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This paper provides evidence for the effectiveness of aid in reducing poverty, using alternative measures of poverty contrary to the traditional aid-growth relationship that has been the focus of previous literature concerning aid effectiveness. Not only does this paper take a new approach to investigating whether aid contributes to a reduction in poverty among recipient countries, but it also provides a detailed overview of the past fifty years of literature on aid effectiveness. The findings for the causal effect of aid on poverty reduction have been inconclusive and the relationship between aid and poverty has remained a topic of debate. The majority of previous literature has focused on the relationship between aid and economic growth, but economic growth is only one indicator of reduced poverty and does not measure other important social factors that improve the welfare of citizens. For this reason, the author chooses to use the Multidimensional Poverty Index (MPI) to measure poverty from a multi-dimensional perspective, including education, health, and living standards. The author uses an instrumental variable regression framework to estimate the effect of economic aid disbursed by the United States on reducing poverty in 64 developing countries. When using years spent on the UNSC between 1946 and 1999 as an instrument for the average U.S economic aid received by the country, the author finds that an increase in U.S. aid is associated with a reduction in multidimensional poverty. Specifically, the author found that an increase in U.S. aid is significantly associated with a reduction in schooling deprivation. Overall, the author found that the coefficient on AID remained highly significant and negative with a variety of control variable combinations and that a 1% increase in the average amount of aid received was associated with a 0.61% reduction in the MPI. This paper highlights the need to adopt more comprehensive measures of poverty in order to investigate the effectiveness of aid on alleviating poverty. By shifting to a multidimensional measurement of poverty in developing countries, the author was able to find a significant negative relationship between aid and poverty. The author calls for future research to use alternative measures of poverty in order to better understand the relationship between aid and poverty and help better inform future aid policies.
Toggle Commented Nov 12, 2020 on Last Post of the Year at Jolly Green General
Like many others, I also had trouble understanding parts of this paper and some of the terminology, but I think I was able to come away with a basic understanding of the key findings and research questions of the paper. From the authors’ discussion before and after their regression results, it appears the paper aims to address the causal effects of industrial country credit conditions on both the supply and demand of developing country debt. The authors look to explore the impact of U.S. interest rates on foreign investors’ demand for developing country debt and the willingness of developing country borrowers to issue new debt, which in turn affect yield spreads in emerging markets. The authors note that the effect of U.S. treasury rates on emerging market spreads will depend on if the change in U.S. treasury rates affects the demand for developing country debt or if it affects the supply of newly issued bonds from developing country borrowers. Additionally, the effect of U.S. interest rates on emerging market yield spreads, and international capital flow towards emerging markets in general, depends on if the bonds are floating or fixed-rate and on what region the analysis is focused on. To address this and previous literature, the authors attempted to account for both the demand-side and supply-side effects of U.S. interest rates on developing countries’ bond market conditions and yield spreads. In their regression results, the authors find evidence of the search-for-yield hypothesis which relates to the effect of U.S. treasury rates on the demand for bonds issued by developing country borrowers. In this case, a rise in the U.S. interest rate will result in decreased demand for developing country bonds, particularly for fixed rate bonds in Latin America. All else being equal, in the U.S. bond prices would fall as interest rates rise and the yield to maturity on previously existing bonds will rise for new buyers. Additionally, the interest rate risk associated with newly issued U.S. bonds will decrease after the rise in interest rates, further creating more attractive lending conditions in the United States compared to emerging markets (if I’m remembering correctly). On the other side, the authors found that higher U.S. interest rates affect the supply of developing country bonds by reducing the willingness of borrowers in developing countries from issuing new debt. First, higher U.S. interest rates cause decreased supply of newly issued fixed-rate bonds in emerging markets. The reasoning for this was a little unclear, but I’m guessing it is due to the fact that the cost of debt for borrowers in emerging markets will rise and U.S. interest rates rise, since they will have to compete with the high interest rates of U.S. bonds. The decreased supply would increase bond prices, which in turn puts downward pressure on bond yields and yield spreads. The authors also found that higher U.S. interest rates affect the supply of bonds by borrowers in developing countries by causing high risk borrowers to drop out of the market. If I have that correct, this would arise because of the increased yield on relatively “riskless” U.S. securities. Rising U.S. interest rates would be associated with rising yields on low-risk U.S. bonds, forcing poor credit borrowers, who would need to issue bonds with relatively higher interest rates due to their risk of default, to drop out of the market.
Toggle Commented Nov 6, 2020 on For Friday's Discussion at Jolly Green General
This article reaffirmed the value of education as an important aspect of economic development and a high return investment that often does not receive the adequate amount of investment allocations. Given our past readings and class discussions, I was not surprised to find that the highest rates of return to education are found in low and middle income countries and that the private returns to female education are greater than that of males. The part of the article that I found most concerning and at the same time interesting was the discussion of how private and social rates of return are estimated. It seems only because the social benefits of education are estimated using directly observable monetary benefits, failing to account for the value of outcomes such as lives saved or decreased crime rates, that the reported social rates of return to education lag behind private rates. I understand it is most likely very difficult to estimate the monetary value of “unobservable” benefits and to also decide what variables should be included in the social benefit calculation, but it would be a disservice to policymakers and society as a whole to not improve these estimates. Private and social rates of return can influence and guide public policy concerning access to and the quality of public education. If the social return to education is being undervalued, then public policies may be led in a direction that is not truly the most beneficial for society.
Toggle Commented Oct 23, 2020 on For Friday's Discussion at Jolly Green General
In this paper, Duflo discusses the interesting, yet complicated empowerment–development relationship. She details and provides the evidence found in literature for how, in one direction, economic development and the reduction of poverty reduces gender inequality and can improve the welfare of women. On this side, economic development helps reduce poor households’ vulnerability to crises and other tough decisions which normally disproportionately affect women. Additionally, economic development and rising incomes reduce fertility and maternal mortality, which both directly improve the welfare of women and incentivize educational investment for girls since their life expectancies increase. From this side of the relationship, there is evidence that gender-blind policies that aim to reduce poverty and improve the welfare of households will result in greater gender equality. Duflo also discusses that on the other side, women’s empowerment can promote and drive economic development. From this side, the empowerment of women and increasing gender equality is necessary for economic development and policies specifically targeted at improving the condition of women should be adopted. In reality, economic development and increasing household income are not, by themselves, sufficient to empower women, improve the conditions of women, and reduce gender inequality. At times, policies targeted toward women will come at the expense of men, but women’s empowerment changes outcomes to ones that are beneficial women, households, and society at large.
Toggle Commented Oct 9, 2020 on Duflo for Friday at Jolly Green General
In this paper, Epplin discusses the history of land grant universities and public education in the United States and concludes with a suggested strategy to help bring awareness to and correct the underallocation of public funds dedicated to agricultural education. Although the idea of accessible, publicly funded education, and its benefits to society at large, were commonly viewed as intuitive at the time the U.S. Declaration of Independence was signed, the Morrill Land Grant Act was not easily passed. Prior to the fight for publicly funded agricultural universities, historical events such as the Kalamazoo Case supported the use of public resources for education provided to all and justified the collection of taxes for public schooling. When Jonathan Baldwin Turner’s plan for publicly funded agricultural universities and agricultural research was first printed, biased and uninformed opposition groups denounced the plan. Certain representatives worried that the establishment of publicly funded higher education would result in lost factory workers. Southern states purported that the use of public lands to provide higher education would benefit non-slave states. Eventually, the Morrill Act was passed in 1862 and over time public support for higher education grew and land grant universities became established institutions. Although public investment in higher education and agricultural research has proven to be beneficial to society, the benefit-cost ratio for investments in public agricultural research and extension suggests that the level of investments has not been economically efficient. Epplin suggests that the lack of public knowledge concerning allocative inefficiencies and market failures is a major challenge to improving the allocation of resources and experiencing efficient markets.
Toggle Commented Oct 2, 2020 on For Friday's Discussion at Jolly Green General
I found Quiggin’s article to be fairly optimistic and I liked that he gave practical methods for the developed world to reduce reliance on carbon-based fuels and environmental degradation while increasing living standards. Many of the ways he mentioned we could reduce carbon dioxide emissions seemed fairly realistic and mostly made use of currently available technologies. Specifically, I found his discussion of private motor vehicles and the potential shift to electric cars, which has already begun on a relatively small scale, to be incredibly interesting. Just yesterday, the Governor of California issued an executive order that calls for a ban on the sale of new gasoline-powered cars in the state by 2035. In just the last few years, the largest car manufacturers that are known for legendary gas-powered cars (such as Ford and the F-150) have introduced new electric vehicles and even electric versions of classic gas-powered cars. Ford has made progress in developing an electric F-150 and Mustang, and Volkswagen just recently delivered a new all-electric SUV. It seems to me that there has been an effort made by car manufacturers to produce a greater number and a more diversified mix of electric cars. This gives me optimism and I think that if we can develop the infrastructure to support widespread use of electric cars, like charging stations, then electric cars can certainly be a realistic way to reduce fuel use and environmental degradation while increasing living standards. This would obviously only be a start and would not be able to account for the entire reduction in carbon dioxide emissions that are necessary, but it certainly seems to be a change that we are capable of making right now.
Toggle Commented Sep 24, 2020 on Readings for Friday at Jolly Green General
In this article, Krugman gave both an interesting and insightful overview of the history of development economics and discussed the difficulties of economic models. For one, I didn’t understand the complicated past of development economics and the struggle for development economists in the 40s and 50s to provide tested models for their literature. Second, as many other people have mentioned, I have always had trouble fully accepting the economic models I’ve run into during my time at W&L, and it was interesting to read Krugman’s take on economic modeling. What stood out to me was that a model is “a good model if it succeeds in explaining or rationalizing some of what you see in the world in a way that you might not have expected.” It doesn’t have to be the most complex model ever created within your scope of research, it doesn’t have to take any particular form, but it is constrained by your modeling technique and ability. The Fultz dishpan model particularly stood out to me because it was very simple, but was able to provide important insights into the behavior of weather systems. It’s setup did not resemble the actual structure of the earth or get into specifics, but it still was very valuable. The problem is, in economics and other social sciences, the idea of simplifying complex systems is often restricted by the accepted techniques.
Toggle Commented Sep 11, 2020 on Krugman for Friday at Jolly Green General
In this paper, the authors attempt to explain the income disparities between fast-growing economies and development laggards and find that various forms of institutional barriers rather than total factor productivities play a more important role in long-term economic development. Like many others, one of the main differences I saw in the lagging economies and those that have fallen into the poverty trap was the adoption of import substitution as a means of industrialization. Countries such as Hong Kong, South Korea, and Malaysia took an export oriented industrialization path. They developed their manufacturing industries, which were low-cost and labor intensive, and expanded industrialization efforts through increased domestic export revenue. On the other hand, some development laggards adopted import substitution. As a result, many of these countries often experienced short term economic growth, but were unable to effectively protect industries producing industrial goods and the labor-intensive jobs, lacked a comparative advantage or export diversification, and took unnecessary protective measures against imports. Also, as the authors stated, country specific economic conditions and institutions must be taken into account when analyzing and attempting to explain income disparities between nations. One of the issues or questions that came to mind while reading this paper was the ability for lagging and trapped countries to adopt an export oriented industrialization strategy rather than adopting import substitution. I wonder how much government corruption and inefficient capital markets may hinder a nation’s ability to advance and grow its manufacturing industry while also remaining competitive and providing protection of these industries.
Toggle Commented Sep 3, 2020 on Reading for next Friday at Jolly Green General
In this article, Sachs introduces the idea of a set of sustainable development goals, discusses the urgency for both developed and developing countries to collectively work towards these goals, and analyzes the realistic strengths and weaknesses of the SDGs. Although I was not aware of the MDGs or SDGs before reading Sach’s article, I found the content and the general idea of a shared blueprint for sustainable development for the entire world to be provocative. The SDGs benefit from having the MDGs come before them in that the effectiveness of and global response to the MDGs can be analyzed and used to increase the SDGs ability to promote economic development, environmental sustainability, and social inclusion worldwide. Since I was unfamiliar with the SDGs before the reading, I really enjoyed going through Sachs’ swot analysis of the SDGs and the impact that the MDGs will have on the success of the SDGs. What stood out to me the most wasn’t the importance of good governance or the triple bottom line approach, but rather the barriers to securing financing and the importance of the private sector. Sachs states that “all but the poorest countries will share in the financing of global public goods, in relation to their respective economic capacities” and that the success of the SDGs relies on adequate, transparent investment from countries worldwide. Yet, the MDGs proved that countries do not always fulfill their pledged amounts of financing and that freeriding is the norm. Sachs suggests that funding for the SDGs should be done through means such as quotas related to national incomes or taxes on greenhouse gas emissions. Although both suggestions sound like an improvement to the MDGs method of funding, I would be interested to know if taxes were ever implemented and if adequate investment from societies worldwide has actually been secured without large, lengthy negotiations.
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Aug 26, 2020