120_lecture1_fall09

120_lecture1_fall09 - ECO 120, Lecture 1 Jon Robinson UC...

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Unformatted text preview: ECO 120, Lecture 1 Jon Robinson UC Santa Cruz September 23, 2009 Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 1 / 34 Contact Details Jon Robinson jmrtwo@ucsc.edu 457 Engineering 2 O ce hours: Tuesday, Wednesday 11-12 or by appointment Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 2 / 34 Prerequisites Economics 1 and 2 Econometrics We will review all the tools that you' need in the ...rst few lectures, ll but be aware that this is going to be a heavily empirical class. Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 3 / 34 Grading 5 problems sets: 20% 2 midterms: 25% each Thursday October 22nd Thursday November 19th Final: 30% lectures posted on people.ucsc.edu/~jmrtwo/teaching Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 4 / 34 Grading hard to cram all this right before the exam (unfortunately!) as a warning: it' hard to do well without doing the readings s you should do ...ne if you do the readings and the problem sets, and understand the lectures advice: keep up on the readings! questions? Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 5 / 34 Before we start most development economists are interested in development ...rst, but think that rigorous evaluation is the best way to ...gure out solutions. ultimately, we' all motivated by shock at how poor living standards re are in developing countries, compared to the US or Europe but to study this, we need to use economics tools so we' going to have some equations in problem sets, we' going to re re pay lots of attention to whether we should believe certain results, etc. but try to remember that this is all motivated by a real concern for the poorest of the poor - don' lose the forest for the trees t Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 6 / 34 Big picture Estimated 1.4 billion people live on less than US $1.25 per day (Ravallion & Chen, 2008), the "revised global poverty line" Poor lag far behind on many indicators Why are so many so poor? What can be done about it? This may be biggest question of them all, in any ...eld Certainly the most important question facing economics Robert Lucas, Nobel Laureate "Once you start thinking about economic growth, it' hard to think about anything else." s Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 7 / 34 Sachs, 2007 (on reading list) "The primary problem in most impoverished places is low food productivity...The second problem is a heavy burden of disease...Because impoverished households must use all of their income to survive, they cannot generate ...nancial savings. They are not creditworthy to borrow. Moreover, they may have to "mine" the local environment unsustainably by depleting the soils, over...shing the lakes and streams, over-hunting bush meat and cutting down forests. Birth rates stay high for multiple reasons: little or no access to family planning, contraception or education for girls, low child survival and a persistent view that children represent the only security for parents in their old age. Many of the poorest regions are also squeezed by climate change, and suer increased drought and the spread of tropical diseases." (Sachs, 2007) Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 8 / 34 Lots of stu there... what do we really know about these issues? everybody has an opinion But what do we really know? One goal of this class will be to show you that really we don' know t that much. There is a tremendous amount of work that needs to be done.... ...and some of the work that does exist isn' very good. t We' get some practice in telling good studies from bad ones. ll Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 9 / 34 Development Economics in world of budget constraints, what should be targeted? Cost/bene...t analysis Poor farmer in SSA: Kids always getting sick from malaria Can' aord fertilizer to improve crop yields t what should we target? Money for drugs? Money for fertilizer? Business training? Irrigation projects? No easy answer. "Cold hearted" or "rigorous?" Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 10 / 34 Focus Empirical, strongly (entirely?) microeconomic focus looking at individual populations, not big cross-country comparisons (why is this particular farmer poor rather than why is Africa poor) Primary data collection "do it yourself" Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 11 / 34 Field Experiments My own work largely involves "...eld experiments," mostly in Western Kenya What is a ...eld experiment? similar to a clinical drug trial. Why does the FDA require randomized controlled drug trials? Why can' we just compare people taking a t certain drug to people not taking that drug, "controlling" for things like income and education, etc.? A ...eld experiment is like a drug trial, except we randomize some social program. savings accounts access to loans textbooks school uniforms Why is this type of evidence so powerful? Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 12 / 34 Goals 1 Get a sense of the economic lives of poor people in developing countries. What do poor people do with their money? How do they deal with health problems? What types of businesses do they run? Rigorously study interventions designed to improve their lives. The "gold standard" here are randomized evaluations. We need to understand why these are better than the alternatives. This is going to require being willing to slog through data together. Learn about how researchers run projects in developing countries. The method, not just the results, are important. Think about whether a career in this type of research, or in development more generally, might be interesting to you. 2 3 4 Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 13 / 34 Who so micro? Why so many papers on Western Kenya? As some background, I' been doing randomized evaluations and ve other ...eld data collection in Kenya for a number of years why don' farmers use fertilizer? t does providing savings accounts help people get out of poverty/cope with risk? are commercial sex workers more likely to have unprotected sex when their kids get sick and they need money for medicine? Work with research organization that specializes in randomization Happy to talk about this or other issues at any point. If you are interested in development, please think seriously about getting involved in any way that you can. Disclaimer: the focus is going to be in Sub-Saharan Africa, the poorest region in the world. Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 14 / 34 Example: de Mel, McKenzie, and Woodru, "Returns to Capital," p.42. Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 15 / 34 Readings Textbook: Debraj Ray, Development Economics Recommended, not required on reserve at McHenry Mostly papers download from campus computer Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 16 / 34 Readings * are required, others recommended Please do BEFORE class there is quite a bit of reading the exams are about 20-30% testing reading, and the remainder problems not memorizing facts, more about really understanding what the authors have done. For instance, we' read a paper on a program to give kids deworming ll drugs in Western Kenya. Exam might ask: how did they design the experiment? how did they estimate the direct eect of the program? what was so surprising about what they found? and THEN what did they ...nd? Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 17 / 34 Major Topics health/nutrition: are people poor b/c they' sick or are they sick b/c re they' poor? re education in poor countries: what are returns to schooling? risk-coping: poverty vs. vulnerability Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 18 / 34 Major topics savings, credit: what types of programs could spur entrepreneurship & small business? What are returns to capital? Is small business a way out of poverty? household and intra-household studies: do men & women spend income the same? How does this impact the design of social programs? [Aside: why do so many programs target women?] Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 19 / 34 Other topics (depending on time/your interest) behavioral economics. Why don' people save more? Why don' t t people use fertilizer the economics of HIV/AIDS. Do people have enough information on risks? Is it rational to do risky things? Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 20 / 34 Reading for next time 3 short papers in Background Section (by Sachs and Easterly) start reading Randomization Toolkit by Duo, Glennerster, and Kremer (not all pages required - see syllabus) Economic Lives of the Poor by Banerjee and Duo (which we will largely cover today) Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 21 / 34 World Bank Atlas, less than $1 per day Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 22 / 34 Human Development Index Weighted index of Life expectancy GDP per capita Education (school enrollment / adult literacy) idea is to get a fuller idea of overall living standards Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 23 / 34 Source: UN Environment Program Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 24 / 34 World Bank Atlas of Millennium Development Goals Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 25 / 34 UNAIDS 2006, Prevalence of HIV Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 26 / 34 Changes in Life Expectancy Region World SSA Asia Europe Latin America & Caribbean N. America Oceania 1960-69 52.5 42.4 48.5 69.6 56.8 70.1 63.7 1970-79 58.1 46.3 56.4 71 60.9 71.6 65.8 1980-89 61.4 49 60.4 72 64.9 74.3 69.3 1990-99 2000-2004 DIFFERENCE (04-60/69) 63.7 65.4 12.9 47.6 45.9 3.5 64 67.3 18.8 72.6 73.7 4.1 68.3 71.5 14.7 75.5 77.6 7.5 71.5 74 10.3 SOURCE: World Bank (2006) Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 27 / 34 Grim picture life is (obviously) pretty hard for a huge number of people But how do people really live? Many of our theories of the "desperate peasant" aren' necessarily t accurate in many contexts like everything else, the picture is complicated and the answers aren' t obvious Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 28 / 34 Boda stage, Busia Kenya Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 29 / 34 Market Woman, Busia Kenya Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 30 / 34 Market, Busia Kenya Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 31 / 34 Surveys Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 32 / 34 Field Research Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 33 / 34 Africa Jon Robinson (UCSC) ECO 120, Lecture 1 September 23, 2009 34 / 34 Background: "Economic Lives of the Poor," Banerjee & Duflo 1990 WDR: "extremely poor" those living on < $1/day (revised to US $1.08) Unimaginable to live like that in a developed country Use LSMS data to see how people live 1 2 3 4 5 Logbooks collected in Kenya Data from Kenya: 35-40% of people report being sick (malaria, typhoid, fever, flu, cuts/burns, diarrhea, other) on a given day 5% of days: friend or relative died 6 7 8 Pritchet et al (Vulnerability to Poverty) 9 Pritchett et al.: poverty line = 20% of population. How many are at >=50% chance of falling into bottom 20%? 10 "Poor" Headcount vulnerable rate from Pritchett et al. 20% 58.91% 11 ...
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