6th NCID Research Workshop on Development Economics

Experts from international institutions such as the World Bank, Universty of Oxford or King’s College London shared their insights on poverty and development for the 6th NCID Research Workshop. Organized by the Navarra Center for International Developmentfrom the Institute for Culture and Society (ICS) and the Fundación Ramón Areces, the event took place on May 8th in Madrid.

The first session was titled “Profits and Mission: Performance Incentives in a Multi-goal Development Organization” given by Xavier Gine from the Development Research Group of the World Bank. He spoke about how the impact of performance pay in institutions with multiple goals depends on the degree of complementarity between tasks achieving each goal.

For that purpose, the study was carried out among workers of a microcredit-centered development institution, in which they were randomly assigned to one of two bonus schemes, incentivizing either the performance of a microcredit program that contributed to its sustainability (credit bonus), or social mobilization, the institution’s mission (social bonus). They found that the credit bonus improved credit-related outcomes but it undermined the mission. In contrast, the social bonus advanced the mission without compromising the microcredit program but only for employees working alone, as it impacted negatively the performance of employees working in teams. The research concluded that a fixed wage is the optimal contract if the institution cares both about sustainability and its mission.

The second session was given by Sanjay Jain from University of Oxford and was titled “Redistributive Promises, Transfers to Special Interests, and the Political Economy of Reform with Limited State Capacity”.

The starting point was an enduring question in political economy: why “efficiency-improving” economic policies are so often politically difficult to adopt. The paper examined how the presence of special interest groups on the one hand, and limited taxation capacity on the part of the state on the other, affects the sorts of redistributive policies that are necessary to win support for reform from potential losers of that reform. Voters recognize that the government, in compensating losers, has an incentive to misuse this redistributive mechanism to disproportionately steer compensation towards its supporters, or to other special interest groups. Their analysis suggested that this is particularly damaging in countries with low state capacity, where popular support for the adoption of efficiency-enhancing reforms is likely to be the lowest in any case. The session ended with some suggestive evidence for this.

Roland Hodler, from University of St. Gallen was the third speaker, with the session title “Oil Spills and Infant Health in Nigeria”, a research that was motivated in part bearing in mind that most contributions to the large literature on the natural resource curse focus on the country level. They decided to study the development impact of oil deposits at the local level in Nigeria instead.

Using geo-localized survey data, various development and wealth indicators for localities within and outside of oil regions were constructed. To establish causality they employed differences-in-differences estimators and exploited the rapid increase in the international price of oil from 2003 to 2008. The findings include that the price increase tends to harm communities in oil-producing regions relative to other regions, which is evidence for an oil curse at the local level in Nigeria. These negative effects do not spill over to neighboring regions. Rather, they found evidence for at least some positive spillovers of the oil price surge to neighboring regions, which are not traceable to fiscal redistribution of oil windfalls.

Achyuta Adhvaryu, from University of Michigan, gave the last session in the morning. His talk, “The Skills to Pay the Bills: Returns to On-the-job Soft Skills Training” was centered on evaluating the impacts of training in soft skills development on the work place of female garment workers in Belngaluru, India.

They implement a lottery determining access to the program by randomizing lines and then workers within lines to treatment, which allows capturing treatment effects and program spillovers. They find that despite a high overall turnover rate, more treated workers are retained during the training period; this difference disappears after training is complete. Treated workers are 12 percent more productive than controls. Within-team spillovers in productivity and task complexity are substantial. Survey outcomes support the hypothesis that the program increased the stock of soft skills, which raised workers’ marginal products. Wages increase by 0.5 percent after program completion. Pairing our point estimates with program costs, we calculate that the net return to on-the-job soft skills training for garment workers is large – about 250 percent 9 months after program completion.

After the lunch that was enjoyed by the speakers and participants in the warm weather of Madrid in the Fundación Ramón Areces, Alessandro Tarozzi from Universitat Pompeu Fabra spoke about “Knowing (Your) Well: An Evaluation of Alternative Strategies to Increase Demand for and Responses to Information on Arsenic-contaminated Tubewell Water in Bangladesh”.

He described results from a randomized controlled trial in 123 villages in Sonargaon, Bangladesh, where tests were sold under different conditions. They evaluate both the impact on demand and the impact on risk-mitigating behavior, conditional on purchase. They found that at a relatively low price of 45 Takas (about 2 PPP USD) only 22 percent of households purchased a test, despite widespread awareness about arsenic risk and infrequent knowledge about the safety of one’s drinking water. Sales were increased neither by “nudges” in the form of visible metal placards indicating safety status, nor by offers that attempted to exploit local networks by incentivizing group purchases, but contracts requiring payment only in case of “good news” more than doubled demand. They also find that the different interventions led to heterogeneous impacts on switching away from unsafe wells, likely due to both selection and differential impacts conditional on purchase. Conditional on learning about the unsafe status of one’s tubewell water, group purchases, visible placards and fees-for-good-news (but only at lower prices) about doubled the fraction of households which stopped drinking water from contaminated wells.

Pramila Krishnan from University of Oxford gave the next session, titled “Fading Choice: Transport Costs and Variety in Consumer Goods”. She started of from the fact that lack of market development in remote areas is usually measured by spatial variation in prices for a given set of consumer goods.

For the research, they focused instead on the way distance constrains the choices consumers can make and construct a model of monopolistic competition between traders moving goods from market towns to rural areas. An increase in transport costs reduces consumer welfare not only through lower incomes for farm households and higher prices for manufactures but also through reduced availability of manufactures: choice fades with distance. The model allows for heterogeneity of villages in terms of market size and the distribution of income. They test the model using data from a purpose- designed survey of shops and consumers in rural villages in Ethiopia. Similar effects are found whether measuring variety using the number of brands or items available. Falling transport costs, larger market size and higher inequality dramatically raise variety available in village shops and markets. Poverty measures do not take into account spatial variation in the variety of goods available. Their results therefore suggest that the level of poverty is underestimated while the rate at which poverty declines is underestimated as well.

The next session was titled “Exposing Corruption: Does Electoral Competition Discipline Incumbents?” by Amrita Dhillon from King’s College London, and was centered on developing countries with weak institutions, were there is implicitly a large reliance on elections to instill norms of accountability and reduce corruption.

In the paper, they show that electoral discipline may be ineffective in reducing corruption when political competition is too high or too low. By building a simple game theoretic model to capture the effect of electoral competition on corruption, they show that in equilibrium, corruption has a U-shaped relationship with electoral competition. If the election is safe for the incumbent (low competition) or if it is extremely fragile (high competition) then corruption is higher, and for intermediate levels of competition, corruption is lower. They also predict that when there are different types of corruption, then incumbents increase corruption in the components that voters care less about regardless of competition. They test the model's predictions using data gathered on audit findings of leakages from a large public program in Indian villages belonging to the state of Andhra Pradesh during 2006-10 and on elections to the village council headship in 2006. The results largely confirm the theoretical results that competition has a non-linear effect on corruption, and that the impact of electoral competition varies by whether theft is from the public or private component of the service delivery. Overall, results suggest that over-reliance on elections to discipline politicians is misplaced.

Nishith Prakash from University of Connecticut was the last speaker of the day before the keynote conference, and the title of the session was “Do Criminally Accused Politicians Affect Economic Outcomes? Evidence from India”.

He started by stating that the recent increase in the number of criminally accused politicians elected to state assemblies has caused much furor in India. Despite the potentially important consequences and the widely divergent views, the implications of their elections to state legislative assemblies on constituency-level economic performance are unknown. Using a regression discontinuity design and data on the intensity of night lights in satellite imagery at the constituency level, their results suggest that the cost of electing criminally accused politicians on measures of economic activity is quite large. Using estimates of the elasticity of GDP to light, they find that the election of criminally accused candidates lead to roughly 5 percent lower GDP growth per year on average. These estimated costs increase for candidates with serious accusations, multiple accusations, and accusations regarding financial crimes.

The keynote speech, titled “Biased Civil Servants” was given by Stefan Dercon, Professor of Economic Policy at the Blavatnik School of Government, Director of the Centre for the Study of African Economies, both at the University of Oxford, and Chief Economist of the United Kingdom’s Department for International Development.

We are very thankful to all the speakers and participants for joining us in this year’s workshop. We hope to see them and many more in the editions to come.

Working Papers: