The first day of the IV Development Week, organized by the NCID of the University of Navarra, focused on issues related to Human Capital in developing countries from a microeconomic perspective. Studies carried out in china, Mexico, India, Ecuador and Macedoinia among others were presented. This event took place June 1st and 2nd at the IESE Business School in Madrid.
After the opening session by Luis Ravina, director of the NCID, Jere Behrman, professor of the University of Pennsylvania, presented his paper: ‘Aligning Learning Incentives of Students and Teachers: Results from a Social Experiment in Mexican High Schools'. His presentation evaluated the impact of three different performance incentives schemes using data from a social experiment that randomized 88 Mexican high schools with over 40,000 students into three treatment groups and a control group. The first Treatment provided individual incentives for performance on curriculum-based mathematics tests to students only, the second treatment did the same but to teachers only and the third treatment gave both individual and group incentives to students, teachers and school administrators. Program impact estimates revealed the largest average effects for treatment three, smaller impacts for treatment one and no impact for treatment two.
Marcos Vera Hernández, from University College London gave a lecture titled: ‘Can Bureaucrats Really be Paid Like CEOs? Performance Incentives for Improving Child Nutrition in Rural Chinese Schools'. In his presentation he explained his research on incentives for school administrators and how the response to these incentives would vary the quantity of resources under their control. He focused to reduce childhood anemia in rural China.
The paper explains a random assignment of 170 schools to three levels of performance pay for reductions in student anemia. In the results three key findings were emphasized. First, with a smaller block grant, large incentives were effective, but smaller incentives (10% of the size) were ineffective in reducing anemia. Second, absent explicit anemia-based incentives, increasing the size of block grants under the control of school administrators lead to sizeable reductions (but was nearly twice as costly as incentives alone). Third, they found that incentives crowd out the effect of additional resources (or vice-versa). Their evidence suggested that this crowding-out is attributable, at least in part, to risk avoidance and the nature of existing ‘bureaucratic incentives’ facing school administrators.
‘Firm responses and the unintended consequences of piecemeal regulation' was the title of of the presenation given by Gianmarco Leon (Pompeu Fabra University). According to his research, when state capacity is limited, regulations are often designed piecemeal, thus it raises the possibility that new regulations can worsen ignored externalities generated up- or downstream in the production chain. Using daily administrative and survey data, his research showed that in Peru’s industrial fishing sector, the world’s largest, air pollution from downstream (fishmeal) manufacturing plants caused 55,000 additional respiratory hospital admissions per year as a consequence of the introduction of tradable fishing vouchers. By removing suppliers’ incentive to “race” for the resource and enabling market share to move from inefficient to efficient firms, the reform spread production across time, as predicted by his model. Gianmarco showed that longer periods of moderate air pollution are worse for health than shorter periods of higher intensity exposure. His findings exposed the risks of piecemeal regulatory design in linked production chains and the importance of the often-ignored time profile of production.
Oliver Vanden Eynde, from the Paris School of Economics, presented his research: ‘Military Service and Human Capital Accumulation: Evidence from Colonial Punjab'. He explored the impact of military recruitment on human capital accumulation in colonial Punjab. The empirical strategy exploited the exogenous increase in recruitment by the Indian Army during the First World War. Higher military recruitment is found to be associated with increased literacy at the district-religion level. The results indicate that 10 additional WWI recruits per 1,000 of the 1911 male population are on average associated with 3 more literate males per 1,000 in 1931. Further analysis indicates that the observed improvement in the human capital stock was mainly driven by the direct acquisition of literacy skills by illiterate soldiers. Finally, a political economy mechanism is not supported in this context: military recruitment was not associated with increased investment in public education.
Alex Armand, research at the NCID, presented his research ‘Who Wears the Trousers in the Family? Intra-household Resource Control, Subjective Expectations and Human Capital Investment'. His paper studied how the interaction between intra-household allocation of resources and parental beliefs about the returns to education influences human capital investment among poor households. For this purpose, he studied a conditional cash transfer program in the Republic of Macedonia, aimed at improving secondary school enrollment among children in poor households. For identification he exploited the random allocation of payments either to mothers or household heads, together with unique information on parental subjective expectations of returns to schooling. He showed that targeting mothers leads to an increase in secondary school enrollment only for children whose parents’ expected returns on education are sufficiently high at the beginning of the program.
The last session of the first day was given by Pedro Carneiro, from University College London and was titled: ‘A Helping Hand? Teacher Quality and Learning Outcomes in Kindergarten'.
In this work they used randomized assignment to assign two cohorts of kindergarten students, totaling more than 23,000 children, to teachers within schools. They collected data on children at the beginning of the school year, and applied 12 tests of math, language and executive function (EF) at the end of the year. All teachers were filmed teaching for a full day, and the videos were coded using a recently-developed measure of teacher behaviors (the Classroom Assessment Scoring System, or CLASS). They reached significant conclusions on teachers: the behaviors of teacher are more significant that their individual characteristics IQ or personality) in order to achieve higher learning outcomes.
The NCID is a research group of the Institute for Culture and Society (ICS) of the University of Navarra that aim to research on scientific, viable and effective solutions to poverty issues in Sub-Saharan Africa, Asia and Latin America.
The second of the IV Development Week of the Navarra Center for International Development of the University of Navarra focused on topics related to macroeconomics in developing countries. This event took place at IESE Business School in Madrid and included issues on monetary policy in an interdependent world of the resilience of emerging markets when facing a global crisis.
The first speaker was Sebastian Edwards, professor of International Economics at the University of California - Los Angeles, co-director of the National Bureau of Economic Research's ‘Africa Project' and former chief economist for Latin American at the World Bank. In his presentation ‘Monetary Policy and Recovery in an Interdependent World' he questioned whether countries with flexible exchange rates have historically been able to pursue a truly independent monetary policy, in light of traditional theory’s support of this concept. He argues that to the extent that central banks take into account other central banks’ policies there will be a “policy spillover,” and monetary policy will not be fully independent. His work he analyses three Latin-American countries: Chiles, Colombia and Mexico to see to what extent the policy change in the Federal Reserve can influence domestic policy interest rates.
The following presentation was given by Eduardo Cavallo, economist form the Inter-American Development Bank on ‘Precautionary Strategies and Household Saving'. He explained that from the observable data the found a negative correlation between risk and private saving in cross-country comparisons, particularly in developing countries. He provided a plausible explanation for the disconnect between precautionary-saving theory and the empirical evidence that is based on a model with a richer account for the various modes of ‘precautionary’ behavior by private agents, in cases where institutions are weaker and labor informality is prevalent. In such environments, household saving decisions are intertwined with firms’ investment decisions. As a result, the interaction between saving behavior, broadly construed, and aggregate risk and uncertainty, may be more complex than is frequently assumed.
Size of firms and the qualification of professionals
Pedro Gomes, from Universidad Carlos III de Madrid, presented his paper ‘Human Capital and the Size Distribution of Firms'.
In his intervention he explained the countries that have relatively fewer workers with a secondary education have smaller firms. The shortage of skilled workers limits the growth of more productive firms. Two factors influence the availability of skilled workers: i) the education level of the workforce and ii) large public sectors that predominantly hire individuals with a better education. For this research he set up a model economy with a government and private firm formation where production requires unskilled and skilled jobs. Workers with a secondary education are pivotal as they can perform both types of jobs. He found that level of education and public sector employment account for 40-45% of the differences between the United States and Mexico in terms of average firm size, GDP per capita, and GDP per hour worked. It also showed that the impact of public employment on skill premiums and productivity measures depends on the skill bias in public hiring.
Nathalie Pouokam, spoke about ‘A Political Economy Theory of Growth'. In her presentation she explained that according to standard neoclassical growth model developing economies will eventually catch up with leading economies. While good performances from Asian countries support the standard neoclassical growth model, economic stagnation in Sub-Saharan Africa and Latin America calls for a different theory that is capable of explaining both growth miracles and growth tragedies. Her paper showed that a high degree of patience in the preferences of citizens and politicians and the ability of citizens to replace a politician in power are key ingredients for economic growth.
In this way, her paper predicts that all thing held equal, the economies that have the greatest probability to grow are those with the strongest political institutions, or said otherwise, those with the lowest possibility to experience a coup d’etat or give rise to a dictator. However, this relationship between dictatorships and growth that her model predicts is not linear. In fact, it shows that in the case that a country would have a dictatorship, growth would depend on the citizens.
En ese sentido, su paper predice que, en las mismas condiciones, las economías que tienen más probabilidades de crecer son aquellas con las instituciones políticas más fuertes: las que tienen menor posibilidad de sufrir un golpe de Estado o de caer bajo una dictadura. No obstante, esta relación entre dictadura y crecimiento que predice dicho modelo no es lineal: aunque se dé una posibilidad de que el país esté bajo una dictadura, el crecimiento depende de los ciudadanos.
Impact effect in commodity prices shocks
Leandro Medina, economist of the IMF exposed his paper: ‘The Effects of Commodity Price Shocks on Fiscal Aggregates in Latin America'.
His paper analyzed the effects of commodity price shocks on fiscal revenues and expenditures in Latin American countries quarterly from 1995 to 2013. Results indicate that Latin American countries’ fiscal aggregates rise in response to positive shocks to commodity prices, yet there are marked differences across countries. Fiscal variables in Venezuela display the highest sensitivity to commodity price shocks, with expenditures responding significantly more than revenues. At the other end of the spectrum, in Chile expenditures respond very little to commodity price fluctuations and the dynamic responses of its fiscal indicators are very similar to those seen in high-income commodity-exporting countries. Results suggest that this heterogeneity may relate to the enactment of fiscal rules, as different dynamic panel estimations show that government expenditures in countries with fiscal rules respond less to shocks to commodity prices.
Risk factors to emerging markets
Liliana Rojas-Suárez from the Center for Global Development, closed the IV Development Week with her presentation ‘As the Global Cycle Turns: How Resilient are Emerging Markets to Take the Hit?'
Her presentation first identified the three major global risk factors, not fully reflected in financial variables, affecting Emerging Market economies. Then, it assessed the resilience of these economies to deal with major external shocks associated with the identified risks.
The three underpriced global risk factors are: First, a temporary creation of liquidity for emerging markets bonds issued in international capital markets, resulting from the combination of extremely low interest rates in advanced economies and increased regulations affecting international banks. The second underpriced global risk is the over-confidence of international investors regarding their capacity to anticipate the timing and path of the Fed increases in interest rates. The third risk relates to larger than expected financial fragilities in China and the resulting larger than expected deceleration of economic growth over the medium-term to correct for these problems.