The ‘political poverty trap’: Bolivia 1999-2007

We analyse the recent wave of political instability in Bolivia in the context of a ‘poverty trap’ model which suggests that elements in a country’s political system, as well as its economic structure, may be instrumental in perpetuating a state of poverty. In Bolivia the costs of adjustment in the recent phase have been very severe, with well over a hundred killed between 1999 and 2007 as a direct consequence of demonstrations against aspects of the globalisation and adjustment process, and an appearance of a return to a state of chronic political instability; other countries affected by the global crisis have suffered less severely. Is this because they used the available instruments of adjustment more effectively, or for other reasons? In particular, how does poverty impact fit into the story: would a ‘more effective’ pattern of adjustment have been more pro-poor?

Economic Crisis and Political Participation in a Transitional Economy: Evidence from Russia

The experience of countries adjusting in the wake of the global crisis of 1997-2000 has awakened many debates related to the political economy and social costs of adjustment. Amongst these, the experience of Russia is particularly controversial, both because of the great severity of the shock experienced by a large number of Russians during the process of perestroika, and because of the political consequences, which in many provinces have involved street protests and demonstrations and in some, also violence and demands for secession (Giuliano 2006). These political consequences are relevant to the general question of the political feasibility of adjustment in the circumstances of the present decade, which is examined in several papers within our research project (e.g. Mosley 2007a, 2007b). In this paper, we examine within this context political participation and wage inequality during the 1998 financial crisis in Russia. We use two household survey data sets. The VTsIOM household survey dataset, conducted in 1998 and 1999, was used to analyze individuals’ response patters to escalating economic hardship. Data from the Russian Longitudinal Monitoring Survey (RLMS) was employed in our analysis of the welfare impacts of the crisis. We address two key questions. Firstly, we attempt to identify major factors behind individuals’ propensity to take part in a political protest. In particular, we look at what determines individual support for reform and whether individual propensities change with the targeted audience. Secondly, we attempt to determine who are the winners and losers from the crisis, in the spirit of the earlier analysis of Brainerd(1998).In particular, we analyse whether wage inequality widened during the crisis and whether wage discrimination worsened. These questions are of interest for several reasons. Firstly, the pace and extent of the crisis had a dramatic impact on Russia’s economy which, in turn, may have influenced political mobilization motivated by claims for policy reversals. Secondly, if financial crisis generated wage inequality, it is important to identify the extent, pattern, and nature of the wage inequality for effective policy formulation.

Community development finance institutions and the ‘poverty trap’: social and fiscal impact.

This paper examines the current and potential ability of `community development financial institutions´ – institutions aimed at reducing the incidence of financial exclusion at the bottom end of the capital market – to reduce poverty, and the fiscal implications of this process. It seeks to connect the growing literature on labour supply functions for the self-employed with the literature on poverty and measures to escape from it, generating in the process a `poverty exit function´ which is then estimated against data (at this stage, a pilot sample of 45 self-employed households only, plus their employees) for three UK cities. Our model, by analogy with the `poverty trap´ models sometimes used in developing countries, has potentially self-reinforcing features, in which in the presence of certain parameter values efforts to get out of poverty only make the problem worse; but this, to our knowledge, is the first application of such a model to an industrialised country. The quantitative analysis indicates a negative role, in escaping from the poverty trap, for uninsured shocks. It indicates a positive role for formal education and for institutional measures which protect against risk; indeed, some of independent variables such as training are significant only if interacted with protection against risk, implying that simple injections of inputs are insufficient as a support policy for the sector. We make a preliminary investigation of the fiscal savings arising from investment in the CDFI sector, of which the upper bound is about £350 million a year or about 1.5 per cent of the total social social security budget; these impacts, however, are sensitive to variations in the policies of both CDFIs and the various levels of government support for the sector. The qualitative part of the analysis, in addition, suggests a positive role for `integrated support´ to microentrepreneurs which combines finance, mentoring and training. We have observed that many escapes from the poverty trap are achieved by employees rather than by entrepreneurs, which draws attention to the importance of growing along a labour-intensive production function, which ironically was in our sample secured better by small-to-medium firms than by start-up enterprises. Finally, a key variable in the exit-from-poverty process is the `regeneration multiplier´: the extent to which benefits provided by CDFIs remain within, or leak outside, target areas of high social deprivation. This multiplier varied greatly across our samples, being highest in Glasgow and lowest in Sheffield. We surmise (and proper analysis of this parameter is an important agenda for future research) that the regeneration multiplier varies negatively with the wage level and positively with the level of human capital inside regeneration areas. Diversification of financial products, and accompanying expenditure in support of regeneration areas by incentives to source labour and materials locally, could be a useful addition to this policy agenda.

Microcredit, labour, and poverty impacts in urban Mexico

Improved household accessibility to credit is identified as a significant determinant of intra-household re-allocation of labour resources with important implications for productivity, income, and poverty status. However, credit accessibility could also have wider impacts on poverty if it leads to new hires outside the household. This paper contributes to the existing literature on microcredit in two important ways: first, it investigates the routes through which microcredit reaches those in poverty outside the household. We test whether, by lending to the vulnerable non-poor, microcredit programmes can indirectly benefit poor labourers through increased employment. Second, we conduct the study in the spatial dimension of urban poverty Mexico. This is relevant when considering that, unlike in rural areas, labour often represents the only source of livelihoods to the extreme poor. Our findings point to significant trickle-down effects of microcredit that benefit poor labourers; however, these effects are only observed after loan-supported enterprising households achieve earnings well above the poverty line. The paper concludes with reflections on the policy implications.Mexico, microcredit, labour, poverty

Implicit Models and Policy Recommendations: Policy towards the ‘Informal Sector’ in Kenya

SUMMARY Encouragement of the ‘informal sector’ of employment in developing countries, recommended by many advisers including the ILO's mission to Kenya (1972), is attacked as an ambiguous and, in part, counter?productive policy. Ambiguous in that at least four definitions of informality (according to size of firm, degree of official enumeration, pattern of industrial relations and relationship to the State) are current; possibly counter?productive in that much informal employment is either in the production of ‘inferior’ goods and services with few dynamic growth possibilities, or orientated towards the demands of an elite, and hence undesirable from an equity point of view. RESUME Modèles implicites et recommandations en vue d'une politique à adopter: Le “Secteur non officiel” au Kenya Encourager le “secteur non officiel” du marché du travail dans les pays en voie de développement, comme le recommandent nombre de conseillers, y compris la mission du BIT au Kenya (1972), est, d'après l'auteur, une politique ambigue et, en partie, contre?productrice. Ambigue parce qu'il y a actuellement au moins quatre définitions du caractère non officiel (selon la taille de l'entreprise, le degré officiel, la structure des relations industrielles et des rapports avec l'état) ; sans doute contre?productrice parce que la majeure partie de l'emploi non officiel est soit dans la production de biens et services de qualité inférieure avec peu de possibilités de croissance dynamique, ou bien orienté vers la demande d'une élite, et donc indésirable du point de vue de l'égalité. RESUMEN Recomendaciones de Politica y Modelos Implicitos: El “Sector Informal” en Kenya El alentar el “sector informal” en los países en desarrollo, que ha sido recomendado por muchos asesores, incluyendo la misión de la OIT a Kenya (1972), es criticado por ser una política ambigua y en parte, contraproductiva. Resulta ambigua en que la informalidad ocurre en por lo menos cuatro aspectos (segun el tamaño de la empresa, el grado de oficialidad, la tendencia de relaciones industriales y relaciones con el estado) ; por otra parte, resulta contraproductiva en que mucha de la mano de obra está dedicada a la producción de artículos y servicios de calidad inferior, con pocas posibilidades dinámicas de expansión, o está orientada hacia los requisitos de una clase superior, por lo que no es oportuno desde el punto de vista de igualdad

Fiscal composition and aid effectiveness: A political-economy model

In accounting for the rather gloomy trend of the aid effectiveness literature over the last few years, one explanatory strand has been fiscal, suggesting in particular that aid flows in weak states have tended to erode the taxbase and the structure of institutions. We pursue this idea, tracing the link from politics to domestic tax effort and then using the influence of this on expenditure to explain the leverage of aid. Thus, we argue that in the long run, tax effort determines the effectiveness of aid, and this relationship operates simultaneously in some countries with the negative link in the opposite direction, from aid to domestic tax effort, as observed by Bräutigam and Knack (2004) and others. We find that tax effort and the ability of the state to diversify its taxation structure are important determinants of long-term growth and aid effectiveness, and in our model, we find that overall aid effectiveness is, in a 3SLS model, weakly positive and significant, echoing the findings of Arndt, Jones and Tarp (2009) and Minoiu and Reddy (2010); however, these findings are not robust when retested using the GMMapproach favoured by the literature. A more robust finding, and a key message for policy, is that a broadening of the tax structure in low-income countries is crucial in order to enable those countries to escape from the 'weak state - 3; low tax trap', and to make aid more effective

The importance of a better design of conditionality for improving implementation of World Bank-supported reforms: The case of Sub-Saharan African countries

Some recent empirical research suggests that the implementation of policy reforms is largely dependent on domestic political economy factors. This finding is taken to suggest that aid and adjustment lending should only be provided to those countries that, on the basis of certain characteristics, are more likely to implement policy reform. We put these issues to scrutiny by employing a sophisticated World Bank dataset to explain Sub-Saharan African programme countries’ compliance record. Our empirical results highlight the role of a country’s income status, economic performance and political stability during the programme, the external economic environment, the size of financial support for the reform programme, and initial macroeconomic conditions. These results contradict the evidence underpinning the selectivity approach to policy-based lending and suggest that poor compliance is not the result of low implementation capacity and poor institutional quality alone but also a consequence of poor policy design.

Aid?effectiveness: The Micro?Macro Paradox

SUMMARY Over the last 20 years measured aid?effectiveness has been high at the project level, in the sense that ex post rates of return are more than satisfactory, but low at the macro level, in the sense that it is impossible to establish any statistically significant correlation between aid flows and increases in growth across a sample of recipient countries. Three possible explanations of this paradox are considered: (i) errors in the data; (ii) switching of expenditure within the public sector; (iii) indirect effects of aid on the private sector. Some evidence of the second and third of these is found, to give a partial and incomplete explanation of the ‘micro?macro paradox’ in the case of Kenya. SOMMAIRE Efficacité de l'aide: le paradoxe micro — macro Durant les dernières 20 années l'efficacité mesurée de l'aide à été haute au niveau de projets, dans le sens que les taux de remboursement ex post sont plus que satisfaisant, mais a été basse au niveau macro, dans le sens qu'il est impossible d'établir une corrélation statistique significative entre le montant de l'aide et la croissance à travers un échantillon de pays recevants. Trois explications possibles pour ce paradoxe sont sonsidérées: (i) des erreurs de données; (ii) une réallocation des dépenses dans le secteur public; (iii) des effets indirects de l'aide pour le secteur privé. Le cas du Kenya semble soutenir la deuxième et la troisième, et nous donne une explication partielle et incomplète de ce ‘paradoxe micro — macro’. RESUMEN Efectividad de la ayuda: la paradoja macro/microeconómica La medición de la efectividad de la ayuda durante los últimos 20 años, demuestra que ésta ha sido alta a nivel de proyectos, en el sentido de que las tasas de retorno ex post son más que satisfactorias. Sin embargo, a nivel macroeconómico éstas son bajas, en el sentido de que es imposible establecer correlaciones estadísticamente significativas entre flujos de ayuda y aumentos en el crecimiento en una muestra de países receptores. Se consideran tres posibles causas de esta paradoja: (i) errores en los datos, (ii) cambios de la estructura del gasto fiscal, (iii) efectos indirectos de la ayuda en el sector privado. Una explicación parcial e incompleta de la paradoja en el caso de Kenya, se encuentra en la segunda y tercera de las causas mencionadas

Evaluating the Health Effects of Micro Health Insurance Placement: Evidence from Bangladesh

We examine the impact of micro health insurance placement on health awareness, healthcare utilization and health status of microcredit members in rural Bangladesh, using data from 329 households in the operating areas of Grameen Bank. The results are based on econometric analysis conditioned on placement of the scheme, and show that placement has a positive association with all of the outcomes. The results are statistically significant for health awareness and healthcare utilization, but not for heath status. Our study makes an important contribution to the literature as it provides evidence on the impact of MHI on a broad set of health outcomes.Microcredit, Micro Health Insurance, Grameen Bank, Bangladesh