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Bennett Henson
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Microfinance in America has a fairly negative connotation. When I think Microfinance I think payday loans and institutions like Check Into Cash that charge ridiculously high rates to low income families who need the money to hold them over until their next pay check comes in, which then must be used to pay off the loan. Through reading "Latest Findings from Randomized Evaluations of Microfinance" I realize that these Microfinance institutions are not only necessary in LDCs, but can be beneficial. Many poor people in LDCs do not have access to formal financial institutions, and if they want to take out a loan many of them have to go to their friends and relatives, who then have to take out their savings, which can in turn hurt the already fragile economy. By increasing exposure to micro finance institutions like Spandana, people in small underdeveloped economies have the ability to reprioritize their spending and focus on improving their lives in the future instead of consuming what they have because they don't have a safe place to save their money. Microfinance is not an end all be all solution to the credit problem in many LDCs, but through some of the studies conducted in this study it allows poor people in LDCs to differ some of their consumption through saving, and also allows entrepreneurs a safe way to raise the capital they need in order to start up a business which could ultimately strengthen the local economy. An important aspect of micro finance institutions is that they give people a safe place to store their money. There is a demand for these savings institutions. An example from the reading is the Bumala village bank in Kenya. Savings accounts were opened up even though these accounts offered no interest on deposits and came with high withdrawal fees. The most interesting data collected from this experiment was that women were likely to deposit their money into these savings accounts. This helps prevent them from having to lend their money out to relatives, friends, and spouses. The ability to save their money empowers women, which as we have seen throughout this course is a crucial aspect to alleviating poverty. Financial institutions are necessary for an economy to thrive, and Microfinance seems like a good way to introduce these services to poorer areas.
This paper further emphasizes a theme that has kept popping up all semester, the importance of education. When farmers are educated they place more weight on the information that is presented to them regarding agroforestry and its benefits, and thus are more likely to invest in the planting and maintaining of trees on their farm land. The benefits of agroforestry are numerous, well researched, and conclusive. But due to farmer's lack of forestry education and agroforestry information, farmers are hesitant to invest in a farming method which has been proven to increase future earnings and increase soil longevity. These claims are backed by the empirical evidence. Forestry education, tree planting experience, formal education attainment, agricultural experience and youth are all positively correlated to agroforestry interest. What this empirical evidence shows is that when farmers have more experience, knowledge, and information regarding agroforestry they place more "weight" on the forecasts that tell them agroforestry will increase their productivity. In order to convince the majority of farmers who have not obtained formal education or participated in forestry development programs we must educate these farmers on the benefits of agroforestry so that they are not hesitant to invest.
Toggle Commented Nov 5, 2014 on Econ 280 for Thursday at Jolly Green General
In their Nobel Prize speech, Schultz and Lewis state "People who are rich find it hard it understand the behavior of poor people." Normal people and economists from developed country don't understand the issues that someone in a poor country faces on a day to day basis. Schultz and Lewis believe that we have over estimated the differences between poor and rich countries. Traditional economic theory can, in fact, adequately explain low income countries' economies. Citizens in poor countries make rational decisions just like those in rich countries. Lower income farmers in LDCs maximize their land just like those in rich countries. In order to maximize their efficiency, though, we must eliminate the exogenous variables that they must deal with; namely Malaria. If developed countries helped poor countries get rid of these hindrances then those in poor countries would be able to develop just like current rich countries have developed in the past.
Toggle Commented Oct 29, 2014 on Econ 280 for Thursday at Jolly Green General
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Oct 22, 2014
Udry paints a picture of child labor that is less stark than most, but just as pressing. Instead of focusing on the harsher forms that "amount to direct abuse" such as sex slavery, forced labor, and dangerous factories, Udry's focus is the more common and accepted form of child labor, children working on family owned farms. As Udry explains, it is important for a child to work some, he deems it an important part of a child's upbrining, but the problem lies in the fact that children are working at a rate which comprimises their education. The benefit of child labor is immediate: a family will have a larger income and thus be able to feed, clothe and shelter themselves. The cost, however, is only realized in the future. If a child is working and not obtaining an education, their future income will be less and society will be worse off due to the social benefits that arise through an educated population. As Udry explains, with well functioning financial markets a family would be able to take out a loan in order to pay for their children's education, but these markets are few and far between. The parents are the ones making the decision about the child's education, and since the costs are far in the future, these children end up working. Poorly educated children become poorly educated adults who make low wages and need to have their children assist on the farm. Child labor is a cause and consequence of poverty, thus the vicious cycle continues. In order to break free from this downward sloping trend families must be incentivized to send their children to school. Mexico's "Oportunidades" is doing just that. By subsidizing child education through grants gifted to children's mother, children stay in school 2/3 of a year longer on average, resulting in a drop off in child labor. The success of this program has prompted other countries, such as Nicaragua, to follow suit. Hopefully this trend continues and other countries follow suit, if not for the humanitarian aspect then at least for the economic benefit.
Toggle Commented Oct 22, 2014 on 280 Paper for Thursday at Jolly Green General
Rodrik's piece last week concluded that model set a goof foundation for analyzing economies, but in order to be effective, and ultimately not misleading and damaging, these models need to be tailored to specific economies. Krugman analyzes in depth the effect that economists love of models can have on the development of theory. As Krugman says, physics is admired for its ability to be proven and quantified. Sadly, this has set the bench mark of what "good science" is and how it is conducted. Just as the field of development economics was coming into form in the mid 20th century, so were extremely prominent scientific philosophies, most notably Karl Popper's theory of falsifiability, which set the difference between science and non-science as science having falsifiability whereas non-science can not be proven wrong. This paradigm shift not only encouraged, but made it necessary, for scientists to try and narrow down and quantify their theories. A large, overarching and non quantifiable, or modeled here, theory is not falsifiable. Although this philosophy led to advancements in many aspects of natural sciences, it made it very difficult for young, fragile ideas to make it past that infantile stage. High Development Theory was one of these casualties. Now knowing that HDT "made perfectly good sense after all", we are able to reflect on the fact that scientific "advancement" can actually lead to the de-evolution of some scientific fields. It is true that economic models can not accurately portray the real world. In every model I've done as an economics major their are always some factors that are being held constant. But this does not mean that these models are of no value, assuming that would be implying that every economic model holds no truth. The problem here is not with modeling, it is with the scientific community. I would hope that this serves as an example to current scientists and economists to not overlook proposed theorem simply due to its inability to be quantified and modeled out.
I thought Rodrik's paper was intriguing because it examined economic growth in developing countries through a very wide lens, as oppose to some of the other papers we have read. Essentially Rodrik is echoing Duflo's opinion that there is no "magic bullet" when it comes to economic development, but instead of examining intra-household bargaining, he is saying that each economy is very different and therefore needs specialized implementation of first-order economic principles. These principles, property rights, market based competition, sound money, etc. have proven to be essential for development, but the ways in which these principles have been implemented vary wildly. It is important to implement these principles in a way that is tailored for a specific economy. Countries have achieved these goals through very unorthodox implementations, such as China's two-track strategy and Mauritius' EPZ. But when, other countries try these strategies they often fail because they try to adopt a system that has been perfectly tailored for a different economy. Similar to the False Paradigm Model, these institutional reforms are implemented in good favor, but can result in damaging the economy, just like the doctors from Banerjee and Duflo's "The Economic Lives of the Poor" would often harm their patients solely due to misdiagnosis. Like Jeffrey Sachs' Clinical Approach, we must analyze each country like a different patient and prescribe them the exact medication they need.
Toggle Commented Oct 1, 2014 on ECON 280 Paper at Jolly Green General
I thought that both of these readings on Women Empowerment were pretty interesting in that they analyze the symbiotic relationship between women empowerment and economic development. As Esther Duflo states, neither one can in and of itself bring about monumental change, and empowering women can even have some negative effects such as the disruption that comes about from redistribution, but empowering women has been shown to increase childhood nutrition which is a vital ingredient to development. The major hurtle that underdeveloped societies face is overcoming the cultural norms that are historically repressive to women. In Nicaragua, when women earn as much as their husbands they are still less empowered due to these cultural beliefs and practices. It's easy to say that education is the key to overcoming these repressive patterns, but empowering women in some cases leads to decreased education for some children. A successful strategy in India, which resulted in increased education for boys and girls, occurred when women were given equal employment opportunities during the technological boom of the 1990s. In fact, this led to lower-caste girls receiving English education at higher rate than boys. Although this disproportional rate of increase in education may have some repercussions in the future, it seems, with the evidence presented in these two studies, an effective way of speeding up development.
Toggle Commented Sep 23, 2014 on ECON 280 paper #2 at Jolly Green General
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Sep 22, 2014