Social welfare functions that assign weights to individuals based on their income levels can be used to document the relative importance of growth and inequality changes for changes in social welfare. This method is applied in a new working paper by David Dollar, Tatjana Kleineberg, and Aart Kraay. They find that, in a large panel of industrial and developing countries over the past 40 years, most of the cross-country and over-time variation in changes in social welfare is due to changes in average incomes. In contrast, the changes in inequality observed during this period are on average much smaller than changes in average incomes, are uncorrelated with changes in average incomes, and have contributed relatively little to changes in social welfare.
LTD Editors's blog
A new book by Puja Dutta, Rinku Murgai, Martin Ravallion, and Dominique van de Walle looks at how successful India’s 2005 National Rural Employment Guarantee Act has been in creating 100 days of wage employment per year to all rural households whose adult members volunteer to do unskilled manual work in public works projects at a stipulated minimum wage. The bulk of the study focuses on the scheme’s performance in one of India’s poorest states, Bihar. There the scheme seems to be falling well short of its potential impact on poverty. Workers are not getting all the work they want and they are not getting the full wages due. Many report that they had to give up some other income-earning activity when they took up work. The unmet demand for work is the single most important policy-relevant factor in accounting for the gap between actual performance and the scheme’s potential impact on poverty. The book suggests that supply-side constraints must be addressed in addition to raising public awareness, and identifies a number of specific supply-side constraints to work, including poor implementation capacity, weak financial management and monitoring systems.
The proliferation of new financial products and services continues to outpace the capacity of individuals and families to make informed financial choices. Financial education geared toward adults has shown low uptake, so the focus has shifted to introducing financial literacy during the schooling years. This research looks at a comprehensive financial education program spanning six states, 868 schools, and approximately 20,000 high school students in Brazil through a randomized control trial. The program increased student financial knowledge by a quarter of a standard deviation and led to a 1.4 percentage point increase in saving for purchases, better likelihood of financial planning, and greater participation in household financial decisions. “Trickle-up” impacts showed improvements in parental financial knowledge, savings, and spending behavior. The evidence suggests the program affected students’ preferences and attitudes about financial decisions well beyond the schooling years. Read the entire paper here.
Equitablog, run by the Washington Center for Equitable Growth, has launched a series of 'Notes and Finger Exercises on Thomas Piketty’s “Capital in the Twenty-First Century”.' Brad DeLong's post, 'There Are Four r’s', details some alleged oversights in Piketty's book. In particular, DeLong focuses on how the real interest rate behaves at different levels of economic activity. He highlights Larry Summers' concern about secular stagnation and the risk that rich folks might retreat from investing in industry. And DeLong pulls out some sexy math.
Matthew Gentzkow has won the John Bates Clark Medal, an honor conferred by the American Economic Association for his contributions to "our understanding of the economic forces driving the creation of media products, the changing nature and role of media in the digital environment, and the effect of media on education and civic engagement..."
With the phenomenal growth of microfinance institutions representing 30 million members with over $2 billion of annual disbursement over the past two decades, it is important to understand the dynamics of microcredit expansion and its induced impact on household welfare. A new World Bank working paper by Shahidur R. Khandker and Hussain A. Samad uses long panel survey data spanning over 20 years to examine the dynamics of microcredit programs in Bangladesh.
President Jim Yong Kim, Prof Jeff Sachs, Chief Economist Kaushik Basu and Annie Lowrey of the New York Times participated in a panel last Friday titled 'Sharing Prosperity, Delivering Results.'
The four discussed the challenges of achieving the World Bank Group's goals of ending extreme poverty and boosting shared prosperity, and in so doing, all stressed the need to take on the goals with an activist's zeal.
From calling for a Data Revolution to analyzing the power of migration and development, to sharing prosperity and the moral imperative of ending poverty and discrimination, there are a dizzying array of events, meetings and ideas buzzing at this week's Spring Meetings of the WB and IMF.
On Data, you can watch the webcast of an event at the Bank where Jim Yong Kim, the Chief Economist of the AFDB and Haishan Fu of the Data Group in the Development Economics Vice Presidency spoke of their vision for better statistics harnessed for the greater good. Also, David Roodman has a compelling post on what it will take to overhaul methods of data collection and donor as well as country coordination.
This paper reviews the empirical evidence on the existence of poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor. Poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor, have captured the interest of many development policy makers, because poverty traps provide a theoretically coherent explanation for persistent poverty. They also suggest that temporary policy interventions may have long-term effects on poverty. However, a review of the reduced-form empirical evidence suggests that truly stagnant incomes of the sort predicted by standard models of poverty traps are in fact quite rare. Read the entire paper here.
Virginia Gewin of Nature magazine carries a story on USAID's new Global Development Lab, a $100 million effort that will fund research into technological solutions for targeted problems related to food security and nutrition, maternal and child survival, energy access and sustainable water solutions.
The Washington Post's Monkey Cage has a post on crony capitalism in Tunisia that draws from the findings of a widely reported WB working paper by Bob Rijkers, Caroline Freund and Antonio Nucifora titled 'All in the Family: State Capture in Tunisia.'
Kayode Ogunbunmi, correspondent from City Voice newspaper in Nigeria, covered the World Bank's Annual Land and Poverty Conference in Washington this week his story for Reuters TrustLaw website looks at how foreign investors are often blamed for Africa land grabs conducted by local ruling elites.