Urban Poverty Part II

Yesterday, I discussed how Economists at the World Bank are trying to track poverty numbers in urban areas. Poverty in the developing world is increasing in urban areas, but what can be done about it. This report on urban poverty put together by the UN Economic and Social Commission of Asia and The South Pacific provides an excellent framework for the discussion. As they point out much of the poor in urban areas are involved with informal sector work. In order to move them out of poverty the country must work to provide access to credit so that small informal sector businesses can grow. There needs to be well distributed information on how to do this along with a well functioning system of property rights. All of these changes are not easy (if they were wouldn’t have a problem).

These last two updates were geared toward my Economic Development students to help them write papers on key problems with urbanization in a country of their choice.

How do we help

Today on Marginal Revolution, Tyler Cowen poses a reader's question (link)

“What single intervention would do the most to improve the health of people living on less than $1 a day?”

I was reading the blog while I was preparing for my economic development class this morning. I decided to show a video (which I rarely do) of a 15 minute presentation (linked here) by Bjorn Lomborg lays out the argument that HIV/AIDs then malaria then malnutrition should be the top priorities with Global warming the lowest. As he points out a HIV activist can tell you the best way to combat AIDs in Africa and a global warming scientist the best way to reduce pollution, but it is the job of the economist to determine which project to choose if we can only fund one.

As for Bjorn’s talk, I’m not sure I would put HIV/AIDs so high on the list. It is extremely expensive to treat and the money may have a better pay off in mosquito nets or providing clean water.

Kuznets in Action

In my economic development class the other day I was teaching my students about the idea of a Kuznets curve (link to Wikipedia Entry on Kuznets). Kuznets found an inverted U-shaped relationship between economic inequality and GDP per capita. Specifically he found that as countries develop there tends to be an increase in economic inequality, until the country passes a certain level of development and inequality starts to decrease.

The recent IMF World Economic Outlook for 2007 has shown that economic inequality is increasing in the developing world. Nancy Birdsall of the Center for Global Development has an interesting take on the situation. You can read her blog entry linked here, but she makes three main points

1. Inequality can inhibit future growth
2. Education is the main tool used to combat inequality, but education is highly dependent on income/wealth so education inequality is likely impacted by income inequality.
3. Globalization has losers and winners, in some cases the losers may be the already poor.

The policy to address inequality I'm most familiar with the conditional cash transfer, which pays money to families that send their children to school and if the family visits health clinics. In Brazil and Mexico a significant part of population (10-20%) receives funds through these programs. Although my research and that of most economist has focused on the impacts of these program on education it is worth noting that these programs give substainal cash payment to families usually increasing their income 10-20%. I have not seen an analysis of the long term impacts of these programs on income potential of both parents and children, but perhaps given Dr. Birdsall's 2nd point it is worth examining.

Agriculture and Development

Although fewer and fewer Americans are working in agriculture (see yesterday), in a lot the developing world agriculture (particularly Africa) employs a large majority of the population. This past Friday the World Bank released its annual World Development Report this one features the role of agriculture in development.
Some highlights from the press release linked here

“Agriculture consumes 85 percent of the world’s utilized water and the sector contributes to deforestation, land degradation, and pollution. The report recommends measures to achieve more sustainable production systems and outlines incentives to protect the environment.”

“…in Sub-Saharan Africa, where the [agricultural] sector employs 65 percent of the labor force and generates 32 percent of GDP growth.”

“The report says rich countries need to reform policies which harm the poor. For example, it is vital that the United States reduces cotton subsidies which depress prices for African smallholders.”

Live Long Eat Less

A recent study shows that Cuba might be surpassing US life expectancy (link), because of poverty during the 1990s that caused a decrease in calorie intake. I wonder where the optimal caloric intake is in terms of life expectancy. If we look at a graph of life expectancy and GDP per capita, I do not think we see a positive relationship between poverty and life expectancy. It looks like life expectancy stops increasing at about 10,000 per capita. The big outlier in this case is South Africa, which can be explained by HIV. For some reason Cuba isn’t listed on the graph (perhaps lack of data?), given Cuba’s per capita income of about $5,000 a person we would expect life expectancy base on the data to be close to similar countries like Guatemala and Morocco, which have life expectancy of around 70 years compared to about 77 in the US.

I'll have what Fidel is having to eat.

Tico Trade

In a rare popular vote on a free trade agreement Costa Ricans voted to accept CAFTA (Central American Free Trade Agreement), by a narrow margin of a few percentage points on Sunday. Those against the trade agreement rallied for a march of 100,000 citizens (link) in the capital last week. They cited US agricultural subsidies that pay farmers for milk and grain production, making it difficult for Costa Rican farmers to compete. There were concerns over privatizing state run telecommunication and public works monopolies. Finally, there were also worries that the US would include stricter enforcement of intellectual property rights on drug patents.

All of the reasons cited are legitimate concerns, but Costa Ricans passed the bill in part because of the U.S. unwillingness to renegotiate the trade agreement if the referendum on CAFTA was rejected (link). The greater lesson in all this is it is difficult for small countries like Costa Rica to bargain with the United States.

On a related noted, I once asked the then President of Costa Rica in the summer of 2000 who I met at a forum in DC if there were ever any protest against free trade agreement like Seattle in US a few years ago. He said that would never happen in Costa Rica. Things have changed.

Best Graph EVER!

As an economist I love graphs, perhaps too much sometimes. I had my mind blown yesterday! Hans Rosling has created a system to use UN data on basic economic indicators in the most visually stimulating graph I have ever seen. His graphs plot every country over the last 40 years, then the plots move over time to show change, the dots are sized by population and colored by region. Click on this graph to see the relationship between life expectancy and GDP per capita. If you have 20 minutes, I highly recommend his TED talk too.

Thanks to Dani Rodrick for pointing out this work on his blog.

Who’s the boss? Cable TV, Gender in India

Continuing on the theme of economics and gender issues. Emily Oster, an economist at Univ Chicago, has a recent paper showing that when cable TV is introduced in rural India, that women’s lives improve. Particularly they make more decisions in the household, there are less instances of domestic violence, and the households show less gender bias towards their children. The findings suggest that by watching cable TV, these women see the possibility of gender equality. (Link to brief description of her work with links.)

Perhaps a policy solution in the U.S. and India is to show more reruns of the 1980s sitcom Who’s the Boss, where macho Italian Tony Danza does the housework for advertise executive Angela.

Or maybe they are getting the Life Time Original Movies Channel (so hilariously described by my friend Sarah on her blog).

$100 laptops

The $100 laptop are ready for sale (bbc link). These laptops were designed especially for children in developing countries. The design includes the low price (although it’s now about $200) , water proof case and the ability to use solar or foot power to charge the battery. While the cheap laptop seems like a marvel of technology, I’m still skeptical that the money is best spent on laptop. As a Tunisian government official said:


"If you live in a mud hut what use is that computer for your children who don't have a doctor within walking distance?" (article)


I'm still looking for good economic evaluations of the impact of giving out these laptops to students in the developing world.

I need a phone call

Today one of my students sent me an article on a development project in Africa to provide cellular phone service to 79 villages in 10 African countries. The article begins by discussing how cell phones will help education and health care. I’m skeptical about the returns for cell phone service in terms of education. Where cell phones seem to be the most important are for local entrepreneurs. The article discusses taxi drivers and laborers using the phone to find jobs. However, I think cell phones are even more important for local farmers who can use them to check sale prices in various markets and so they can call around to find the best price for fertilizer. This is because without a phone in rural Africa it is hard to tell when you are getting a good price. On Tuesday in my Development Economics class we will discuss the big push model. In that model entrepreneurs will not start new businesses until enough other people start them. For example, if there is a taxi driver and there are only poor farmers without enough money to pay for a taxi, the taxi business will not be profitable. The taxi drive needs there to be other business men/women to drive around. As Jeffery Sachs, the lead economist on the project and friend of Bono, suggests you need a holistic approach.

Thanks Evelin for the article.

More Disaster Relief

Here is the link to the final article in the three part series by my buddy Dan Rothschild on Katrina recovery.

As I said it is even harder in the developing world. Rebuilding after the Peruvian earthquake that struck a few weeks ago is still going slow. I thought this article really demonstrated the difficulties in distributing aid. I also liked this quote from the article from the President of Peru:

"An earthquake is like a war situation arising from a foreign invasion," García said. "In situations like this we need a single chain of command, with less democracy and a more vertical command structure."

This suggestion reminds me of a recent book (that I'm meaning to read) Paul Collier's the Bottom Billion. Collier suggests military action as a way to make sure that funds get properly distributed and economies function properly in the most war torn states.

Although the results in a sample of one in Iraq are not great so far.