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11/15/2019

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Maggie Kidder

In Milovich’s article, “Does Aid Reduce Poverty?” she hones in on closing two gaps by properly identifying the causal effect of aid on alleviating poverty as well as obtaining reliable poverty data, both of which have remained inconclusive in previous studies. Past studies have not correctly disentangled the causal relation between lower economic growth and higher poverty because both might lead to attracting more foreign aid. Therefore, Milovich studies the differences in the number of years countries have been temporary members of the UNSC in and assesses that higher economic aid disbursed by the U.S. between 1946 and 1999 has a significant relationship with lower multidimensional poverty between 2000 to 2014.

I find this approach particularly interesting because it follows the creation of the Council in 1946 and tracks the history of aid where it increased to its first high in 1955, began to decline to its first low in 1974, rose before declining again in the 1990s, and then reached its second low in 1997 before a drastic increase. The report shows that a key factor for the effectiveness of foreign aid is the importance of sound policies, institutions, and economic management. It also advocated for continued aid donation as the “climate for effective aid is the best that it has been in decades.”

However, this report makes me ponder how current economic pressures stemming from European refugee crises and other internal security issues can induce wealthier countries to lower their foreign aid for poorer countries and how tapering off aid impacts these developing nations.

When the global aid system was implemented after World War II, key donor countries like the U.S. and financial institutions like the World Bank classified poor countries based on its citizen’s income, and as this article shows the relationship between poverty measured from an income perspective is not significant. Additionally, focusing on the relationship between foreign aid and economic growth doesn’t account for social factors like education, health, and quality of life, which impact the well-being of a population.

Today, the World Bank reports that middle income countries account for 75% of the world’s population and 62% of the world’s poor. This group accounts for lower middle-income economies with a GNI per capita of $1,006 - $3,955 and upper middle-income economies with a GNI per capita of $3,956 -$12,235. However, once the economies jump from lower-income to middle-income status, the aid and loans that have allowed them to grow tend to stop as well. Because the threshold for defining middle-income countries is still so low, countries with high levels of poverty that lose foreign aid in an immediate manner will faulter and it is difficult to support the efforts in improving health, education, and quality of life. Therefore, I think foreign aid should work on assisting countries with smoother transition after ending aid and help the poorer countries implement productive long-term strategies to continue with growth to ease their reliance on aid.

World Bank Data: https://www.worldbank.org/en/country/mic/overview

Sofia G. Cuadra

Parker and Vogl’s paper on conditional cash transfers, seeks to explore the long-term effects of Mexico’s Progresa program as a government strategy to alleviate current poverty and poverty in the next generation. I found the article really interesting because it allowed me to learn more about the high potential that cash transfers hold in fostering economic development. In a Latin American politics class I took last year, we learned a little bit about a similar program in Brazil called “La Bolsa Familia.” I knew the program represented a major success in reducing the level of inequality and hunger in the country, but I didn’t really understand the economics behind the conditional cash transfer model. So, this article was really helpful in clarifying the model and providing clear evidence on how conditional cash transfers can have positive, long-term effects for youth exposed to the programs early.

Nonetheless, I found it particularly interesting that conditional cash transfers had significant effects on women across education, labor, earnings, and even their economic status within the household. For example, women exposed to the program at an early age increased their labor market participation by 7-11 percentage points and allowed them raise earnings by 30 to 40 US dollars per month. Since the effects were for the most part less significant for males, the results led me to believe that conditional cash transfers could represent another feasible means of empowering women, especially since women in developing countries historically have low status and participate less in the labor market than the male counterparts.

As a follow up, I looked up the current status of the program in Mexico and learned that the new President AMLO planned on changing the program, including redirecting funds to other programs that offer basic education and scholarship opportunities. According to the article, AMLO's reasoning lied in the belief that the program has failed to reduce poverty as Mexico’s poverty rate still hovers around 45% without dramatically changing in the last decade. If AMLO does succeed in replacing Progresa without another substitute, then the decision would come at a dismay to the Mexican people, since the paper provides strong evidence of the program’s success.

Kristina Lozinskaya

“Does Aid Reduce Poverty?” by Juliana Yael Milovich is a decent contribution to the over half-a-century old debate on whether aid helps reduce poverty. She stresses the rather disappointing fact that all the previous studies on that subject have produced inconclusive results. I thought it hardly surprising after this paper has demonstrated to me how difficult it is to assess the impact of foreign aid, especially when you consider such important complicated factors as the lack of data, inefficient and far from all-encompassing poverty measurement tools, and the intricacies inherent to aid itself: different periods, sources of aid (multilateral/bilateral), types of aid (economic, social, food, etc.), timing of impact of aid (contemporaneous and with decades-long lags), etc. The most serious complexity is, perhaps, the fact that economic growth in and by itself does not necessarily reduce poverty, and so, as the author says, analyzing the effect of aid on poverty reduction through economic growth excludes many other social factors that affect the well-being of people (e.g., education, health, and quality of life). Interestingly, Milovich then suggests to investigate the link not between aid and income, but between aid and poverty, for which she shrewdly uses the Multidimensional Poverty Index to grasp the different forms of deprivation experienced by the poor in examining how the differences in the number of years that countries have been temporary members of the United Nations Security Council (UNSC) correlated with the amount of aid they received by the U.S. between 1946 and 1999 and their poverty levels between 2000 and 2014. I am not going to list the results here since Milovich does a pretty great job summarizing them multiple times throughout the text, but I will mention that the “instrument” or these years on the Council that she uses to assess the impact of aid seemed quite interesting to me since the poverty levels of the country itself or its endowment with resources might directly influence what countries will be on the Council, although by some econometric manipulations, she seems to control for that.

The main takeaways from this paper for me were the fact that the controversial effect of aid on economic growth should not be taken to mean that aid is ineffective for poverty reduction and that aid is associated with lower multidimensional poverty but not with lower income poverty. I was also shook by the striking statistics mentioned in the footnote that a “$10 billion increase in aid would lift 25 million people a year out of poverty (but only if it favors countries with ‘sound economic management’)”. I remembered how in class, the Professor mentioned Jeff Bezos spending ~$1 bln per year on building a rocket to take him into space. Who could have thought that 10 years’ worth of money spent on building a rocket(-s) “for fun” could have lifted 25 million people out of poverty? Another question that I had from Milovich’s findings is since, out of all other factors, aid seems to have the greatest effect on the improvements in education of a recipient country, what do we derive from that? Is it that most aid is intended for education, or is it a significant positive spillover from something else that aid improves?

I also apologize for an extremely long blog comment this time, but I can’t help recommending to everyone interested this very compelling Center for Strategic and International Studies’ report “Rethinking Taxes and Development” (written, among others, by our wonderful W&L 2016 alum Christopher Metzger whom we had the privilege to meet in D.C. on our career trip this fall!). It deals with the question of DRM – domestic resource mobilization – that developing countries should focus on if they aim for the quality long-term development as opposed to foreign aid, which such countries, obviously, do not want to depend on forever. Chris even traveled to Uganda himself to conduct those studies – something which I think is incredibly interesting (+ really adds to the overall credibility of the suggestions presented in the paper)!

rrirwin

Milovich’s paper—“Does Aid Reduce Poverty”—examines the relationship between aid disbursements and poverty alleviation. Contrary to previous studies that use income as a measure of poverty alleviation, Milovich identifies the importance and effectiveness of using the 10 indicators of the Multidimensional Poverty Index. The paper uses data on countries who received aid in the period 1946-1999 and their corresponding levels of MPI between 2000 and 2014. She ultimately finds that there is a significant relationship between them, and also acknowledges the risk of reverse causality and endogeneity issues between poverty and aid. I was particularly intrigued by the approach through the indictors and not income, considering a lot of papers in the field rely so much on income as a measure.

Noticing that this paper was written last fall, and a lot has happened in terms of foreign political relations over the past year, I wondered if there was any recent news about developmental aid. I found that Brexit party leaders have been claiming that “trade and not aid” is the way to further help developing African countries. They believe that the EU creates barriers for African countries to sell produce to England. Nigel Farage also made the claim that they have been the highest spenders on foreign aid. I found this confusing, considering the paper identifies the U.S. as the main donor in the DAC? Overall I found the controversy particularly interesting and question the implications of foreign aid being politicized.

Although the paper effectively explained the study and effects of aid on multidimensional poverty, I have questions. How is it the United States came to be the main donor among the Development Assistance Committee? Why has previous literature over the past 50 or so years varied so much in identifying the value of developmental aid? Because results are so varied, what kind of research needs to be done to solidify whether aid helps alleviate poverty?

Nicholas Tierney Watson

From the results of “DO CONDITIONAL CASH TRANSFERS IMPROVE ECONOMIC OUTCOMES IN THE NEXT GENERATION? EVIDENCE FROM MEXICO”, it appears that the conditional cash transfer system in Mexico has positive and significant impacts of economic outcomes, through a multitude of metrics. Beyond the potency that the program has, what I found most interesting was this line in the paper, “Individuals 11 and under in 1997 are fully exposed, while those 15 and over are unexposed, and those aged 12-14 are partially exposed. As described in Section 3.2, estimations of equations (1) and (2) omit the partially exposed group, while event study estimations of equation (3) use all 13 birth cohorts.”. Their identification strategy to find the long-term results were super interesting. What I find most interesting about this identification strategy, and resulting study of the different birth cohorts, is the partly exposed group. The partly exposed group, in some ways, can be used to analyze the marginal effects of being part of the program for one additional year. Obviously this program works, and it works well, but I can imagine it must cost a lot of money. What I’m really trying to get at is where does the greatest economic return occur relative to the cost of the program. If we could look at the marginal returns to the conditional cash program in Mexico, through the partly exposed birth cohort, we could optimize the program, where marginal costs equal marginal benefits. If there was any excess money being spent on the program, and I’m not saying that there is, but the Mexican government could restructure the program to gain efficiency or spend the money elsewhere, on other poverty alleviating programs. I would be interested to see the marginal benefits of the program as you spent more time in it relative to the marginal costs of being it in it another year.

Adrian Lam

Overall, I found Parker and Vogl’s paper on conditional cash transfers and their effects on the next generation to be very interesting. More information about Mexico’s national CCT program PROGRESA can be found here: https://www.povertyactionlab.org/evaluation/impact-progresa-health-mexico . This article from the poverty action lab details some of the short-term results that the paper mentions. For example, during its implementation from 1997 to 2000, children in households that received the CCT had “23% reduction in the incidence of illness” and “18% reduction in anemia,” which are two impressive statistics. What was unique about Parker and Vogl was how they examined the long-term effects of CCT and whether the changes affected the lives of the children when they reached adulthood.

In contrast to the hedonic treadmill where humans tend to eventually return to base level of happiness, the results of this paper seem to suggest that there are long-term, intergenerational benefits of CCTs. Through their difference-in-difference design, Parker and Vogl concluded that children who were exposed to CCT programs like Progresa before age 12 had better accumulated education, labor market outcomes, and geographic mobility among other benefits. I found it pretty incredible that minor cash transfers while you are a child can go on to affect so many different aspects of your life when you grow up. An outstanding question I have now is how did Mexico acquire the funding for the Progresa program?

I would like to digress here a little bit and discuss the importance of striking a balance between the strictness of the conditions underlying the cash transfer and the number of families Progresa can help. For example, I was surprised at first about the laxness behind the rules concerning education, such as how the program allowed students to fail each grade once. However, after giving this a second thought, I realized this kind of makes sense. The lowest-income families that are most vulnerable where the children are underperforming in school are the families that Progresa wants to directly target. This reminds me of a tuition-free program I launched in Toronto this summer for at-risk youth. Initially, I planned on setting grade cutoffs in the program applications. However, these cutoffs were removed because I wanted to ensure that the students who needed access most to the program were able to participate.

Returning to the paper, although their results were encouraging, the paper was not without its limitations. The largest limitation that immediately comes to my mind is how it becomes much more difficult to imply causation over causation when so much time has elapsed. From when the Progresa program began in 1997 to when the data from the 2010 Mexican Population census was gathered, over a decade had passed. There are many exogenous factors that could have played a role during this time period. The child has now grown into an adult, and all of his or her experiences and relationships with others along the way could have affected his or her choice to persue further education, participate in the labor market, etc. In addition, it could be possible the CCT program had a placebo effect, wherein those who participated in the program unconsciously believed they would lead better lives than the group that was too old at rollout.

Kristina Lozinskaya

Sorry, I have just realized that I forgot to attach the link to the CSIS report that I've mentioned above! Here it is: https://csis-prod.s3.amazonaws.com/s3fs-public/publication/190416_MetzgerSavoyYayboke_DRM_WEB_v4.pdf

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