Back into Poverty

Increase in food prices has pushed back into poverty at least 100 million people in 2008 and, according to the United Nations Standing Committee on Nutrition (here, p. 60),

erase at least four years of progress towards the Millennium Development Goal (MDG) 1 target for the reduction of poverty. The household level consequences of this crisis are most acutely felt in LIFDCs [Low-Income Food-Deficit Countries] where a 50% rise in staple food prices causes a 21% increase in total food expenditure, increasing these from 50 to 60% of income. In a high income country this rise in prices causes a 6% rise in retail food expenditure with income expenditure on food rising from 10 to 11%. FAO estimates that food price rises have resulted in at least 50 million more people becoming hungry in 2008, going back to the 1970 figures.

According to the World Bank (here) this means that between 200,000 and 400,000 more children will died every year for malnutrition until 2015.

Thursday, 18 June 2009

Selva Amazónica, More Valuable Standing Than Felled

An article published on Science this week analyzes the development of the region across the Amazon deforestation frontier. In three words: boom and bust. It means that comparing the Human Development Index of different classes of Brazilian municipalities, from prefrontier municipalities to heavily post frontier deforested municipalities, you can see how the HDI relatively grows in the first phase of the deforestation (on the frontier line) and relatively declines when deforestation is completed.  In other words,

when the median HDI of each class is plotted against deforestation extent, a boom-and-bust pattern becomes apparent, which suggests that relative development levels increase rapidly in the early stages of deforestation and then decline as the frontier advances. Hence, although municipalities with active deforestation had development levels that approached the overall Brazilian median, pre- and postfrontier HDI values were substantially lower and statistically indistinguishable from each other (P > 0.9). These results are robust to the particular thresholds used to define the frontier classes. A boom-and-bust pattern is also found for each of the HDI subindices: standard of living, literacy, and life expectancy.

This strongly suggests that the poor have no choice but to exploit every resource available. It is difficult to think that farmers or loggers do not see that they are compromising their very own future. They simply have no choice. The challenge is giving them a choice.

Friday, 12 June 2009

If the Asian Growth Model is not Working Anymore

In 1981 poverty rate in China was 64% of the population, in 2004 the rate was 10%: it means that 500 million people stepped out of poverty (look here and here). China and South-East Asia economies were propelled by export demand and by someone else’s debt. What now? In the words of FT columnist Michael Pettis

The assumption that implicitly underlay the Asian development model – that US households had an infinite ability to borrow and spend – has been shown to be false. This spells the end of this model as an engine of growth.

It seams like bad news for economists pointing at free trade and export-led growth as a practical receipt for development.  It seams like bad news for everybody. People in developing countries need to increase their income, and it is difficult to think how they could find the money in their neighborhoods.

Tuesday, 19 May 2009

Economic Gains Do Not Mean Political Gains

In this post Dani Rodrik explains why trade theories suggest that the U.S. should liberalize trade for agricultural products (especially cotton and sugar) and abolish visa restrictions on on highly-skilled foreign workers. This will produce gains for the U.S. society as a whole and probably for the poorest part of the world population, that happens to be made up of farmers. (Of course India will probably see some of its engineers flee the country, but that is not exactly a win-win game).

But countries are not ruled by trade theories. Usually they are ruled by people seeking to keep power as long as possible. And sometimes people rely on minority groups within their society to keep themselves in power.  Have a look at this paper, “The Diminishing Effect of Democracy in Diverse Societies” by Gilat Levy and Oriana Bandiera (London School of Economics and Political Science). Indeed, this can explain why western Europe heavily defends its farmers (4-5% of the population) sacrificing the common good.

An interesting theory should consider not how much a single group benefit or not from trade liberalization but how much influence the group affected by the new policy has on the decision making process. A reduction of trade barriers can help to tackle chronic poverty (have a look at the “Industrial Development Report” by the United Nations Industrial Development Organization). But barriers are not where they are because governments think they are irrational from a political (not economic) point of view.

Wednesday, 13 May 2009

WikiPrices

Erik Hersman, has recently created a site called Africa Signals. And it is not just a site: it is a wiki site. The site aims to collect and share mobile phone and Internet rates across Africa. (I have found about this site here)

Now. In my experience, one of the many reasons that makes poor a poor farmer is coping with a non-functioning market (I said it two posts ago). So I can just imagine how helpful would be to have a tool to make market work better.

Creating a wiki page to collect and share the price of one particular agricultural product in one particular time in one particular place would be great. But succeeding in integrating such a site with the mobile phone network would be even better.  How to do this? The government of Rwanda is moving in the very same direction without creating a wiki site. (It is difficult to imagine a government managing wikis). But bureaucracy is not something we usually associate with the words efficiency and effectiveness, especially in poor countries. And in any case we do not really need a government to make a site like this work.

Just think about a wiki site collecting and sharing data through sms. Actually Twitter, without the wiki interface, is doing it right now. So, think about a farmer receiving a message with updated price information the night before market day and, on this information, taking his/her decisions. And think about a farmer sending via sms the price information to the wiki site after leaving the market.

We can imagine the farmer to pay for the sms he or she receives and, on the contrary, we can imagine sending sms back to the site to be completely free.  And we can imagine some volunteers to be the administrators of the site (just like Wikipedia).

Tuesday, 28 April 2009

Hard Numbers, Hard Times

In a report published today, Oxfam predicts that by 2015 the average number of people affected by climate-related disasters every year will increase by 54%. The projection is based on a forecasting model that uses data, collected by the Centre for Research on the Epidemiology of Disasters, going back to 1900. Oxfam’s researchers have noticed that climate-related disasters have been increasing in frequency and severity during the last years so they expect that by 2015 375 million people (or 132 million more than in 2007) will be affected. Jeremy Hobbs, Oxfam International’s Executive Director, said that

The humanitarian system works as if it’s a global card game dealing out aid randomly, not based on people’s needs. The response is often fickle – too little, too late and not good enough. The world barely copes with the current level of disasters. A big increase in the numbers of people affected will overwhelm it unless there is fundamental reform of the system that puts those in need at its centre.

And this supposedly happens while NGOs are downsizing their budgets because of the crisis. According to Le Monde, many organizations have seen a significant decrease in private donation during 2009. More deadly predictions on the way?

Tuesday, 21 April 2009

Information Flows on Mobiles

The idea to use mobile phones (here and here) to help economic development in the most remote corners of the world is fascinating and definitely smart. For one thing, mobile phones have already reached the Bottom Billion. In 2007 there were 45 subscribers per 100 inhabitants in the developing countries. That means that we can now expect to have one mobile in every family. Everywhere. As well in communities where services like water, electricity, hospitals, schools or transportation are still far away.

What poor people mostly need are functioning institutions. And market is one of these. If market is not working, farmers will pay higher prices for what they buy and got less money for what they sell.  Moreover they could buy or sell at the wrong time and possibly in the wrong place. In the words of the government of Rwanda,

the success of these farmers has been greatly affected by lack of access to pricing information. Many times, farmers speculate what crops to grow and what prices to charge at harvest. Some farmers depend on middlemen to dictate the prices and in most cases the latter exploit the former. For any farmer to earn a decent living from agriculture, easy access to information on market prices is of paramount importance.

Making information flows on mobile phones could

empower farmers to enable them make more informed market pricing decisions and ultimately more successful farming.

The idea of mobile banking goes in the same direction: making a  service so critical for development accessible to almost everyone. That will not end poverty, but  will probably make the task easier.

Thursday, 16 April 2009

Understanding Capitalism

Nobel-winning economist Amartya Sen argues, in an article published on The New York Review of Books, that the way out from the crisis passes through a better understanding of the ideas that contributed to build the actual economic system. Adam Smith, John Maynard Keynes, Arthur Cecil Pigou, should be read, not just quoted. And I quote

Smith viewed markets and capital as doing good work within their own sphere, but first, they required support from other institutions—including public services such as schools—and values other than pure profit seeking, and second, they needed restraint and correction by still other institutions—e.g., well-devised financial regulations and state assistance to the poor—for preventing instability, inequity, and injustice. If we were to look for a new approach to the organization of economic activity that included a pragmatic choice of a variety of public services and well-considered regulations, we would be following rather than departing from the agenda of reform that Smith outlined as he both defended and criticized capitalism.

We must understand how institutions work and make them work better. But not just aiming at economic growth.

There is a critical need for paying special attention to the underdogs of society in planning a response to the current crisis, and in going beyond measures to produce general economic expansion.

A crisis not only presents an immediate challenge that has to be faced. It also provides an opportunity to address long-term problems when people are willing to reconsider established conventions. This is why the present crisis also makes it important to face the neglected long-term issues like conservation of the environment and national health care, as well as the need for public transport (…).

Sunday, 22 March 2009

Detained and Dismissed

Human Rights Watch has just published a detailed report on Women’s Struggles to Obtain Health Care in United States Immigration Detention. Immigration detention facilities are black holes all around the world. For one thing it is difficult to understand or explain why a state should imprison somebody who has committed no crime at all. At least for those who tend to consider existing as a right and not as a crime. HRW writes that in the United States

the number of individuals held in administrative detention while their immigration cases are determined has skyrocketed in recent years. The detained population on any given day is now over 29,000 nationwide, up almost 50 percent from 2005.

And according to the report the overshadowing sanitary problems for women in this condition are

delays and denials of testing and treatment, obstacles to obtaining medical care, distortions in the doctor-patient relationship, detrimental and unnecessary use of restraints and strip searches, discontinuity of care, lack of effective remedies.

Wednesday, 18 March 2009

Brain matters

Saying that education strengths economic growth sounds good old common sense. But proving and measuring this relation is not immediate and therefore interesting. A reasearch, published last year, does it. Eric Hanushek, Dean T. Jamison, Eliot A. Jamison and Ludger Woessmann estimate that

each additional year of average schooling in a country increased the average 40-year growth rate in GDP by about 0.37 percentage points. That may not seem like much, but consider the fact that since World War II, the world economic growth rate has been around 2 to 3 percent of GDP annually. Lifting it by 0.37 percentage points is a boost to annual growth rates of more than 10 percent of what would otherwise have occurred, a significant amount.

Nonetheless, the research suggests that what really matters for economic growth is the quality of education. In other words it is not enough to send children to school: you have to teach them something. Using test-score performances around the world to measure the cognitive skills of students appears

that countries with higher test scores experienced far higher growth rates. If one country’s test-score performance was 0.5 standard deviations higher than another country during the 1960s (…) the first country’s growth rate was, on average, one full percentage point higher annually over the following 40-year period than the second country’s growth rate. Further, once the impact of higher levels of cognitive skills are taken into account, the significance for economic growth of school attainment, i.e., additional years of schooling, dwindles to nothing. A country benefits from asking its students to remain in school for a longer period of time only if the students are learning something as a consequence.

These results are extremely important especially for the countries of the Bottom Billion. What they are saying is that it is better to invest on the quality of the education (where rate of return is much higher) rather than spending to keep students in schools longer.

Tuesday, 17 March 2009

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