Universities-Research Conference on Economic Development

September 24 and 25, 2010
The NBER and the Bureau for Research and Economic Analysis of Development held a conference on economic development in Cambridge.

Nicholas Bloom, Stanford University and NBER; Benn Eifert, University of California, Berkeley; Aprajit Mahajan and John Roberts, Stanford University; and David McKenzie, The World Bank
Does Management Matter? Evidence from India

A long standing question in social science is to what extent differences in management cause differences in firm performance. To investigate this, Bloom, Eifert, Mahajan, McKenzie, and Roberts ran a management field experiment on large Indian textile firms. This provided free consulting on modern management practices to a randomly chosen set of treatment plants and compared their performance to the control plants. The researchers find that adopting modern management practices had three main effects. First, it raised average productivity by 10.5 percent, through improved quality and efficiency and reduced inventory. Second, it increased the decentralization of decision making, as the better flow of information enabled owners to delegate more decisions to plant managers. Third, it increased the use of computers, necessitated by the data collection and analysis involved in modern management practices. Since these practices were profitable, this raises the question of why firms had not adopted them before? The results here suggest that informational barriers were a primary factor in explaining this lack of adoption. Modern management is a type of technology that diffuses slowly between firms, with many Indian firms unaware of its impact or existence. And, since competition was limited by constraints on firm entry and growth, badly managed firms were not rapidly driven from the market.

Todd Schoellman, Arizona State University
Education Quality and Development Accounting

Schoellman measures the role of quality-adjusted years of schooling in explaining cross-country differences in output per worker . While data on years of schooling are readily available, data on education quality are not. Schoellman uses the returns to schooling of foreign-educated immigrants in the United States to infer the education quality of their birth country. Immigrants from developed countries earn higher returns than do immigrants from developing countries -- Schoellman shows that this pattern is likely explained by education quality differences and not selection. He then shows how to incorporate his measure of education quality into an otherwise standard development accounting exercise. The main result is that cross-country differences in education quality are roughly as important as cross-country differences in years of schooling in explaining differences in output per worker -- they raise the total contribution of education from 10 to 20 percent of the differences in output per worker.

Abhijit Banerjee and Esther Duflo, MIT and NBER; and Rachel Glennerster and Cynthia G. Kinnan, MIT
The Miracle of Microfinance? Evidence from a Randomized Evaluation

Microcredit has spread extremely rapidly since its beginnings in the late 1970s, but whether and how much it helps the poor is the subject of intense debate. Banerjee, Duflo, Glennerster, and Kinnan report on the first randomized evaluation of the impact of introducing microcredit into a new market. Half of 104 slums in Hyderabad, India were selected randomly for opening of an MFI branch, while the remainder were not. The authors show that the intervention increased total MFI borrowing, and they study the effects on the creation and the profitability of small businesses, investment, and consumption. Fifteen to 18 months after lending began in treated areas, there was no effect of access to microcredit on average monthly expenditure per capita, but expenditure on durable goods increased in treated areas, and the number of new businesses increased by one third. The effects of microcredit access are heterogeneous: households with an existing business at the time of the program invest more in durable goods, while their nondurable consumption does not change. Households with high propensity to become new business owners increase their durable goods spending and see a decrease in nondurable consumption, consistent with the need to pay a fixed cost to enter entrepreneurship. Households with low propensity to become business owners increase their nondurable spending. The researchers find no impact on measures of health, education, or womens' decisionmaking.

Hongbin Cai , Yuyu Chen, and Li-An Zhou, Peking University, and Hanming Fang, University of Pennsylvania and NBER
Microinsurance, Trust and Economic Development: Evidence from a Randomized Natural Field Experiment

How does access to formal microinsurance affect economic development? Cai, Chen, Fang, and Zhou report the results of a large randomized natural field experiment conducted in southwestern China that involved insurance for sows. The researchers find that providing access to formal insurance significantly increases farmers' tendency to raise sows. They argue that this finding further suggests that farmers were not previously efficiently insured through informal mechanisms. The researchers also provide several pieces of evidence suggesting that trust, or lack thereof, in government-sponsored insurance products is a significant barrier to farmers' willingness to participate in the formal insurance program, despite a partial premium subsidy from the government.

Marco Gonzalez, University of California, Berkeley, and Climent Quintana-Domeque, Universidad de Alicante
Roads to Development: Experimental Evidence from Urban Road Pavement

Urban peripheries in many developing-country cities lack basic local public goods like pavement, water, sewerage, and electricity. Gonzalez and Quintana-Domeque estimate the impacts of upgrading slum infrastructure using an experiment in the provision of urban road pavement in Mexico. They show that the value of homes in streets that were paved increased by between 15 and 17 percent. Households in streets that were paved obtained more credit, had higher per capita expenditures, increased motor vehicle ownership, and were more likely to have made home improvements. The rate of return to road pavement is estimated to be 2 percent without considering externalities, but rises to 55 percent once externalities are accounted for. The authors also present a model to understand the experimental estimates. Increases in consumption are more strongly correlated with increases in housing value than reductions in transport costs, suggesting that the wealth effect generated by the road pavement was a stronger driver of consumption than the reduction in transport costs.

Matthias Doepke, Northwestern University and NBER, and Michele Tertilt, Stanford University and NBER
Does Female Empowerment Promote Economic Development?

The empirical evidence suggests that money in the hands of mothers (as opposed to their husbands) benefits children. Should transfers therefore be targeted to women? Doepke and Tertilt develop a series of non-cooperative family bargaining models to understand what kind of frictions can give rise to the empirical relationships that they observe, and they assess the policy implications of these models. They find that targeting transfers to women can have unintended consequences. Moreover, alternative forms of empowering women may lead to opposite results. Therefore, more empirical research is needed to distinguish between alternative theoretical models.

Nava Ashraf and Erica M. Field, Harvard University and NBER, and Jean Lee, The World Bank
Household Bargaining and Excess Fertility: An Experimental Study in Zambia

Through a field experiment in Zambia, Ashraf, Field, and Lee test the role of spousal discordance in fertility preferences as a means of explaining low rates of contraceptive use and high rates of unwanted births. The researchers randomly assigned married women to receive -- either alone (an "Individual" treatment) or in the presence of their husbands (a "Couples" treatment) -- a voucher that guaranteed ease of access to modern contraceptives. Women in the Individual treatment were 23 percent more likely to visit a family planning nurse and 38 percent more likely to receive a concealable form of contraception, leading to a 57 percet reduction in unwanted births. Meanwhile, providing cheaper and more convenient forms of birth control led to a reduction in unwanted births only when women were also given full autonomy over accessing these new methods: although use of modern methods increased by a substantial amount among women in the Couples treatment relative to a control group who received no voucher, the women in that group experienced no corresponding reduction in unwanted births. These findings indicate that asymmetric information about use of contraceptives has a strong influence on outcomes in household bargaining over fertility. Furthermore, increasing the supply of contraceptives will have little impact on excess fertility in Africa as long as de facto spousal consent requirements for birth control access remain in place.