "good" and "appealing" photo ops!
Population: If it is a refugee camp, then the population of the camp is refugee (not always the case thou). It makes it easier to identify and target the "beneficiaries, but also to contain and control their movements.
Logistics: It is way more convenient to deliver products and services to a clearly identified population in a single point.
Control: Managing a camp also implies controlling the flow of resources, something that applies not only to gatekeepers and governments but also to NGOs. It is much harder to control the flow of resources to a disperse population. The control is not only of inputs, but also of outputs, the refugees themselves can see their own movements curtailed.
Beacon: For the refugees it becomes a self-fulfilling prophesy; because the resources are provided at camps, they move to camps, hence the resources go to camps. Camps "attract" refugees.
Security: In some situations, specially in conflict, camps offer the security of the group and also the visibility for other actors to protect them. However collective security does not mean personal security as the breakdown of social norms, trauma and other displacement related issues may lead to an increase of sexual and gender based violence, abuse and exploitation.
Political: Camps can create a captive (and sometimes powerful) constituency to further political agendas around ethnic grievances, discrimination, statehood, revenge, victimization or access to resources. While the grievances and political agendas may very well be real and felt, the camp setting perpetuates a protracted conflict and is rarely conducive to a durable solution.

Therefore, while camps may be an expedient tool for the actors responding to the crisis, it may be more efficient to deliver in emergency situations and provide a valuable transition point for vulnerable populations. They have also proved inefficient by creating parallel systems for the delivery of services, furthering dependency of the camp to external providers (magnifying the impact of decrease interest and funding from donors) and furthering a divisive separation between refugees and host populations. Refugees themselves have limited opportunity for alternative livelihoods, freedom of movement and choice and self-reliance in camp setting, Camps do play a role in refugee crisis, but the main focus of the response should be the refugees and not a location.