Showing papers by "Stefan Dercon published in 2008"

Migration and Economic Mobility in Tanzania: Evidence from a Tracking Survey

Abstract: This study explores the extent to which migration has contributed to improved living standards of individuals in Tanzania. Using longitudinal data on individuals, the authors estimate the impact of migration on consumption growth between 1991 and 2004. The analysis addresses concerns about heterogeneity and unobservable factors correlated with both income changes and the decision to migrate. The findings show that migration adds 36 percentage points to consumption growth, during a period of considerable growthin consumption. These results are robust to numerous tests and alternative specifications. Unpacking the findings, the analysis finds that moving out of agriculture is correlated with much higher growth than staying in agriculture, although growth is always higher in any sector if one physically moves. Economic mobility is strongly linked to geographic mobility. The puzzle is why more people do not move if returns to geographic mobility are high. The evidence is consistent with models in which exit barriers are set by home communities (through social and family norms) that prevent migration of certain categories of people.

Fate and Fear: Risk and its Consequences in Africa

Abstract: We review the evidence on risk and its consequences in Africa. We argue that too much attention has been given to the risk management and coping mechanisms used by households, and not enough on its implications and the scope for interventions. Much of the empirical work on risk in developing countries has also focused largely on the short-run implications, and has ignored the long-run. Risk and shocks have important long-run implications for growth and poverty, and distinguishing risk from shocks adds further insights. A few key missing dimensions in the work on risk and its consequences in Africa are also explored. First, microeconomic research on risk has limited itself to work on risks that are ‘easy’ to analyze, such as weather shocks. These risks are still dominating the life of many of the poor, dependent on agricultural production, but these risks are not necessarily central to the growth and poverty tragedy in Africa: which is driven by the lack of African and foreign investment in Africa. In particular, the risks related to poorly functioning markets and economic and political institutions have been underresearched by microeconomists, often leaving the initiative to macroeconomic research. A few examples are offered that appear to start tackling these questions. Finally, research on risk and its implications has to embrace more seriously the experimental and behavioural literature. The research frameworks used in most work on risk and its implications are based on shaky behavioural foundations, building on the expected utility framework – but testing these foundations in the environments were risk really matters, such as the poorest settings of Africa, has largely been lacking, limiting our understanding of whether they matter.

Insurance for the Poor

Abstract: Households in developing countries are exposed to high risks, with important consequences for their welfare. It has long been acknowledged that shocks, ranging from individual-specific (such as illness, theft or unemployment) to economy-wide (such as droughts or recessions), have important implications for consumption and nutrition, not least among the poor. Policy responses have mainly focused on safety nets or other social security mechanisms. This chapter goes beyond this view by arguing, first, that the costs associated with these risks are much higher than those estimated from their short-term impact and, second, that expanding insurance provision for the poor could result in substantial long-term welfare benefits. To illustrate this possibility, we use examples, mainly from Latin America, starting from a consideration of how risk affects the poor and the ways in which they respond to it. The chapter assesses the most promising insurance instruments, while emphasizing that expanding insurance provision should not be seen as a panacea, but instead be viewed as part of a comprehensive extension of protection of the poor.

Literature review on microinsurance

Abstract: This paper provides a selective overview of the current state of research on microinsurance. Its key purpose is to identify knowledge gaps, that deserve further investigation. The review is structured along three core issues: the need for careful evaluation of the impact of microinsurance on the poor, the need to increase our understanding of the nature of the demand for microinsurance, including dimensions related to trust and the understanding of insurance by the poor, and finally, the need for further research on supply dimensions, focusing on the key challenges and bottlenecks for widespread and sustainable provision of microinsurance. For each of these core issues, a brief review of the literature is offered, as well as the questions that could guide further work, informing the research agenda of the Microinsurance Innovation Facility.

Collective Action and Vulnerability: Burial Societies in Rural Ethiopia

Abstract: Collective action can help individuals, groups, and communities achieve common goals, thus contributing to poverty reduction. Drawing on longitudinal household and qualitative community data, the authors examine the impact of shocks on household living standards, study the correlates of participation in groups and formal and informal networks, and discuss the relationship of networks with access to other forms of capital. In this context, they assess how one form of collective action, iddir, or burial societies, help households attenuate the impact of illness. They find that iddir effectively deal with problems of asymmetric information by restricting membership geographically, imposing a membership fee, and conducting checks on how the funds were spent. The study also finds that while iddir help poor households cope with individual health shocks, but shows that the better-off households belong to more groups and have larger networks. In addition, where households have limited ability to develop spatial networks, collective action has limited ability to respond to covariate shocks. Therefore, realism is needed in terms of the ability of collective action to respond to shocks, and direct public action is more appropriate to deal with common shocks.

Millennium Development Goals at Midpoint: where Do We Stand and Where Do We Go?

Abstract: To elaborate this diagnostic we focus on some very basic questions. How much has been achieved? What worked? What did not work well enough and why? What should be done to accelerate progress where needed? What could Europe do to contribute to the acceleration of the agenda? The paper is structured as follows: Section 2 is devoted to a quick review of the evidence available on progress towards the MDGs at global regional and national levels. Section 3 introduces our conceptual framework a tripod that leads us to focus on the global economy on domestic policy in developing countries and on aid. Section 4 focuses on the international environment as well as on policies in developed countries that may affect developing countries through international markets. Section 5 deals with the financing of development and the MDGs through ODA. Section 6 considers the role of domestic policies. Section 7 examines the road ahead drawing the lessons learned so far on MDGs as an instrument to promote plan and implement development. The last section sets out our recommendations in more detail. (Excerpt)

Growth and Poverty in Rural Ethiopia: Evidence from 15 Communities 1994-2004

Abstract: This paper studies the process of growth, poverty and poverty persistence in a panel data set covering 15 communities across rural Ethiopia 1994-2004. It describes growth and the evolution of poverty, illustrating both considerable growth and poverty reduction. It highlights the presence of ‘chronic’ poverty, people that appear poor relatively persistently in the data.

Children and the food price crisis

Abstract: The sharp increase in food prices both in world markets and in local markets since 2006 has raised serious concerns about the food and nutrition situation of poor families in many countries. Particularly in urban areas, where people cannot grow their own food, household budgets have been squeezed. The rapid price increases are especially bad news for young children, as any disruption to their nutrition tends to have serious long-term implications, both in terms of stunting, and lower educational outcomes, affecting their earning potential in later life. This policy brief looks at evidence from the Young Lives cohort study to show how the food price crisis will have both short-term and long-term impacts on children’s health, education, and psycho-social well-being. It also discusses policy options available to alleviate the consequences of the present crisis on children.

Income Risk, Coping Strategies, and Safety Nets

Abstract: Poor rural and urban households in developing countries face substantial risks, which they handle with risk-management and risk-coping strategies, including self-insurance through savings and informal insurance mechanisms. Despite these mechanisms, however, vulnerability to poverty linked to risk remains high. This article reviews the literature on poor households' use of risk-management and risk-coping strategies. It identifies the constraints on their effectiveness and discusses policy options. It shows that risk and lumpiness limit the opportunities to use assets as insurance, that entry constraints limit the usefulness of income diversification, and that informal risk-sharing provides only limited protection, leaving some of the poor exposed to very severe negative shocks. Public safety nets are likely to be beneficial, but their impact is sometimes limited, and they may have negative externalities on households that are not covered. Collecting more information on households' vulnerability to poverty - through both quantitative and qualitative methods - could help inform policy.

Growth, poverty and chronic poverty in rural Ethiopia: Evidence from 15 Communities 1994-2004

Abstract: This paper examines growth, poverty and chronic poverty in 15 Ethiopian villages between 1994 and 2004. Growth and poverty reduction in these communities was substantial; headcount poverty fell from 48 to 35 percent. However, there is also movement in and out of poverty over this period and a significant proportion of the sample was chronically poor. Chronic poverty is associated with several characteristics: lack of physical assets, education, and 'remoteness' in terms of distance to towns or poor roads. The chronically poor appear to be benefit from roads or extension services in much the same way that the non-chronically poor benefit. However, their 'initial' conditions, as captured in estimated latent growth related to time-invariant characteristics suggests that they face a considerable growth handicap. This 'fixed' growth effect is correlated with the characteristics of the chronic poor during the sample period. Chronic poverty, as reflected in poor initial assets and remoteness, appears to be correlated with a divergence in living standards over the sample period.

Symposium on Interactions between Poverty and HIV/AIDS: Adult Mortality and Consumption Growth in the Age of HIV/AIDS

Abstract: This article uses a 13‐year panel of individuals in Tanzania to assess how adult mortality shocks affect both the short‐ and long‐run consumption growth of surviving household members. Using unique data that tracks individuals from 1991 to 2004, we examine consumption growth, controlling for a set of initial community, household, and individual characteristics; the effect is identified using the sample of households in 2004 that grew out of baseline households. We find robust evidence that an affected household will see consumption drop 7% within the first 5 years after the adult death. With high growth in the sample over this time period, this creates a 19 percentage point growth gap with the average household. There is some evidence of persistent effects of these shocks for up to 13 years, but these effects are imprecisely estimated and not significantly different from zero. The impact of female adult death is found to be particularly severe.

Consumption, Vulnerability And Shocks In Rural Ethiopia, 1999-2004

Abstract: Improving our understanding of risk and vulnerability is an issue of increasing importance for Ethiopia as it is for much of Africa. A small, but growing, body of evidence, points to the role that risk, shocks and vulnerability in perpetuating poverty. Specifically, uninsured shocks – adverse events that are costly to individuals and households in terms of lost income, reduced consumption, or the sale of destruction of assets – are a cause of poverty, Further, the threat of such events may cause households and individuals to take actions that, while providing some additional protection against shocks, come at the cost of income gains. The paper examines who is vulnerable to different types of shocks in rural Ethiopia. Using the two most recent rounds of the Ethiopian Rural Household Survey, it will characterize the nature, frequency, and severity of climatic, economic, health and other shocks faced by rural Ethiopian households. It will assess the impact of these on levels and changes in measures of household well-being such as food consumption, total consumption, asset holdings and poverty status between 1999 and 2004. To do so, it will draw on conditional convergence models of growth, but applied here at a micro level. The modeling framework will take changes in these outcomes as a function of the lagged outcome and other covariates, a model of conditional convergence. In such models, endogeneity of these lagged outcomes is a real concern. Our data from earlier rounds of the ERHS as well as shocks information on the period prior to 1999 will provide us with instruments and we will test for the validity of these used standard techniques. Further, the paper will explore the differential effects of these initial conditions and shocks by sub-groups based on location, demographic, and wealth characteristics. Doing so will indicate whether the speed of convergence is effected by transitory shocks and will illustrate what types of households are most vulnerable to different types of shocks. Ethiopian Journal of Economics Vol. 15 (1) 2006: pp. 55-84

Collective action and vulnerability: Burial societies in rural Ethiopia

Abstract: "Collective action can help individuals, groups, and communities achieve common goals, thus contributing to poverty reduction. Drawing on longitudinal household and qualitative community data, the authors examine the impact of shocks on household living standards, study the correlates of participation in groups and formal and informal networks, and discuss the relationship of networks with access to other forms of capital. In this context, they assess how one form of collective action, iddir, or burial societies, help households attenuate the impact of illness. They find that iddir effectively deal with problems of asymmetric information by restricting membership geographically, imposing a membership fee, and conducting checks on how the funds were spent. The study also finds that while iddir help poor households cope with individual health shocks, but shows that the better-off households belong to more groups and have larger networks. In addition, where households have limited ability to develop spatial networks, collective action has limited ability to respond to covariate shocks. Therefore, realism is needed in terms of the ability of collective action to respond to shocks, and direct public action is more appropriate to deal with common shocks." authors' abstract

The impact of agricultural extension and roads on poverty and consumption growth in fifteen Ethiopian villages

Abstract: "This paper investigates whether public investments that led to improvements in road quality and increased access to agricultural extension services led to faster consumption growth and lower rates of poverty in rural Ethiopia. Estimating an instrumental variables model using Generalized Methods of Moments and controlling for household fixed effects, we find evidence of positive impacts with meaningful magnitudes. Receiving at least one extension visit reduces headcount poverty by 9.8 percentage points and increases consumption growth by 7.1 percent. Access to all-weather roads reduces poverty by 6.9 percentage points and increases consumption growth by 16.3 percent. These results are robust to changes in model specification and estimation methods." from authors' abstract

Political Connections and Social Networks in Targeted Transfer Programmes: Evidence from Rural Ethiopia

Abstract: In many developing countries, the beneficiaries of transfer programmes are determined by community-based processes, based on some general targeting rules related to needs. This opens the door for local social and political processes to impact on who gets access. Despite increasingly large scale social protection programmes in Africa, we have limited evidence on the political economy processes involved. We focus on Ethiopia were the local political authorities are in charge of food aid transfers. We investigate whether social networks and political connections matter for access. We find evidence for the hypothesis that the process results in the targeting of households that cannot easily rely on support from relatives or friends. On average, for each additional person the household can rely on in times of need, the probability of this household of obtaining food aid decreases with almost 1 percentage point. We also find strong evidence of political connections and favouritism. Households having close associates holding official positions have, ceteris paribus, more than 10 percent higher probability of obtaining free food than households that are not well connected with powerful households. We do not find evidence for the hypothesis that other social networks in the community influence the food aid allocation process. Finally, investigating reverse causality, we find no evidence that social and political networks are affected by the food aid transfer system.

Human Security and Development in Africa: An Overview

Abstract: This volume revisits the risks posed to sustainable development in Africa by natural disasters, climate change and political violence, contributing to the evidence base and identifying key issues that would warrant further research. It offers a modest contribution to discussions on human security-development nexus drawing on evidence from macroand microeconomic analysis. A key message is that in order to do a more rigorous analysis of the risks posed by key elements of human security to development in Africa, considerable effort should be devoted to data collection. Meanwhile, the evidence available suggest that the effects of these risks on development can be large and long lasting. In terms of policy responses, the insight is that the impact of some of these risks on human development can be mitigated through innovative insurance and financial mechanisms. However, all the contributions to this volume stress the imperative of strong and effective institutions in managing the impact of some of these risks, especially those related to political violence and climate change, as well as reducing the risks themselves.