What happens to your discarded water bottles in Ethiopia? Crunched up into shards, as it turns out, and shipped to China to be melted into common plastics.

This is a photo from a water bottling plant:

I suddenly feel a shred better about my trail of discarded bottles.

Here is a photo of the factory production line:

This is not a picture of Africa we usually see. Sad-eyed children are more likely to adorn development strategy reports than productive workers.

Frankly, I’m conflicted. As I walked the factory floor, I couldn’t help but think: what miserable work. Labeling bottles eight hours a day, six days a week. Is this development as freedom? It’s hard to see.

I think back. In high school I spent 18 hours a week slinging chicken for Colonel Sanders. Bryan, our humorless manager, was a cross between Hulk Hogan and Frederick Taylor. Steel-eyed, handlebar mustachioed, and six foot three, Bryan would loom over me with a stopwatch until I could break, wash, dip, bread, rack and deep fry three chickens in two minutes.

He could do it in one and a half.

Was I miserable? Not really. KFC paid fifty cents above minimum wage, and on some level I found the work satisfying. (Plus the burn scars on my arms disappeared after about ten years.) Maybe the difference is I saw it as a short spell (two years, in my case) before taking on a more fulfilling career. And the free health care that comes with being a Canadian.

Clearly, comparing a Canadian suburban restaurant to an Ethiopian factory is absurd on many levels. My point, however, is that drudgery may be deceptive. This will be one of the more interesting things to explore in our RCT of unskilled industrial jobs. (We just have to figure out how to measure it.)

More importantly, the factory line may not be fate. The workers I spoke to had bigger plans, and some seemed headed on that path. Whether this happens is, to me, one of the most important questions in the study.

…much of the improvement in economic performance in Africa after 1995 is attributable to a substantial increase in the frequency and country coverage of growth accelerations combined with reductions in the frequency and severity of growth decelerations. We also find that growth accelerations have not been evenly distributed across countries. Resource-rich economies have had a significantly higher frequency of growth accelerations than non-resource-rich economies.

…We find little evidence to support the view that significant changes in investment, trade or macroeconomic management underpin the increased frequency of growth accelerations. We also find little evidence that better policies and institutions have spurred growth accelerations, although they appear to be associated with fewer growth declines in resource poor economies. This raises important questions with respect to the durability of Africa’s growth performance.

That is Jorge Arbache and John Page writing in the latest Journal of African Economies (freely downloaded).

Paul Samuelson truly was the smartest guy in the room – with the exception of the occasional meetings with John von Neumann. From the beginning he enjoyed a reputation as an enfant terrible. The joke was that when he defended his dissertation, one professor on Samuelson’s committee asked him, “Did we pass?” He was no easier on the investors and financiers whose practices he studied.

An excerpt from David Warsh’s excellent essay on the late Paul Samuelson.

But the format was more tent revival than accounting seminar, with the first 90 minutes or so mostly devoted to Ramsey’s personal story of ruin and redemption. We heard how, during the second half of the 1980s, a young Ramsey built up a multimillion-dollar real-estate empire—then lost it all as the bank got nervous and called his loans, ultimately forcing him and his wife into bankruptcy. How, searching for help in his hour of need, he turned to the Bible and discovered Proverbs 22:7: “The rich rule over the poor, and the borrower is slave of the lender.”

At that moment, he told an audience so hushed that we could hear the ice squeak, Ramsey decided to never borrow another dollar again.

That is Megan McArdle on David Ramsey’s financial televangelism, in the most recent Atlantic. I stumbled upon the story listening to McArdle on the excellent EconTalk podcast.

Ramsey is not asking followers for their money. The opposite, in fact; he’s selling them on a lifestyle of saving, thrift and financial organization.

Economists are no strangers to self-control problems and impulsive buying. The usual solution is the commitment device–something we do now that makes it costly, or even impossible, for our future selves to behave badly. Some people cut up credit cards, or have their bank send a part of their paycheck straight into a retirement plan, mortgage payment, or bill due.

We think commitment devices are necessary because our preferences and behavior are hard (maybe impossible) to change. Ramsey’s example suggests otherwise. Part of his plan has you cut up credit cards, making borrowing off the future costly. Part provides a routine and a system that is reinforced by needing the permission of others to deviate. All are in line with commitment devices.

But part of Ramsey’s approach seems to be a fundamental change of mindset–a revelation and personal transformation. It is no coincidence that Ramsey is an evangelical.

Ramsey’s method looks like something new to me: not a marginal change of behavioral preferences, but a monster-sized one. Adherents are converted, financially, in the same way that some convert religiously.

Well, almost new. Listening to the podcast, it struck me: this is exactly what we are trying to do in Liberia in an RCT with street youth. Half the youth we are working with–drug addicts, street dealers, petty traders, part-time thieves, beggars, sex workers–are receiving training and funds to start a different sort of business. Half of these, though (and half those not getting a grant) are getting indoctrinated into saving, thrift and self-discipline.

I’ve seen this work, if on a small scale. A local youth NGO has a good track record with some real hard cases: addicts, criminal ex-combatants, and the like. We’re trying to see if their system works in a systematic way, and why.

In effect, we’re aiming not for marginal changes among all, but transformation among a few. I only recently saw the parallels to another sort of conversion.

Paternalistic? Manipulative? Absolutely. But people only start in the program if they want to, and we’re only aiming at the youth with behaviors that appear harmful to themselves and (more important) harmful to others.

Note to self: get in touch with McArdle and Ramsey. I wonder if he’d fly to Liberia?

self has essentially no meaning except in distinction to some other, and so the relevant question becomes where to draw the borderline between the two. In social psychology, studies of group identity have suggested that sometimes the notion of self extends beyond that of the individual. Here, we suggest the reverse: in one specific but important way—namely across time—the notion of self is considerably narrower than the individual.

That is Julian Jamison and Jon Wegener in a new behavioral economics paper.

To understand decisions made across time, economists often model individuals and their future selves as separate persons. Just a modeling convenience? Maybe not. Jamison and Wegener argue that brain systems and decision processses work exactly that way.

Worth reading.

…papers written about the US are far more likely to be published in the top five economics journals, even after the quality of research has been partially controlled for through fixed-effects for the authors’ institutional affiliations; the estimates suggest that papers on the US are 2.6 percentage points more likely to be published in the top-five journals.

This is a large effect because only 1.5 percent of all papers written about countries other than the US are published in the top-five journals.

That from a new World Bank research paper by Das, Do, Shaines and Srinivasan. It has many interesting bits. Here is another:

China and India report more publications than all other countries, but twice as much research is produced on China as on India.

For those particularly interested in China-India comparisons, the last finding is puzzling since India has always produced good economists, now spread over various U.S. institutions, who could arguably contribute to research on the country.

The American Economic Association meetings start in Atlanta tomorrow. Full program here.

We have an excellent panel with the unenviable time slot of 8am on the first day. The common theme: offense and defense in warfare.

Do join if you’re awake.

National Defense Policy: Analysis and Implications (H1)

Jan. 3, 8:00 am, Atlanta Marriott Marquis, A706

Presiding: Mike Hanlon (University of Washington)

Can Hearts and Minds Be Bought? The Economics of Counterinsurgency in Iraq

Eli Berman (University of California-San Diego)
Jacob Shapiro (Princeton University)
Joseph Felter (Stanford University)

The Impact of Reconstruction Spending on the Labor Market for Insurgents

Radha Iyengar (London School of Economics)
Jonathan Monten (Yale University)
Matt Hansen (National Bureau of Economic Research)

Violent Rebellions and Criminal States

Mike Hanlon (University of Washington)

The Humanitarian Impact of Economic Sanctions

Ioana Petrescu (American Enterprise Institute)

The Industrial Organization of Rebellion: The Logic of Forced Labor and Child Soldiering

Chris Blattman (Yale University)
Bernd Beber (Columbia University)

Discussants:

Justin Wolfers (University of Pennsylvania)
Stefano Dellavigna (University of California-Berkeley)
Michael McBride (University of California-Irvine)
Robert McNab (Naval Postgraduate School)
Edward Miguel (University of California-Berkeley)

Congress and Wall Street and Main Street are for once in agreement: enough of this market manipulation, China needs to let its currency appreciate and balance its trade; US manufacturing is bleeding on the operating table and China is hoarding the blood supply.

In an AEA talk today, Dani Rodrik tells us to give China a break. His argument: the ‘Depreciate Now!’ view downplays the extent to which China’s currency and trade policy has driven its astonishing growth and social stability.

It also downplays the fact that China’s imbalance is also quite a recent phenomenon – since just 2001—the year that China joined the WTO. (WTO membership meant abandoning many of its traditional tools of industrial policy. So the currency strategy is, at minimum, a means of managing the transition.)

Even if currency manipulation is no temporary move, maybe we should simply let China be. For a bit. China has more poor people than any country but India, and Chinese trade and industrialization has done more to reduce world poverty than any action in the history of humankind. Letting that machine run for a few more years may be the greatest kindness of strangers in human history as well.

I could also see a fairness argument to be made. The West (if I remember my economic history) enjoyed a long period of trade surpluses that helped speed its own growth. Is it time to give other nations a chance?

Dani makes a slightly different point, however: if we take the long view, a growing China with a labor surplus employed is a safer China (and, by extension, a better safer world). Our short run pain is everyone’s long term gain.

I tend to agree, but with one reservation. Dani’s idea seems founded on another conventional wisdom: the idea that the risk of social unrest rises with the number poor and unemployed young men. Is that true?

It’s surprising how entrenched is this view, in spite of an absence of good evidence, especially at the micro level. The little evidence in political science and some economics suggests the instigators, terrorists and guerillas of the world seem to be drawn from elites, students, and middle classes at least as often as they come from the poorest and unemployed.

Apologies to Dani if I misrepresent his view–I blogged after hearing the 10-minute talk rather than  reading the full paper. When I’m mistaken, though, my readers are very good at pointing it out. Fire away…

Yes, says Ioana Petrescu, albeit temporarily and (I would add) maybe not in the big picture.

Economic sanctions are the West’s knee-jerk response to nasty actions by nasty regimes. Make nastiness more costly, the logic goes, and maybe we’ll make the regime less nasty, see a less nasty regime replace them, or deter aspiring nasties elsewhere from indulging their nastiest desires.

One worry: what about the non-nasty citizens who suffer as well? Sanctions can lead to price spikes, scarcity, and a withdrawal of aid. In this case, who really suffers?

In a new paper, Ioana looks at the effect of exposure to sanctions in utero on a child’s risk of mortality, birth weight, and later-life height. Babies get compared to cohorts born later, and thus not exposed to the shock, and babies in developing countries where no sanctions occurred.

Her result: decreases in birth weight and increases in mortality, especially in the first year or two of the sanctions, with effects diminishing. Decreases in long term health (indicated by height) when sanctions are most intense.

The temporary effect is interesting. It suggests that regimes are finding their way around the sanctions, or that nations and households adjust; the initial shock disrupts nutrition and incomes, but within a year or two families figure out how to meet their health needs in the new sanctioned world they live in.

Ioana’s results strike me as sensible, but deserve a few cautionary notes.

Most of all, we should be worried that the actions that led to sanctions (e.g. a repressive crackdown) diminish health directly, rather than the sanctions themselves. Another worry: perhaps declining health and incomes precede (or cause?) the nasty actions that lead to international sanctioning. Both kinds of endogeneity would bias us to thinking sanctions look worse than they are.

If I wanted to strengthen the causal case, I might see if there are countries that were ‘almost sanctioned’ and compare those to ones that were ‘nearly not sanctioned’ and see if we see the same result. This strikes me as a better counterfactual, if the cases exist in any number.

Even so, Ioana’s policy advice makes excellent sense: there’s enough risk we are hurting the poor that sanctions should be married, when possible, with pro-poor humanitarian aid (especially aid targeted to pregnant mothers). I might add that travel bans and asset freezing may be more targeted and more effective, not least because they likely impoverish fewer innocents, but also because they give less-nasty politicians in country an added edge.

Last, any policymaker reading this paper should remember that other parameters are important.

Most of all, we should probably consider the health and welfare gains that could come if sanctions succeed. If sanctions promote better government, which leads to better health for all, then the two-year harm to some children could lead to decades of better health for later generations. Ioana has another paper that suggests this may be true.

The decision to sanction is replete with such terrible moral trade-offs. I am sometimes happy to be just an academic and not someone who actually has to make these hard decisions.

Someone using the nom de guerre Thorsten Veblen asked me for a comment on his rant against development economics:

While I can understand the views of Development Economists, I cannot really remember being impressed by any Development Economists, or have ever walked away from a Development Econ presentation/class feeling like I’ve really learned a new, important insight into the fundamental question of Economics: Why are some countries poor? And what can “we” do about it? And this was my feeling today when I sat in on a first graduate development lecture of the term.

Veblen’s reaction is hardly unusual. I almost picked up and left after my first year for similar reasons. But it’s a reaction I came to reconsider. Why is a subject for a longer post, on that elusive day when I have more time. But Veblen’s impression is common enough that I want to respond.

First, something that becomes clear only in retrospect: a graduate class in any field of economics is not attempting to teach you about the big ideas in that field; it’s attempting to teach you method. Your professors are showing by example how to write a tight, well-theorized, well-identified research paper. You have the rest of your life to learn about why some countries are poor (the logic goes) but you will never outside of that class teach yourself how to build a structural model.

Second, a lot of economics research aims to answer narrow questions very well–especially the kind of research that gets you a good job or tenure. Some of this work is mathematical masturbation. Some is a rehashing of puzzles that economists care about only because they are puzzles (and it’s a chance to be clever). But a lot of the research is very good and very important.

To see an example, take a look at Esther Duflo and Abhijit Banerjee’s Growth Theory Through the Lens of Development Economics. They aggregate oodles of mainstream development research into a set of answers (and unanswered questions) about the larger process of development. I think it’s marvelous. And there are many more examples (or I’d have little to write on this blog). Indeed, most of the mainstream development people, in their main work or behind the scenes, contribute to development thought that really matters.

Finally, those seemingly pointless papers that rehash an irrelevant question serve a higher purpose: they advance the method. I could care less about the 100th paper on the ‘returns to education’. Who cares if it is 0.12 or 0.14? But the debate that raged to identify one silly parameter did more to advance our understanding of causal identification in statistics that almost any other question in social science. And the literature is better for it.

Do I wish that junior faculty could pursue big and fuzzy questions in development without committing tenure suicide? Yes. Is the profession distorted towards a narrow set of questions that be answered with a specialized set of tools? To some degree. But do I think that the demand for excruciating rigor in theory and statistics has changed the world? Absolutely.

I finish with the advice from the brilliant, senior, fuzzy development economist who stopped me from leaving the PhD: “Yeah, there’s a lot of bulls**t, but it’s good for you, and it will get better, and soon you’ll get to do what you really want to do. So suck it up and stay.”

I did, and with no regrets. Don’t lose hope.

Readers of this blog know that I think firms are understudied in development. I’ve said before: the path from $2,000 a head to $10,000 a head in GDP is through industrialization.

But how to spur firm growth? Too many economists are too quick to throw up their hands and say we know nothing or can do nothing. And most of the formal industrial organization research feels completely alien to the issues that concern firms in poor countries.

One of the best sessions I saw at AEA is breaking the trend.

David McKenzie discussed a new experiment that provides temporary wage subsidies to owner-operated microenterprises in Sri Lanka, to hire their first employees and expand. The question: will these temporary subsidies lead to permanent growth and jobs?

Businesses might face fixed costs to hiring their first employee, either because they need time to generate the returns that will make the investment pay off, or because they need to learn how to be a manager. Subsidies might push firms across the cost hump (or reduce the risk of trying), leading to a rise in the level (or even the growth rate) of firm revenues. The results of this experiment are yet to come, but his series of firm experiments with Chris Woodruff and Suresh de Mel is one of my favorite suites of experiments around.

As much as fixed costs matter, the real barrier to firm growth in poor countries could be management. A good manager is partly one with training, experience, and a sense of best practice. A lot of a factory’s success comes down to management as a technology, though. Organizing a production floor, ensuring quality and efficient production: these are less a product of a single manager’s talent and more the product of decades of trial and error in manufacturing plants around the world. The problem: if you are running a firm in India or Mexico or elsewhere, the best practices probably haven’t filtered through.

Two papers looked at bridging the gap. Nick Bloom talked about an experiment (also with coauthors) with large textile firms in India. Some received expert operational consulting for a month. Others just a consulting visit. They found horrendous practices–disorganized factory floors, open garbage, little cleaning, no spare parts, lost tools, and little preventative maintenance—and pushed 38 best practices on their treatment firms. Two thirds of the practices were adopted and the majority seem to have lasted more than the first few months. The firms saw huge improvements in quality and profits.

Antoinette Schoar and coauthors did the same with smaller firms in Mexico (one with 1 to 250 employees). They too received subsidized consulting services, mainly sales, marketing and HR advising for owner managers. Again, sales and profits rose.*

What’s happening here? Why aren’t firms investing in knowledge that provides enormous payback? Several market failures are possible: credit constraints, absence of incentives, behavioral defects (like procrastination), to information that is too messy and inaccessible for non-experts to absorb, even if it’s available.

Even though the mechanism isn’t yet clear, the results suggest a lot of potential for industrial policies that provide short-term subsidies to address start-up costs, technology transfer and human capital. For a serious industrial policy, though, figuring out why the experiments work is probably more important than figuring out how well they work.

All in all, in light of yesterday’s comment on the meaningfulness of development research, all are great examples of the kind of research that matters.

*Sorry–public papers aren’t yet available for most of these presentations.

For 400 years the most sophisticated persons in Europe decided difficult criminal cases by asking the defendant to thrust his arm into a cauldron of boiling water and fi…sh out a ring. If his arm was unharmed, he was exonerated. If not, he was convicted. Alternatively, a priest dunked the defendant in a pool. Sinking proved his innocence; fl‡oating proved his guilt. People called these trials ordeals.

No one alive today believes ordeals were a good way to decide defendants’ guilt. But maybe they should.

That is Peter Leeson, pirate economist, explaining the history and economics of ordeals.

Yes, Leeson argues that ordeals accurately determined guilt and innocence. I should probably leave you in suspense (Leeson’s intro does) but I will spoil the fun: the priests fix it. No believer would ever fish out the ring if guilty; the confession would come first. So those who insist must be innocent. ‘Miraculously’, most are unharmed by the ordeal and exonerated.

If you need another reason to read the paper: Leeson is a model of economic prose. This is how papers should be written.

Hat tip to MR.

Just how much did hate radio fuel the Rwandan genocide? David Yanagizawa, an economics job market candidate from Stockholm University, uses Rwanda’s hilly topography to look at the effect of the Mille Collines “hate radio” on violence.

Not all villages are in line of sight of the two national transmitters. The effect of being so? When a village has full rather than zero radio coverage, civilian violence increased by 65 percent and organized violence by 77 percent.

See his many interesting papers here.

Why is Haiti so poor?

Tyler Cowen asks this question on his blog, and thinks through many possible answers. He concludes:

Overall I don’t find this set of possible factors very satisfactory.  Is it asking too much to wish for an economics profession that is obsessed with such a question?

The Haiti question would be very difficult to answer, or answer well, with the standard set of tools now taught in grad school. You could argue the profession is moving in the opposite direction. Indeed, I’m willing to bet that mentioning the Haiti question on a grad school application at a top 5 program would alienate or disappoint a majority of faculty. “Not serious” would be the verdict.

That is not an indictment of the direction of economics, simply disappointment that the direction seems one-way. One might argue a healthy field is one expanding in many interesting directions, with a growing rather than a narrowing toolkit.

I am overstating the point a little, of course. But consider this the rounding out of my recent defense of development economics.

As for the Haiti question, I know too little to say. But when studying development in the Americas, one can seldom do better than reading Engerman and Sokoloff.

After a dramatic slave uprising that shook the western world, and 12 years of war, Haiti finally defeated Napoleon’s forces in 1804 and declared independence. But France demanded reparations: 150m francs, in gold.

For Haiti, this debt did not signify the beginning of freedom, but the end of hope. Even after it was reduced to 60m francs in the 1830s, it was still far more than the war-ravaged country could afford. Haiti was the only country in which the ex-slaves themselves were expected to pay a foreign government for their liberty. By 1900, it was spending 80% of its national budget on repayments.

In order to manage the original reparations, further loans were taken out — mostly from the United States, Germany and France. Instead of developing its potential, this deformed state produced a parade of nefarious leaders, most of whom gave up the insurmountable task of trying to fix the country and looted it instead.

In 1947, Haiti finally paid off the original reparations, plus interest. Doing so left it destitute, corrupt, disastrously lacking in investment and politically volatile. Haiti was trapped in a downward spiral, from which it is still impossible to escape. It remains hopelessly in debt to this day.

Emphasis mine. From the London Times. Hat tip to Naunihal.

Having such a heavy weight round one’s neck is an onerous thing. But I would still look into early governance patterns and power relations, land distribution, and social control for clues to Haiti long struggle against poverty and disaster.

I am reminded of Coffee and Power, by Jeffrey Paige, that looks at the widely different paths four Central American nations took due to (somewhat idiosyncratic) patterns of land distribution and control for coffee production. Coffee is one of those rare crops that produces profitably at several levels of scale.  Costa Rica, which opted for smallholder production, would soar, while Guatemala, which moved towards haciendas and plantations, would crumble. This area remains understudied.

I’m conscious that historical ruminating is callous at a time of crisis. At the same time, the reason why we keep hearing that Haiti is devastated by earthquakes and hurricanes, and the Dominican Republic or Bahamas is not: one has remained poor and badly governed, while the other has not. There are nearly 20 earthquakes of similar magnitude a year on the planet. In some nations disasters kill masses, while in others they merely damage (and so don’t make the news).

In the meantime, my brother tells me that translators (Creole ones, especially) are the relief resource most scarce at the moment. If you speak it, maybe consider a trip. Otherwise, do consider giving.

Want your job stats faster? Nikolaos Askitas and Klaus Zimmermann use Google searches for job search engines in Germany to accurately forecast the monthly unemployment announcements.

Hat tip to M-Clem.

We study how the duration of paid parental leave affects the accumulation of cognitive skills among children. Using a reform which extended parental leave benefits from 12 to 15 months for Swedish children born after August 1988 we evaluate the effects of prolonged parental leave on children’s test scores and grades at age 16.

We show that, on average, the reform had no effect on children’s scholastic performance. However, we do find positive effects for children of well-educated mothers, a result that is robust to a number of different specifications.

That is Qian Liu in Economic Analysis and Policy.

Two caveats. First, the alternative in Sweden is pretty good: subsidized day care. Second, there could be diminishing returns. I imagine the first six months of leave matter more than the 13th to 15th months.

When my wife started her position at a humanitarian organization, she and the other new execs were told that maternity leave could be taken… out of their accumulated sick days. Her fellow new colleague, from Ireland, leaned across the desk to the HR person: “Pregnancy,” she said “is not a sickness.”

We find that a poor country being 1 degree Celsius warmer in a given year reduces the growth rate of that country’s exports by between 2.0 and 5.7 percentage points, with no detectable effects in rich countries. We find negative effects of temperature on exports of both agricultural products and light manufacturing products, with little apparent effects on heavy industry or raw materials. The results confirm large negative effects of temperature on poor countries’ economies and suggest that temperature affects a much wider range of economic activity than conventionally thought.

Ben Jones and Ben Olken in a new working paper.

Note they are dealing with climate shocks, not sustained climate change.

Economics isn’t known for gender balance among senior faculty. So six years ago, the Committee for the Status of Women in the Economics Profession started a randomized controlled trial of a mentoring program for young, female economists. The results?

After five years the 2004 treatment group averaged .4 more NSF or NIH grants and 3 additional publications, and were 25 percentage points more likely to have a top-tier publication. There are significant but smaller effects at three years post-treatment for the 2004 and 2006 cohorts combined.

The NBER paper is here. Ungated here.

Another astonishing fact that may not immediately occur: a Committee subjected itself to a randomized control trial. This is what I love about my profession: the sneaking suspicion it was once colonized by Vulcans.

There are approximately 122 boys born for every 100 girls today, a ratio that means about one in five Chinese men will be cut out of the marriage market when this generation of children grows up.

…Our study compared savings data across regions and in households with sons versus those with daughters. We found that not only did households with sons save more than households with daughters on average, but that households with sons tend to raise their savings rate if they also happen to live in a region with a more skewed gender ratio. Even those not competing in the marriage market must compete to buy housing and make other significant purchases, pushing up the savings rate for all households.

That is Shang-Jin Wei writing in VoxEU.