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In my business class, we had a lengthy discussion regarding agency theory, which is when an individual acts based off of self-interest, often at the expense of the larger welfare of the group. Specifically, one of the examples that stuck with me was when we discussed a theoretical dilemma faced by a low-level Jet Blue employee. Let’s say this flight attendant is offered the anonymous choice to choose between whether the company’s profit increases by $10,000,000 or to have a free chicken sandwich. Given that his decision remains anonymous, I was surprised when many of my classmates opted for a free chicken sandwich that is valued so much less than the $10,000,000 that could have increased the company’s bottom line. This occurred because the employee did not experience any personal gains from the first choice, whereas he received a free chicken sandwich in the second choice. Ultimately, the moral of the story is that individuals will often act selfishly and make decisions that benefit themselves instead of focusing on the greater good. I believe agency theory is especially relevant when we are dealing with the issues of climate change and unsustainable CO2 emissions. In the World Bank’s report on “confronting the new climate normal,” I was deeply saddened to see all the negative repercussions and alterations that have occurred due to global warming. From large-scale, irreversible damage to Earth’s biosystems to massive loss of glaciers to increased droughts and extreme weather, there is undeniable evidence that we are making permanently and irreversibly damaging the environment at unsustainable rates. Report after report, the evidence is clearly present that our actions today have long-lasting impacts on the environment. Personally, I believe that the majority of these negative trends could be avoided, but humans are often too selfish. For example, many businesses value short-term economic gain over the long-term damaging effects that their many tons of carbon emissions have on the environment. Meanwhile, individuals can preach being environmentally-friendly while still living very wasteful lifestyles. I think there are two main points we have to consider in remedying these problems. First off, we must recognize that global warming is a threat that applies to all of us, both poor and rich alike. The report does an excellent job at describing how those living in poverty are likely to disproportionately suffer from the consequences of climate change. I agree with our discussion point from Tuesday’s class that it is up to the developed countries to take leading stances on fighting climate change, especially since the US has one of the largest per capita CO2 emissions in the world https://www.weforum.org/agenda/2019/01/chart-of-the-day-these-countries-have-the-largest-carbon-footprints/ . In fact, the data from that link above seem to suggest that China and US alone seem to account for more than 1/3 of all the emissions in the world. Second, I think it is essential that we better align the goals of these corporations to reduce agency problems. For example, we can adopt a “carrot and stick” approach, where we set up a system of incentives and punishments, such as a carbon tax, in order to minimize the damage large corporations have on our Earth. Ultimately, the forecasts from the World Bank should be more than enough to warn us about the dangers of continuing our unsustainable ways.
Toggle Commented Dec 5, 2019 on Last Blog Post for the Year at Jolly Green General
Overall, I found Parker and Vogl’s paper on conditional cash transfers and their effects on the next generation to be very interesting. More information about Mexico’s national CCT program PROGRESA can be found here: https://www.povertyactionlab.org/evaluation/impact-progresa-health-mexico . This article from the poverty action lab details some of the short-term results that the paper mentions. For example, during its implementation from 1997 to 2000, children in households that received the CCT had “23% reduction in the incidence of illness” and “18% reduction in anemia,” which are two impressive statistics. What was unique about Parker and Vogl was how they examined the long-term effects of CCT and whether the changes affected the lives of the children when they reached adulthood. In contrast to the hedonic treadmill where humans tend to eventually return to base level of happiness, the results of this paper seem to suggest that there are long-term, intergenerational benefits of CCTs. Through their difference-in-difference design, Parker and Vogl concluded that children who were exposed to CCT programs like Progresa before age 12 had better accumulated education, labor market outcomes, and geographic mobility among other benefits. I found it pretty incredible that minor cash transfers while you are a child can go on to affect so many different aspects of your life when you grow up. An outstanding question I have now is how did Mexico acquire the funding for the Progresa program? I would like to digress here a little bit and discuss the importance of striking a balance between the strictness of the conditions underlying the cash transfer and the number of families Progresa can help. For example, I was surprised at first about the laxness behind the rules concerning education, such as how the program allowed students to fail each grade once. However, after giving this a second thought, I realized this kind of makes sense. The lowest-income families that are most vulnerable where the children are underperforming in school are the families that Progresa wants to directly target. This reminds me of a tuition-free program I launched in Toronto this summer for at-risk youth. Initially, I planned on setting grade cutoffs in the program applications. However, these cutoffs were removed because I wanted to ensure that the students who needed access most to the program were able to participate. Returning to the paper, although their results were encouraging, the paper was not without its limitations. The largest limitation that immediately comes to my mind is how it becomes much more difficult to imply causation over causation when so much time has elapsed. From when the Progresa program began in 1997 to when the data from the 2010 Mexican Population census was gathered, over a decade had passed. There are many exogenous factors that could have played a role during this time period. The child has now grown into an adult, and all of his or her experiences and relationships with others along the way could have affected his or her choice to persue further education, participate in the labor market, etc. In addition, it could be possible the CCT program had a placebo effect, wherein those who participated in the program unconsciously believed they would lead better lives than the group that was too old at rollout.
Toggle Commented Nov 21, 2019 on Next Week at Jolly Green General
At first, I found that it was difficult to fully understand this paper by Eichengreen and Mody because I was not too familiar with some of the terms they used. After doing a little research and reading through some blog posts, I think I was able to get some of the major takeaways. For other classmates who may have been confused by some of their technical terms, here are some resources from Investopedia on the basics of capital flows and yield spreads that helped me understand the paper a little better. ( https://www.investopedia.com/terms/y/yieldspread.asp + https://www.investopedia.com/terms/c/capital-flows.asp ) I found that dependency theory, which we discussed during our unit on development economic theories, to be quite relevant to our discussion here. This paper contained similar ideas that emphasized a nuanced, codependent relationship between developed and developing countries. Specifically, I thought of the North-South paradigm, wherein countries from the Northern hemisphere take advantage of countries from the Southern hemisphere. The purpose of Eichengreen and Mody’s paper was to determine whether industrial country interest rates affected the spread of bonds in markets from developing countries. Although previous papers had claimed that these interest rates did not have significant effects on the bond spreads, Eichengreen and Mody demonstrated that there was more to the picture. The setup of this paper reminds me of Bauchet et al.'s microfinance paper that we discussed on Tuesday. When Duflo et al. published their paper demonstrating how microfinance institutions do not necessarily lead to direct positive effects on health/women’s empowerment/education, the media misinterpreted the results to indicate that microfinance was a “failure.” Just like how microfinancing had subsidiary effects that were overlooked, like altering how income was spent, the effects of interest rates in the North on capital flows to the South were not explicitly clear. For example, U.S. treasury rates could have affected the “volume and compositions of international lending,” and previous papers may have overlooked this when they only examined the price of the bonds and not the balance between supply and demand responses. One of the most interesting takeaways that I got from this paper was how U.S. interest rates could (indirectly) impact the life of a foreigner, who is living thousands of miles away. Based off of another country’s treasury rates, his decisions involving borrowing and saving could be altered. It is crazy to me to think just how interconnected we all are as humans of this planet, which reminds me of the endogeneity effects we always discuss. Finally, this paper reminded me of a simulation I completed in my organizational behavior business class, where we played the roles of representatives from different OPEC (Organization of the Petroleum Exporting Countries) countries. In this simulation, the amount of oil we produced and our income was interlinked with the output of other countries. In this manner, it created an intricate, realistic situation that mirrors the real-world, where we should be mindful of how our country's decisions can affect others.
Toggle Commented Nov 14, 2019 on For Thursday's Discussion at Jolly Green General
Reading these papers on malaria and AIDS reminded me of our discussions of endogeneity, which seems to be a reoccurring theme in our class. For example, Sachs and Malaney’s piece “The Economic and Social Burden of Malaria” describes how poverty can promote malaria transmission and vice versa. My own perspective is that in countries where lethal diseases are rampant, making money is not the main focus nor priority. Instead, simply suriviving becomes the most important objective. If the health of individuals is in a poor state, these same unhealthy individuals will likely have low levels of productivity. Take the example of Europe when it was facing the Black Death, or bubonic plague. It makes sense that Europe’s economy suffered greatly during this time period because everyone was constantly worried about disease and death. I was especially interested in the data from figure 1 about the global distribution of malaria. When I did some research, I found that malaria is still present strongly throughout many countries today, including Indonesia (International Association for Medical Assistance to Travelers: https://www.iamat.org/country/indonesia/risk/malaria ). This came as quite a surprise to me because I had very little idea that a disease which has been eradicated in the US for so long is still such a rampant issue among the rest of the world. In this manner, these papers helped decreased my ignorance and helped me become more knowledgeable about the rest of the world. I was also curious to compare the current distributions of AIDS and Malaria worldwide, and I was astonished by how much overlap there was between the two graphs. The world bank has time series data on HIV infection rates worldwide here: ( https://ourworldindata.org/hiv-aids ). African countries had especially high rates of both diseases. From there, I spiraled down a little rabbithole because I was really curious to see if other researchers had looked at the link between these diseases. This is when I found an interesting paper published in 2018 that examines the coinfection of malaria and HIV in sub-Saharan Africa, which can be accessed here: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6067790/ . This paper described how malaria and HIV can each impact the transmission of the other disease. In areas where both of these diseases are prevalent, malaria can actually increase the “viral load of HIV” and its probability of transmission. One of the most interesting takeaways I got from this paper was how “it has been postulated without the amplification effect caused by malaria, HIV decreases to extinction.” These are the types of interesting hypotheses that cause me to take a step back and reexamine the plight of low-income countries with a set of new eyes. Now, I am able to better see the big picture of how endogeneity effects, even in the areas surrounding health (where malaria and HIV promote each other), can once again trap a country in a vicious cycle of poverty.
Toggle Commented Nov 7, 2019 on 3 readings for next week at Jolly Green General
After learning about T.W. Schultz and his development theory on quality of people in class, I thought his lecture on “The Economics of Being Poor” demonstrated really well his arguments in favor of investing in human capital. When I was reading this paper, I found several connections between his ideas and some concepts I learned about in my science classes, which I wanted to describe in this blog post. To begin, in biochemistry, the binding of epinephrine to a beta-adrenergic receptor can lead to a chain of events that can trigger the breakdown of a sugar named glycogen. In this example, an enzyme cascade occurs where each molecule that responds to epinephrine is able to activate many more molecules further down the pathway. In this manner, a single molecule can lead to a response that is many folds larger (think logarithmic scale). Just like these cascade events, investing in human capital creates a waterfall of benefits. By investing in areas like nutrition and education, a multitude of positive externalities and spillover effects are produced. For example, Schultz describes how investing in health can lead to longer lifespans, which tends to increase productivity of workers and reduce the amount of “sick time”, which in turn can lead to additional greater economic growth for the country. These healthier citizens now also have more incentives to invest in savings and education, which further propagates the cycle. Another concept I was reminded of comes from my physics class. When we calculate the torque applied to an object, we use a cross product of two inputs. What is interesting here is how the cross product is different than simple multiplication. Unlike when you multiply two numbers, the cross product produces different results, depending on the order in which the inputs are given. I thought about the cross product when Schultz was describing the discrimination and biases against the agricultural sector. Just like the cross product, prioritizing investments in the “modern” sector before the “traditional” sector may not necessarily lead to the same results compared to if the opposite route was chosen. Schultz describes well the different mistakes economists have made here, such as classifying farming as “backwards” and overrating land. Focusing on policies that favor agriculture first may actually be best for a low-income country with many farmers. Finally, the most astonishing statistic I found in Schultz’s lecture was how investment in agricultural research has shown a 40% return on investment in parts of India. This is made even more amazing when we account for all the associated noneconomic benefits, like increased quality of life and satisfaction, which may be difficult to quantitate. Ending on an optimistic note, I was very glad to read how advancements in knowledge, technology, and research can lessen our dependence on croplands and depleting sources of energy.
Toggle Commented Oct 30, 2019 on Blog Post for Next Thursday at Jolly Green General
Personally, I thought Duflo’s piece “Women Empowerment and Economic Development” was an excellent read that tied together many details from our class discussions and Amartya Sen’s Development as Freedom. To begin, the discussion on empowering women and its connection with economic development heavily reminded me of the concepts of dual causality and positive spillover effects. Just like how women’s agency can be both a means and an end, empowering women is a pertinent goal and methodology to achieving economic development. While I was reading the text, I was constantly reminded of our discussion point during Tuesday’s class about how empowering women should not need to be justified. While it is inevitable that empowering half of the world’s population will lead to beneficial socioeconomic effects, I think it is essential nonetheless to remove the unfreedoms that hinder women from living the lives they value, regardless of how the economy is affected. Besides this note, I thought Duflo demonstrated really well in her piece how enactment of policies that favor empowering women does not always lead to straight-forward, clear-cut results. Just like how our favorite answer in economics is “it depends,” I have learned that issues are often more complex and nuanced than initially suggested. One example Duflo gave was how women’s empowerment can lead to greater investment in children’s health and nutrition, but this investment would occur at the expense of another factor like education. One of Duflo’s most poignant lines in her paper is when she writes how neither women’s empowerment nor economic development is a perfect solution, “there is no magic bullet…trade-offs remain unavoidable.” These tradeoffs will often benefit one group while potentially compromising the position of another group. This is seen when quota systems for women in parliament increase gender equality but decrease the number of men in positions of power. When we deal with economic tradeoffs, there are often many moral and ethical complexities that arise. Should a policy be enacted as long it leads to a net benefit for more people than the number of people it causes a net detriment towards? Regarding policies like affirmative action, how can we ensure rights of minority groups are not overlooked? Finally, another reason I really enjoyed reading this paper is because Duflo was vigilant at differentiating between correlation versus causality. When she discusses the correlation between a mother’s education and her child’s health, she acknowledges the presence of other factors and “unobserved dimensions,” such as the mother’s family and community background. This reminds me of a discussion I had in a business class when we were talking about negotiations. If I remember the statistic correctly, men were at least three to five times more likely than women to negotiate their starting salary, which could explain part of the reason behind the gender wage gap. Then again, other social and cultural factors, such as the environments girls are raised in and the expectations society has for girls, may also have influenced why they are less likely to negotiate their salary. Thus, these issues are more complicated than they appear at face value.
Overall, I enjoyed reading Rodrick’s “Growth Strategies” because I thought the paper was especially successful at connecting many of our class discussions and readings up to this point. To begin, the paper provided evidence and support for several of my main discussion points made in previous blog posts. After reading “The Fall and Rise of Development Economics” and “The Economic Lives of the Poor”, I concluded that nearly every country requires its own unique analysis and strategy for growth and development. Rodrick’s paper is very successful at demonstrating how using similar growth strategies in different countries does not always necessarily lead to the same outcomes. Vice versa, using different reform policies, including unorthodox ones, can lead to similar orthodox results for different countries. Ultimately, local conditions matter. The first several sections of his paper made me think of our readings from chapter 4. Just like how multiple equilibria can result from coordination failures, there exists multiple ways for which a country is able to move from a lower equilibrium point to a higher one, albeit some ways are more effective than others. An example to illustrate this point is China and its rapidly-growing economy versus a Latin American country that has been less successful, such as Bolivia. Even though Bolivia made attempts following the "good behaviors" outlined in the Washington Consensus, China’s dual-track reform and unorthodox policies (like assigning land under the Household Responsibility System) resulted in significantly greater economic success. Realizing that principles on paper do not always translate well into specific policy recommendations is key here. In addition, the two-pronged strategy approach that was outlined in the paper provided hints at why certain growth strategies were more effective than others. Essentially, the two-pronged effort represents a short-term focus on simulating growth (can draw upon Rosentein’s Big-Push here) and a long-term focus on sustaining growth. It was interesting to see how Rodrick concluded that acquiring high-quality institutions is the ultimately the main point that will lead to the convergence of living standards between countries. Reading the subsections about market failures versus government failures reminded me of Amartya Sen and how a balance between market and state is essential. Lastly, a final takeaway I gained from reading this paper is how a country who is very far below its potential steady-state level of income can experience very large growth with even “moderate movements in the right direction.” This is promising because it demonstrates that those in the worst positions can better themselves greatly even with minor change. This is a hopeful idea that makes me smile.
Toggle Commented Oct 2, 2019 on Rodrik article for Thursday at Jolly Green General
Krugman’s paper “The Fall and Rise of Development Economics” was especially relevant to me because I have some personal experience with modeling. I spent my last two years and summers modeling for my research position. My job uses mathematical in silico modeling to describe the circadian rhythms in spiders, so I agreed with many of the points Krugman made in his paper. For example, I believe that all models are to a certain degree falsifications, but some are useful at explaining phenomena. In addition, I understand how difficult it is to balance between the simplicity and accuracy of a model. Since a model is only as good as its assumptions, you want to get all the essential assumptions into your model without overcomplicating it. This is why I believe Murphy’s model of Rosentein-Rodan’s Big Push was so effective. By only using several equations, it demonstrated that the decision to industrialize or stay in the traditional sector depends on other firms. There were some parts of the reading where I did not fully agree with Krugman because I believe he overexaggerated the importance and impact of modeling. He argues that there are no alternatives to models, claiming that the “influence of ideas that have not been embalmed in models soon decays.” Although I certainly recognize the benefit and importance of models, I think they are only half of the puzzle. The inability to formally model economies of scales was probably only one of many reasons that caused high development economics to be bypassed. In addition, I personally believe that the field of development economics today has gotten closer and closer to the consensus that every country requires its own unique analysis and strategy for development. We have so many different models today that attribute underdevelopment to different causes and propose varying solutions. Although simple models are useful, it seems like now is the time more than ever to go beyond modeling and figure out the complicated intricacies underlying poverty traps in different regions. Going back to my modeling experience from my job, the model I worked with only got us so far. Without any data, the model was not very meaningful. Thereafter, it was incredibly important to go in the field to conduct an actual in vivo experiment with real spiders. Then, we used the differences between what the model predicted and what actually occurred to revise the model. Likewise, I think we should be wary not to diminish the importance of those ideas and observations that cannot be formulated through a model because these same observations can get us closer to the truth.
Toggle Commented Sep 25, 2019 on Reading for next Thursday at Jolly Green General
Overall, I think this paper did a good job at revealing the many complexities and factors that drive economic growth/stagnation in various countries. At the beginning, I was a bit skeptical of the paper when it only examined how a couple variables were correlated with growth, such as relative TFP and the institutional barrier parameter. I also was a little confused by the equations they described under section 2 – the organizing framework - with all the different symbols and terms. I believe that it is very difficult to pinpoint the key factors that enhance or retard development because each country represents a different scenario with a unique political, social, cultural, and economic environment. That is why I enjoyed the second half of the paper more when it went into specific reasons and events that may affected growth rates for each of the twenty countries. I am curious to see the Lorenz curves and Gini coefficients for these countries. Did rapid growth lead to more or less inequality in countries like India and China? This paper helped me better understand why we always say “correlation, not causation”. Even the generalizations that fit the data, such as export-led open policy and high-tech promotion being development-enhancing factors, may not work for every country. I think that an extremely nuanced analysis of all factors affecting a country is required before we can truly understand what is going on. For example, I believe Hong Kong’s relationship dynamic with China is one significant factor that affects its economy. Currently, millions of Hong Kong citizens have been protesting for months on end in a fight for their democracy. This political crisis has caused violent riots to break out. As a result, many businesses, including the airport and subway, were disrupted, and many local business owners have been forced to shut down. In this manner, political factors have caused Hong Kong’s economic growth to be stunted. After reading this paper, I also thought back to our discussion regarding artificial intelligence on Tuesday. I am curious to see how the rise in AI will affect the countries reliant on manufacturing jobs. This morning, I watched a recent debate from a summit in Shanghai between Elon Musk and Jack Ma on artificial intelligence. Musk believes that AI has capabilities way beyond humans, citing the ability of AI programs to beat the world’s best chess and GO players. He claims that if AI continue to outpace us, it will eventually take over all our jobs. Meanwhile, Jack Ma does not view artificial intelligence as a threat. Rather, he believes there are some aspects of humans that make us uniquely distinct and beyond AI. Ma argues that humans should be more focused in the present, claiming that we should aspire to only work 3 days a week, 4 hours each day. We should spend the rest of the time completing activities that make us the most “human”, such as fostering our artistic and creative abilities that cannot yet be reproduced by algorithms. Personally, I am more in line with Musk’s views. While I recognize Ma’s points, I think humans should be more future-oriented. Many jobs have already been automated, and I believe AI will continue to replace many workers in the next couple decades, especially in factories where robots may be more cost-efficient and less prone to making mistakes. This could potentially be a major hit to the countries with industrialized economies that have large manufacturing sectors, such as Hong Kong, Singapore, and Malaysia. I am curious to see how this plays out in the future, and I wonder if these countries can still maintain their high growth rates once AI enters the picture more.
My favorite excerpt from the Economic Lives of the Poor comes from the subsection on “Why Don’t the Poor Save More?” The poor could save more if they cut spending on nonessential items (alcohol, festivals, sugar) and entertainment, so why don’t they? Why is there still a constant temptation to spend? Banerjee and Duflo believe the temptation to spend is highly applicable to the poor, especially when “many of the temptations you are being asked to resist are things that everyone else might take for granted.” This line resonated deeply with me. Often, I notice many people inadvertently use the social construct known as “the Other” when talking about the poor. If THEY are poor, THEY should spend money on necessities like food, not on entertainment. WE are not poor, so this does restriction does not apply to US. By using this attitude of THEM vs US, we alienate the poor and treat them as outsiders. The reason why I wanted to highlight this quote is because I believe we are all human beings with similar wants and needs at the end of the day. The poor share many of the same desires and temptations we have. For example, we can look at the following staggering statistic. Despite facing harsh financial difficulties, more than 99% of the extremely poor households that were surveyed spent money on a wedding, a funeral, or a religious festival during the year. This is because THEY are just like US - these important events are just as meaningful to impoverished families as rich families. In addition, this quote reminds us of how many modern conveniences we take for granted, such as having simple air-conditioning and electricity to power a laptop. It was shocking to see the percentages of extremely poor households that were lacking basic infrastructure, like in-house tap water or a toilet/latrine. Unfortunately, none of the households living for less than $1 a day in Udaipur, India, have either of these basic needs (Table 5). Overall, I found this paper to be highly relevant at illustrating several of Amartya Sen’s arguments that we discussed on Tuesday. It demonstrated how differences in relational perspectives, such as the other members of your community, can affect one’s behavior and well-being. The paper uses the example that poor families may opt to spend more on entertainment rather than on food in order to keep up with their neighbors. I also found it interesting that the self-reported happiness and healthiness levels of the poor were not particularly low. This may be because they can still partake in community life, and they do not always compare themselves with a richer society. Lastly, I was able to better understand that income by itself is insufficient at determining a poor person’s quality of life. For example, Sen believes that freedom of choice is essential to well-being. This paper makes evident that extremely poor families generally do not have many “real” choices, and many of their economic choices are constrained by their market environment. Maybe, this is why they will capitalize on choosing how to spend their money, such as on entertainment over food, when the opportunity arises.
Toggle Commented Sep 11, 2019 on Readings for next week at Jolly Green General
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Sep 11, 2019