Child Labor

Child labor exists because it is the best response people can find in intolerable circumstances. Poverty and child labor are mutually reinforcing: because their parents are poor, children must work and not attend school, and then grow up poor. Child labor has two important special features. First, when financial markets are imperfect, the separation in time between the immediate benefits and longdelayed costs of sending children to work lead to too much child labor. Second, the costs and benefits of child labor are borne by different people. Targeted subsidies for school attendance are very effective in reducing child labor because they successfully address both of these problems.child labor, human capital, household economics

The Return to Capital in Ghana

We show that the real return to capital in Ghana's informal sector is high. For farmers, we find annual returns ranging from 205-350% in the new technology of pineapple cultivation, and 30-50% in well-established food crop cultivation. We also examine the relative prices of durable goods of varying durability, and estimate a lower bound to the opportunity cost of capital of 60%.Capital, durable goods, credit markets

Saving in Sub-Saharan Africa

Gross domestic savings in Africa averaged only 8 percent of GDP in the 1980s, compared to 23 percent for Southeast Asia and 35 percent in the Newly Industrialized Economies. Aside from being generally low, saving rates in most of Africa have shown consistent decline over the last thirty years. These savings figures must be considered tentative, because they are derived as a residual in the national accounts from expenditure and production data that are themselves quite unreliable. Notwithstanding the problems of measurement, it is clear that savings are dominated by household savings. Survey evidence in turn shows that household savings are primarily in the form of non-financial assets. Financial savings are predominantly directed to informal markets and institutions. The paper documents these trends and provides a simple model of portfolio allocation to guide future research. It is suggested that an array of transaction costs associated with formal financial markets, coupled with the risk management strategies and production activities of households in Africa account for the patterns of saving and portfolio allocation observed in the data.saving, Africa, household savings, transactions costs, risk management

Intrahousehold Resource Allocation in Cote d'Ivoire: Social Norms, Separate Accounts and Consumption Choices

We study resource allocation within households in C“te d'Ivoire. In C“te d'Ivoire, as in much of Africa, husbands and wives farm separate plots, and there is some specialization by gender in the crops that are grown. These different crops are differentially sensitive to particular kinds of rainfall shocks. We find that conditional on overall levels of expenditure, the composition of household expenditure is sensitive to the gender of the recipient of a rainfall shock. For example, rainfall shocks associated with high yields of women's crops shift expenditure towards food. Strong social norms constrain the use of profits from yam cultivation, which is carried out almost exclusively by men. In line with these norms, we find that rainfall-induced fluctuations in income from yams are transmitted to expenditures on education and food, not to expenditures on private goods (like alcohol and tobacco). We reject the hypothesis of complete insurance within households, even with respect to publicly observable weather shocks. Different sources of income are allocated to different uses depending upon both the identity of the income earner and upon the origin of the income.

Institutions and Development:A View from Below

In this paper we argue the case for greater exploitation of synergies between research on specific institutions based on micro-data and the big questions posed by the institutions and growth literature. To date, the macroeconomic literature on institutions and growth has largely relied on cross-country regression evidence. This has provided compelling evidence for a causal link between a cluster of ‘good’ institutions and more rapid long run growth. However, an inability to disentangle the effects of specific institutional channels on growth or to understand the impact of institutional change on growth will limit further progress using a cross-country empirical strategy. We suggest two research programs based on micro-data that have significant potential. The first uses policy-induced variation in specific institutions within countries to understand how these institutions influence economic activity. The second exploits the fact that the incentives provided by a given institutional context often vary with individuals’ economic and political status. This can help us better understand how institutional change arises in response to changing economic and demographic pressures.Institutions, Growth, Cross-Country Regressions

Consumption Smoothing? Livestock, Insurance and Drought in Rural Burkina Faso

This paper explores the extent of consumption smoothing between 1981 and 1985 in rural Burkina Faso. In particular, we examine the extent to which livestock, grain storage and interhousehold transfers are used to smooth consumption against income risk. The survey coincided with a period of severe drought, so that the results provide direct evidence on the effectiveness of these various insurance mechanisms when they are the most needed. We find evidence of little consumption smoothing. In particular, there is almost no risk sharing, and households rely almost exclusively on self-insurance in the form of adjustments to grain stocks to smooth out consumption. The outcome, however, is far from complete smoothing. Hence the main risk-coping strategies, which are hypothesized in the literature (risk sharing and buffer stock), were not effective during the survey period.Livestock, consumption smoothing, permanent income hypothesis, precautionary saving, risk sharing