Tag: Development Economics
A Gender Perspective on Financing for Development
Gender equality should be considered a global public good due to its extensive benefits for both society and the environment. Investing in gender equality as a global public good necessitates a coordinated international effort, which should be a focal point in discussions on the future of development financing. The upcoming Fourth International Conference on Financing for Development (FfD) in 2025 in Madrid, Spain, provides a crucial opportunity to assess the progress towards the Sustainable Development Goals (SDGs) and allow countries to refine their strategies. However, recent background documents lack an explicit focus on opportunities for advancing gender equality, which was also inadequately addressed in the Addis Ababa Action Agenda formulated at the previous FfD conference in 2015. This brief is based on the first of a series of roundtables, organized by the Center for Sustainable Development (CSD) at Brookings, aimed at providing inputs on this critical topic in the lead-up to the Madrid conference.
Financing for development relies on three main pillars: domestic resource mobilization; development assistance; and other sources of international financing. The latter category includes both private and public sources that emerge in response to the need for a global safety net and social protection system, especially in light of increasing risks from pandemics and climate-related shocks. This policy brief is an attempt to highlight how gender considerations may integrate into each of these pillars. It builds on insights from the first Center for Sustainable Development roundtable, discussing this important issue in preparation for the Fourth International Conference on Financing for Development in 2025.
Domestic Resource Mobilization
Fiscal policy plays a critical role in addressing gender gaps, particularly in low-income economies with limited fiscal space. Fiscal policies, including tax systems and public spending, must be designed to consider their gender-specific impacts. For the spending side, several initiatives are promoting tools like gender responsive budgeting, as has been recently discussed in a FROGEE policy paper by Anisimova et al. 2023, on the case of Ukraine.
One key area caregiving services. Caregiving, whether for children, the elderly, or other dependents, disproportionately affects women (see another FREE Network brief by Akulava et al. 2021) and remains largely invisible in economic policies. Many countries, especially outside of higher-income economies, lack universal caregiving services and infrastructure. This sector is significant for economic development and resilience, especially in the context of climate change, which is expected to increase the demands on caregiving due to displacement and health-related challenges. Therefore, integrating care into fiscal policy discussions is not only about gender equality but also about economic resilience and climate adaptation.
To address unpaid care work effectively, it is necessary to integrate care into public finance systems. This can involve developing public caregiving infrastructure and services that support both paid and unpaid caregivers. One first step in this direction would be the monitoring of household time-budgets, to start understanding and analyzing the supply of caregiving services that currently is largely undocumented.
Another policy area crucial for supporting women are social protection policies. In particular policies such as parental leave and childcare support can help reduce gender disparities in the labor market (see examples in the FREE Network brief by Campa, 2024). By providing a safety net, social protection policies enable women to participate more fully in economic activities without the constant threat of financial insecurity.
A specific challenge of the developing world in this respect is the fact that many women work in the informal sector and thereby lack access to social security benefits, leaving them vulnerable during economic hardships. Economic development alone does not solve this issue, as even many developed and wealthy countries lack comprehensive social protection systems. Therefore, a specific effort is needed to develop inclusive social protection systems that cover informal workers, ensuring women have access to benefits such as pensions, healthcare, and unemployment insurance.
Much less discussed is the integration of gender concerns in the taxation side of fiscal policy. Progressive taxation, where tax rates increase with higher income levels, is particularly beneficial for women, who are overrepresented in lower income quintiles. A progressive tax system can thus, besides helping redistribute wealth more equitably, also support gender equality.
Effective tax administration is crucial for improving compliance and maximizing revenue collection. However, it is particularly important in this context to design tax systems that minimize the compliance burden on low-income and informal sector workers, many of whom are women. This can be achieved by simplifying tax procedures and providing support for small and micro enterprises to navigate the tax system. The potential of digital tax systems is significant in this regard (Okunogbe, 2022). Digitalization can streamline tax collection, reduce administrative costs, and improve compliance. However, there are challenges associated with digital tax systems, particularly in ensuring accessibility for all citizens. Women, especially those in rural areas and with lower literacy levels, may face significant barriers in accessing and utilizing digital tax systems. Therefore, while digitalization offers many benefits, it must be implemented in a way that is inclusive and equitable. This includes providing digital literacy training and ensuring that digital tax platforms are user-friendly and accessible to all segments of the population.
Health taxes, such as those on tobacco, alcohol, and sugar-sweetened beverages, may also play a role in promoting gender equity. These taxes help reduce consumption of harmful products, which are disproportionately consumed by men and heavily affect household budgets. By discouraging the use of such products, health taxes can redirect household spending towards more beneficial areas, such as education and healthcare, which are often prioritized by women.
Moreover, health taxes can generate significant revenue that can be reinvested in gender-responsive public spending. For instance, funds raised from health taxes can be allocated to healthcare services, including reproductive health and maternal care, which directly benefit women. Additionally, excise taxes on harmful products address externalities, improving overall public health and reducing the burden on women who often provide unpaid health care.
Broader Sources of Financing for Social Services
The increasing risks from pandemics, climate-related shocks, food insecurity, and other economic shocks of a global nature highlight the need for a global safety net and social protection system. This in turn raises additional demand for effective financing for social services. One area in which new sources of international funding can be found is the emerging global infrastructure for climate finance.
Climate Finance and Gender Equality
Climate finance presents a unique opportunity to address gender equality, particularly in the context of climate adaptation and mitigation strategies. Due to (among others) resource constraints, unequal land ownership and unevenly distributed family responsibilities, women are often more vulnerable to climate impacts. Integrating gender considerations into climate adaptation and mitigation strategies ensures women are supported in building resilience.
One key approach is to use climate finance to promote economic diversification for women, especially in sectors like agriculture, where they play a significant role. For example, providing female farmers with access to capital, training, and resources to adopt climate-resilient agricultural practices can improve their economic security and reduce their vulnerability to climate shocks. This includes supporting transitions to sustainable farming methods, such as crop diversification, agroforestry, and improved irrigation techniques.
Additionally, climate finance can support the development of climate-resilient infrastructure that benefits women. This includes investments in clean energy, water management systems, and transportation networks that are essential for their daily activities and livelihoods. Ensuring that women have access to and can benefit from these infrastructures is crucial for their overall well-being and economic empowerment.
Women can play a pivotal role in natural resource management and environmental conservation. Research has shown that involving women in the management of natural resources, such as forests and water bodies, may lead to more sustainable and equitable outcomes. Women tend to prioritize long-term sustainability and community benefits, which can enhance the effectiveness of conservation efforts (see Agarwal, 2010. For a more nuanced view, see Meinzen-Dick, Kovarik and Quisumbing, 2014).
Climate finance can be used to support initiatives that empower women in natural resource management. This includes providing training and capacity-building programs that equip women with the knowledge and skills needed to manage resources effectively. Additionally, creating platforms for women to participate in decision-making processes related to environmental conservation ensures that their perspectives and needs are considered.
Innovative financing mechanisms can significantly enhance resources available for gender equality initiatives. Several potential sources of finance include Special Drawing Rights (SDRs), currency transaction taxes, and carbon taxes. Revenues generated from these sources can be directed towards climate and gender initiatives, such as supporting women’s participation in the green economy, funding renewable energy projects that benefit women, and investing in climate adaptation measures that protect vulnerable communities.
Development Assistance
Historically, development assistance explicitly targeted to gender equality initiatives has been insufficient. This has changed over time, but the overall financial support remains inadequate. Current ODA (Official Development Assistance) for gender equality often overestimates the actual financial support to such initiatives because it relies heavily on intention-based data rather than results-based financing. This means that the reported figures reflect commitments to gender-related projects without necessarily demonstrating their effectiveness or outcomes. As a result, the true impact of this funding for gender equality is difficult to ascertain.
In principle, development assistance should contribute to gender equality even beyond explicit targeting, simply through improving general economic conditions and generating opportunities. Economic development, after all, is good for gender equality (Duflo, 2012). The effectiveness of development assistance in promoting gender equality is however severely understudied, as discussed in Berlin et al. (2024) (and in a policy brief by Perrotta Berlin, Olofsgård and Smitt Meyer, 2023). We know that development assistance has a slight positive impact, and that gender-targeted aid projects tend to show somewhat larger impacts. But to learn more a more systematic reporting of donor activities is needed. This in particular when it comes to gender markers, i.e. the labeling of specific projects and programs as gender-oriented, that as of now are voluntary.
The effectiveness of gender-focused aid also heavily depends on local cultural dynamics and existing community norms. In some cases, aid aimed at improving economic opportunities for women can lead to negative reactions from men, a phenomenon known as backlash. Therefore, understanding and addressing these local cultural dynamics is crucial when designing and implementing gender-focused aid interventions.
Another critical aspect is the allocation of gender-targeted aid. It is essential to ensure that aid reaches the areas and communities where it is most needed. This requires a granular understanding of local needs and conditions, which is often lacking in broad, country-level data. More precise, geocoded data on aid distribution can help ensure that resources are allocated effectively and equitably. Improving the quality and granularity of data is also vital for monitoring and evaluating the impact of development assistance on gender equality. Current data collection efforts often fall short, lacking detailed, disaggregated information necessary for comprehensive analysis. National statistical agencies need more funding and support to collect this data, which is critical for understanding and addressing gender disparities.
Conclusions and Policy Recommendations
Advancing gender equality contributes to improved health outcomes, economic growth, and social stability. Moreover, gender equality plays a crucial role in addressing global challenges such as climate change, peacebuilding, and sustainable development. Therefore, it should be considered a global public good.
Investing in gender equality as a global public good requires a coordinated international effort. This includes mobilizing resources from various sources, including governments, international organizations, and the private sector. By recognizing the intrinsic value of gender equality and its contribution to global well-being, the international community can prioritize and allocate resources more effectively.
The discussion in this brief aims to highlight key areas that require focused efforts if the global community is to leverage gender equality to make progress toward the SDGs. In summary, enhanced data quality, integrated policies, innovative financing solutions, and gender-inclusive leadership are critical components of a strategy aimed at achieving lasting and meaningful progress in gender equality as well as broad sustainable development.
References
- Agarwal, B. (2010). Does women’s proportional strength affect their participation? Governing local forests in South Asia. World development 38(1), 98-112.
- Anisimova, A., Perrotta Berlin, M., Bosnic; M., Campa, P. Mych, M. Oczkowska, M. and Shapoval, N. (2023). Rebuilding Ukraine: the Gender Dimension of the Reconstruction Process. FREE Network Policy Paper.
- Akulava, M., Babych, Y., Griogryan, A., Iarovskyi, P., Keshelava, D., Khachatryan, K., Król, A., Mikhailova, T., Mzhavanadze, G., Oczkowska, M., Pluta, A., Shpak, S. (2021). Global gender gap in unpaid care: why domestic work still remains a woman’s burden. FREE Network Policy Brief.
- Perrotta Berlin, M., Bonnier, M., Olofsgård, A. (2024). Foreign Aid and Female Empowerment. The Journal of Development Studies, 60:5, 662-684, DOI: 10.1080/00220388.2023.2284665
- Perrotta Berlin, M., Olofsgård, A., Smitt Meyer, C. (2023) Does Foreign Aid Foster Female Empowerment?. FREE Network Policy Brief
- Campa, P. (2024). What Is the Evidence on the Swedish “Paternity Leave” Policy?. FREE Network Policy Brief
- Duflo, E. (2012). Women empowerment and economic development. Journal of Economic Literature, 50(4), 1051–1079. doi:10.1257/jel.50.4.1051.
- Meinzen-Dick, R., Kovarik, C., Quisumbing A., R. (2014). Gender and sustainability. Annual Review of Environment and Resources 39: 29-55.
- Okunogbe, O., Pouliquen, V. (2022). Technology, taxation, and corruption: evidence from the introduction of electronic tax filing. American Economic Journal: Economic Policy 14.1: 341-372.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Financial Aid to Ukrainian Reconstruction: Loans Versus Grants
This brief provides an overview of the discussion on the relative merits of grants and loans in the literature on foreign aid, including a short section on debt relief initiatives. These claims are then tested against the context of Ukrainian post-war reconstruction, and it is argued that the case for providing grants is very strong. This argument is based on the magnitude of the investments needed, the need to create a long-run sustainable economy, the road towards a future EU membership, and the global value of a democratic and prosperous Ukraine as a bulwark against autocratic forces.
Introduction
One topic in the discussion on the post-war reconstruction of Ukraine is to what extent foreign support should come as loans or grants. The case at hand regards reconstruction in the aftermath of a military invasion by an aggressive neighbor. Therefore, Ukrainian reconstruction is sometimes compared to the Marshall Plan, the US package to help rebuild Europe after World War II. But this choice is also part of the more general discussion on foreign aid, comparing concessional loans (loans with lower interest rates than the market rate) with grants (financial transfers with no expectation of repayment), not least since many aid receiving countries have been highly indebted. What are then the arguments in favor of one or the other in the foreign aid literature? And how should we think about this in the context of the Ukraine crisis?
The Case for Loans
From a donor perspective, loans could be preferred from a purely financial viewpoint, as long as they are repaid. This must be put into the perspective of the purpose of foreign aid, though. If the purpose is to increase the welfare of the poor, and if loans cause macroeconomic imbalances that eventually lead to a debt crisis, using loans for aid will defeat its purpose. It is thus important, even from a donor perspective, to differentiate between the pure financial costs and the effectiveness and efficiency of foreign aid in relation to the stated goals. Yet, the paradigm on which development banks such as the World Bank motivate their strategy is that, even from an effectiveness perspective, loans may outperform grants. In their model, the bank has a broad portfolio of investments across multiple countries prioritized in order of the social rate of return. By lending out money, the bank can invest the returns from the most prioritized project into the second-most prioritized project, most likely in a different country. If the money instead had been given as a grant, the best possible outcome is that the receiving country can now invest the returns in the next best project within that country. This argument thus relies on the assumption that development banks can continually identify the most promising recipients among their wide portfolio of alternatives.
It has also been argued that grants may reduce incentives to raise tax revenues, and encourage government consumption over investments, as there is no need to generate net revenues to repay the debt (e.g., Clements et al. 2004; Djankov et al. 2004). From a donor perspective, it can also be argued that the monitoring of grants may be weaker because donors have no direct financial interest in the success of a project if it is financed by a grant. The disciplining effect of loans, though, relies on the absence of moral hazard problems. If receiving governments expect debt to be forgiven anyway when it is perceived as unsustainable and counterproductive to the country’s development, loans may be no better.
Based on arguments such as those above, part of the literature suggests that concessional loans are more likely than grants to promote growth in recipient countries, at least in good institutional environments. Cordella and Ulku (2007) look into this in detail and develop a model linking the degree of concessionality, for a given level of foreign aid (i.e. the extent to which finances are on preferential terms compared to market rates), to the receiving country’s economic growth rate, in a world where default is possible. Concessionality varies from 100 percent grants to 100 percent loans on market terms. The model suggests that a country with better policies and stronger institutions has a higher absorptive capacity for investments, meaning it can handle a lower level of concessionality (i.e., more loans, fewer grants) without going into default. They also argue that the immediate incentives for default on a loan are higher for a poorer and more indebted country as the cost of servicing the loan is higher. This would motivate relatively more grants and fewer loans to countries that are poor and highly indebted. Taking this to the data, they find in consistence with their theory that for any given level of total assistance, the impact on growth is increasing with the degree of concessionality for poor countries with weak policy and institutional environments, whereas this matters less for richer countries with better policies and stronger institutions. Looking at the level of indebtedness, the results are inconclusive.
The Case for Grants
The arguments above generally favor loans over grants, but it is of course crucial to also consider the risks and consequences of excessive debt burdens and sovereign default. Perhaps the most dramatic example of the potential consequences of shouldering a country with an excessive debt burden comes from Germany after the end of World War I. The economic struggles and sense of humiliation that followed have been argued to have contributed to German grievances leading up to World War II. Less dramatic but still with significant implications is the “lost decade” affecting Latin American middle-income countries in the 1980s. The combination of cheap credit from oil-exporting countries and the sudden dramatic increase of international interest rates following US policies in the early 1980s resulted in unsustainable levels of commercial loans. This crisis led to a US initiative, the Brady Plan, by which bank loans were consolidated and partially backed by the US government.
Excessive lending is often the result of distorted incentives. Within development banks, there are widely recognized internal incentives to get projects “through the door” (e.g., Briggs 2021). This “aid pushing” happens for both grants and loans, but the consequences can be more detrimental for loans if this leads to unsustainable debt levels. Similarly, there is evidence of defensive lending, where countries receive loans simply to be able to repay previous loans. Birdsall et al. (2003) find that donors lent more to African countries with bad policies if they had a large existing debt. On the other side, recipient country governments with short-term horizons and in environments with weak institutional checks and balances do not necessarily internalize the full costs of excessive lending. Due to these incentives on both sides, loans too often reach unsustainable levels, with debt to GDP ratios and debt to net export revenues becoming increasingly alarming.
With increased recognition of the costs of development of unsustainable levels of official lending, debt negotiations targeting highly indebted low-income countries have become common. These negotiations have often taken place through the Paris Club (a group of 22 high or upper-middle income creditor nations, including Russia) or through the HIPC (Highly Indebted Poor Countries) initiative (e.g. Birdsall et al. 2002). These debt reduction agreements have been continuously renegotiated, offering more and more generous conditions including debt forgiveness, rescheduling of existing loan terms, and more focus on grants in the portfolios of official financing.
Of particular relevance for this note, though, are the discussions around these initiatives that illustrate the different arguments made in favor of, or against, debt relief. As brought up in Birdsall et al. (2002), critique against the HIPC initiatives came from both sides. On the one hand, some argued that debt forgiveness was just more aid “down the rathole”, encouraging irresponsible policies by receiving governments (e.g. Easterly 2001), and fuelled by commercially motivated bilateral donors and multilateral institutions with misguided bureaucratic incentives. In order for aid to be effective, much more stringent conditionality was needed, and if that didn’t work, stricter selectivity in terms of which governments to partner with. On the other hand, others argued that the initiatives did not go far enough (e.g. Sachs, 2002). The economic arguments largely relied on concepts of a poverty trap, impossible to escape under conditions of a heavy debt burden requiring scarce foreign exchange to be used for debt service and discouraging investments. These countries were perceived as particularly vulnerable to adverse economic shocks, and as such, in need of insurance mechanisms that wouldn’t burden them with claims hampering their ability to prosper looking forward. But there was also a moral dimension, with blame focused on the creditor side, arguing that citizens of poor nations could not be burdened by debt issued for political reasons by creditors looking the other way when receiving rulers used proceeds for personal purposes.
Financing Post-war Recovery
The discussion above relates to foreign aid in general. The situation of financing post-war recovery is more specific, but past examples may give some points of reference. It should be noted, however, that every situation is unique in terms of the level of destruction, preconditions for a quick recovery, the political ramifications, and the risk of a resurgence of violence. And all these factors matter for the ability and willingness of foreign actors to step in and help.
An often-made reference in conjunction with Ukrainian recovery plans is the Marshall Plan, also known as the European Recovery Plan following World War II. Through this plan, financed by the US, initially 16 countries in Europe were getting “help to self-help” at an amount corresponding to roughly 10,5 percent of the countries’ GDP at the time (roughly about $13 billion, or $138 billion in 2019 dollars). The resources were spent differently across receiving countries, depending on the level of physical destruction. Importantly, grants accounted for as much as 90% of the total resources (Becker et al. 2022). More generally, grants usually account for a more significant share of aid flows when it comes to post-war reconstruction. This is natural, as a large share of the funding typically goes to humanitarian relief, and war-torn countries tend to be saddled with debt and a low capacity to raise domestic revenues in the short to medium term given the destruction of the war.
The common reference to the Marshall Plan in the context of Ukraine is probably partly geographically motivated: it is another war in Europe. But there are also other reasons, such as the direct unprovoked aggression by one of the world’s leading military powers, and the potential ramifications for world peace and the existing world order. The Marshall plan was motivated by the desire to avoid the mistakes from the peace agreements after WWI, and to help create a unified western Europe as a bulwark against further communist expansion from the Soviet Union. There are similar arguments to be made for the case of Russia’s war on Ukraine.
Implications for Ukraine Reconstruction
According to World Bank statistics, the total external debt stock of Ukraine in 2020 was $130 billion in current values, or 81,4 % of Gross National Income (GNI). This is already quite high, but the war has of course completely upended the situation and the IMF argued that Ukraine was facing debt sustainability issues already by the beginning of March 2022. Public finances are in the short run facing double pressure from a steep fall in revenues as economic activity drops and the ability to raise taxes is eroded, and an increase in expenditures on defence and humanitarian relief. Looking ahead, estimates of the Ukrainian costs of the war range between $440 and $1 000 billion by end of March 2022, but there is of course high uncertainty, and the bill is increasing for each day that the war goes on (Becker et al. 2022). This could be compared to the 2021 estimate of Ukraine’s GDP at around $165 billion. Even in the most optimistic scenarios, the rebuilding effort will be very costly, and will require massive amounts of foreign capital.
The sheer amount of effort needed in itself speaks to the need for grant financing. Rebuilding will require both public and private capital, and attracting new investments will necessitate an economic environment that is perceived as stable, dynamic, and conducive to long-term growth. As in the discussion on debt forgiveness for low-income countries above, such new investments are unlikely to materialize if the debt situation is deemed unsustainable. Furthermore, arguments in favor of loans over grants on grounds of fostering domestic macroeconomic responsibility and reducing moral hazard problems, fall flat when a country is invaded by an aggressive neighbor. Ukraine has had its share of bad politics, but the current situation is not caused by poor policies, lack of reform, or irresponsible lending under the assumption of future bailouts.
It should also be noted that both the Ukrainian government and representatives of the European Union (EU) have emphasized the long-term ambition that Ukraine should join the EU. This will not be possible, however, unless the country’s economy is in order, including a sustainable debt level, according to EU requirements for all joining members. Were Ukraine to shoulder excessive levels of debt at this moment it would thus jeopardize this ambition. And not least, Ukraine is fighting for its survival, but the war is also part of a wider emerging struggle between democratic and authoritarian forces over the future world order. The result of the war is of great significance for all democratic countries, though it’s the people of Ukraine that are facing the immediate horrific consequences. It is thus in our common interest to rebuild a prosperous and democratic Ukraine also as a bulwark against further authoritarian ambitions to change the existing world order. A Ukraine saddled with an unsustainable debt burden runs completely counter to the interests of the democratic world.
The Marshall Plan was successful in its goal “to permit the emergence of political and social conditions in which free institutions can exist”. This allowed for economic and political cooperation to take roots in western Europe, also contributing to political stability and prosperity. This cooperation expanded further east after 1989 with the inclusion of new member states into the European Union, largely solidifying a move towards market-based democracy in the region (despite some recent setbacks, primarily in Hungary). Let us build on these successful examples. The current situation offers an opportunity to bring an additional 44 million people into the European umbrella of peaceful cooperation in the near future. This ambition would become much more difficult, though, if Ukraine was saddled with an excessive debt burden.
References
- Becker, Torbjörn, Barry Eichengreen, Yuriy Gorodnichenko, Sergei Guriev, Simon Johnson, Tymofiy Mylovanov, Kenneth Rogoff, and Beatrice Weder di Mauro. (2022). “A Blueprint for the Reconstruction of Ukraine” Rapid Response Economics 1, CEPR Press.
- Birdsall, Nancy, John Williams, and Brian Deese. (2002). “Delivering on Debt Relief: From IMF Gold to a New Aid Architecture”, Peterson Institute for International Economics, Washington DC.
- Birdsall, Nancy, Stijn Claessens, and Ishac Diwan. (2003). “Policy Selectivity Forgone: Debt and Donor Behavior in Africa” World Bank Economic Review 17 (3): 409–35.
- Briggs, R. C. (2021). “Why does aid not target the poorest” International Studies Quarterly 65 (3), 739-752.
- Benedict Clements, Sanjeev Gupta, Alexander Pivovarsky, and Erwin R. Tiongson. (2004). “Foreign Aid: Grants versus Loans” Finance and Development, September, pp. 46–49.
- Cordella, Tito and Hulya Ulku. (2007). “Grants vs. Loans” IMF Staff Papers, 54(1), 139-162.
- Djankov, Simeon, Jose G. Montalvo, and Marta Reynal- Querol. (2004). “Helping the Poor with Foreign Aid: The Grants vs. Loans Debate” World Bank, Washington, D.C.
- Easterly, William. (2001). “Debt Relief”, Foreign Policy 126, 20-26.
- Sachs, Jeffrey. (2002). “Resolving the Debt Crisis of Low-Income Countries” Brookings Papers on Economic Activity 1, Brookings Institution Press.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Vaccination Progress and the Opening Up of Economies
In this brief, we report on the FREE network webinar on the state of vaccinations and the challenges ahead for opening up economies while containing the pandemic, held on June 22, 2021. The current state of the pandemic in each respective country was presented, suggesting that infection rates have gone down quite substantially recently in all countries of the network, except in Russia which is currently facing a surge in infections driven by the delta-version of the virus. Vaccination progress is very uneven, limited by lacking access to vaccines (primarily Ukraine and Georgia) and vaccine scepticism among the population (primarily in Russia and Belarus but for certain groups also in Latvia, Poland and to some extent Sweden). This also creates challenges for governments eager to open their societies to benefit their economies and ease the social consequences of the restrictions on mobility and social gatherings. Finally, the medium to long term consequences for labour markets reveal challenges but also potential opportunities through wider availability of work–from-home policies.
Background
In many countries in Europe, citizens and governments are starting to see an end to the most intense impact of the Covid-19 pandemic on their societies. Infection and death rates are coming down and governments are starting to put in place policies for a gradual opening up of societies, as reflected in the Covid-19 stringency index developed by Oxford University. These developments are partially seasonal, but also largely a function of the progress of vaccination programs reaching an increasing share of the adult population. These developments, though, are taking place to different degrees and at different pace across countries. This is very evident at a global level, but also within Europe and among the countries represented in the FREE network. This has implications for the development within Europe as a whole, but also for the persistent inequalities we see across countries.
Short overview of the current situation
The current epidemiological situation in Latvia, Sweden, Ukraine, and Georgia looks pretty similar in terms of Covid-19 cases and deaths but when it comes to the vaccination status there is substantial variation.
Latvia experienced a somewhat weaker third wave in the spring of 2021 after being hit badly in the second wave during the fall and winter of 2020 (see Figure 1). The Latvian government started vaccinating at the beginning of 2021, and by early June, 26% of the Latvian population had been fully vaccinated.
Sweden, that chose a somewhat controversial strategy to the pandemic built on individual responsibility, had reached almost 15 thousand Covid-19 deaths by the end of June of 2021, the second highest among the FREE network member countries relative to population size. The spread of the pandemic has slowed down substantially, though, during the early summer, and the percentage of fully vaccinated is about to reach 30% of the population.
Figure 1. Cumulative Covid-19 deaths
Source: Aggregated data sources from the COVID-19 Data Repository by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University, compiled by Our World in Data.
Following a severe second wave, the number of infected in Ukraine started to go down in the winter of 2020, with the total deaths settling at about 27 thousand in the month of February. Then the third wave hit in the spring, but the number of new daily cases has decreased again and is currently three times lower than at the beginning of the lastwave. However, a large part of the reduction is likely not thanks to successful epidemiological policies but rather due to low detection rates and seasonal variation.
In June 2021, Georgia faces a similar situation as Ukraine and Latvia, with the number of cumulative Covid-19 deaths per million inhabitants reaching around 1300 (in total 2500 people) following a rather detrimental spring 2021 wave. At the moment, both Georgia and Ukraine have very low vaccination coverage relative to other countries in the region(see Figure 5).
In contrast to the above countries, Russia started vaccinating early. Unfortunately, the country is now experiencing an increase in the number of cases (as can be seen in Figure 2), contrary to most other countries in the region. This negative development is likely due to the fact that the new Covid-19 delta variant is spreading in the country, particularly in Moscow and St. Petersburg. Despite the early start to vaccinations, though, the total number of vaccinated people remains low, only reaching 10.5% of the population.
Figure 2. New Covid-19 cases
Source: Aggregated data sources from the COVID-19 Data Repository by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University, compiled by Our World in Data.
In some ways similar to Sweden, the government of Belarus did not impose any formal restrictions on individuals’ mobility. According to the official statistics, in the month of June, the rise in the cumulative number of covid-19 deaths and new daily infections has declined rapidly and reached about 400 deceased and 800 infections per one million inhabitants, respectively. Vaccination goes slowly, and by now, around 8% of the population has gotten the first dose and 5% have received the second.
There were two major waves in Poland during the autumn 2020 and spring 2021. In the latter period, the country experienced a vast number of deaths. As can be seen in Figure 3, the excess mortality P-score – the percentage difference between the weekly number of deaths in 2020-2021 and the average number of deaths over the years 2015-2019 – peaked in November 2020, reaching approximately 115%. The excess deaths numbers in Poland were also the highest among the FREE Network countries in the Spring of 2021, culminating at about 70% higher compared to the baseline. By mid-June, the number of deaths and cases have steeply declined and 36% of the country’s population is fully vaccinated.
Figure 3. Excess deaths
Source: Human Mortality Database & World Mortality Dataset compiled by Our World in Data.
Turning to the economy, after a devastating year, almost all countries are expected to bounce back by the end of 2021 according to the IMF (see Figure 4). Much of these predictions build on the expectations that governments across the region will lift Covid-19 restrictions. These forecasts may not be unrealistic for the countries where vaccinations have come relatively far and restrictions have started to ease. However, for countries where vaccination rates remain low and new variations of the virus is spreading, the downside risk is still very present, and forecasts contain much uncertainty.
Figure 4. GDP-growth
Vaccination challenges
Since immunization plays such a central role in re-opening the economy and society going back to normal, issues related to vaccinations were an important and recurring topic at the event. The variation in progress and speed is substantial across the countries, though.
Ukraine and Georgia are still facing big challenges with vaccine availability and have fully vaccinated only 1.3% and 2.3% of the population by the end of June, respectively. Vaccination rates have in the recent month started to pick up, but both countries face an uphill battle before reaching levels close to the more successful countries.
Figure 5. Percent fully vaccinated
Source: Official data compiled by Our World in Data. See full source list at: https://github.com/owid/covid-19-data/blob/master/public/data/vaccinations/locations.csv
Other countries a bit further ahead in the vaccine race are still facing difficulties in increasing the vaccination coverage, though not so much due to lack of availability but instead because of vaccine skepticism. In Belarus, a country that initially had bottleneck issues similar to Ukraine and Georgia, all citizens have the opportunity to get vaccinated. However, Lev Lvovskiy, Senior Research Fellow at BEROC in Belarus, argued that vaccination rates are still low largely because many Belarusians feel reluctant towards the vaccine at offer (Sputnik V).
This vaccination scepticism turns out to be a common theme in many countries. According to different survey results presented by the participants at the webinar, the percentage of people willing or planning to get vaccinated is 30% in Belarus and 44% in Russia. In Latvia, this number also varies significantly across different groups as vaccination rates are significantly lower among older age cohorts and in regions with a higher share of Russian-speaking residents, according to Sergejs Gubins, Research Fellow at BICEPS in Latvia.
Webinar participants discussed potential solutions to these issues. First, there seemed to be consensus that offering people the opportunity to choose which vaccine they get will likely be effective in increasing the uptake rate. Second, governments need to improve their communication regarding the benefits of vaccinations to the public. Several countries in the region, such as Poland and Belarus, have had statements made by officials that deviate from one another, potentially harming the government’s credibility with regards to vaccine recommendations. In Belarus, there have even been government sponsored disinformation campaigns against particular vaccines. In Latvia, the main problem is rather the need to reach and convince groups who are generally more reluctant to get vaccinated. Iurii Ganychenko, Senior Researcher at KSE in Ukraine, exemplified how Ukraine has attempted to overcome this problem by launching campaigns specifically designed to persuade certain age cohorts to get vaccinated. Natalya Volchkova, Director of CEFIR at NES in Russia, argued that new, more modern channels of information, such as professional influencers, need to be explored and that the current model of information delivery is not working.
Giorgi Papava, Lead Economist at ISET PI in Georgia, suggested that researchers can contribute to solving vaccine uptake issues by studying incentive mechanisms such as monetary rewards for those taking the vaccine, for instance in the form of lottery tickets.
Labour markets looking forward
Participants at the webinar also discussed how the pandemic has affected labour markets and whether its consequences will bring about any long-term changes.
Regarding unemployment statistics, Michal Myck, the Director of CenEA in Poland, made the important point that some of the relatively low unemployment numbers that we have seen in the region during this pandemic are misleading. This is because the traditional definition of being unemployed implies that an individual is actively searching for work, and lockdowns and other mobility restrictions have limited this possibility. Official data on unemployment thus underestimates the drop in employment that has happened, as those losing their jobs in many cases have left the labour market altogether. We thus need to see how labor markets will develop in the next couple of months as economies open up to give a more precise verdict.
Jesper Roine, Professor at SITE in Sweden, stressed that unemployment will be the biggest challenge for Sweden since its economy depends on high labor force participation and high employment rates. He explained that the pandemic and economic crisis has disproportionately affected the labor market status of certain groups. Foreign-born and young people, two groups with relatively high unemployment rates already prior to the pandemic, have become unemployed to an even greater extent. Many are worried that these groups will face issues with re-entering the labour market as in particular long-term unemployment has increased. At the same time, there have been more positive discussions about structural changes to the labour market following the pandemic. Particularly how more employers will allow for distance work, a step already confirmed by several large Swedish firms for instance.
In Russia, a country with a labour market that allowed for very little distance work before the pandemic, similar discussions are now taking place. Natalya Volchkova reported that, in Russia, the number of vacancies which assumed distance-work increased by 10% each month starting from last year, according to one of Russia’s leading job-search platforms HeadHunter. These developments could be particularly beneficial for the regional development in Russia, as firms in more remote regions can hire workers living in other parts of the country.
Concluding Remarks
It has been over a year since the Covid-19 virus was declared a pandemic by the World Health Organization. This webinar highlighted that, though vaccination campaigns in principle have been rolled out across the region, their reach varies greatly, and countries are facing different challenges of re-opening and recovering from the pandemic recession. Ukraine and Georgia have gotten a very slow start to their vaccination effort due to a combination of lack of access to vaccines and vaccine skepticism. Countries like Belarus and Latvia have had better access to vaccines but are suffering from widespread vaccine skepticism, in particular in some segments of the population and to certain vaccines. Russia, which is also dealing with a broad reluctance towards vaccines, is on top of that dealing with a surge in infections caused by the delta-version of the virus.
IMF Economic Outlook suggests that most economies in the region are expected to bounce back in their GDP growth in 2021. While this positive prognosis is encouraging, the webinar reminded us that there is a great deal of uncertainty remaining not only from an epidemiological perspective but also in terms of the medium to long-term economic consequences of the pandemic.
Participants
- Iurii Ganychenko, Senior Researcher at Kyiv School of Economics (KSE/Ukraine)
- Sergejs Gubins, Research Fellow at the Baltic International Centre for Economic Policy Studies (BICEPS/ Latvia)
- Natalya Volchkova, Director of the Centre for Economic and Financial Research at New Economic School (CEFIR at NES/ Russia)
- Giorgi Papava, Lead Economist at the ISET Policy Institute (ISET PI/ Georgia)
- Lev Lvovskiy, Senior Research Fellow at the Belarusian Economic Research and Outreach Center (BEROC/ Belarus)
- Jesper Roine, Professor at the Stockholm Institute of Transition Economics (SITE / Sweden)
- Michal Myck, Director of the Centre for Economic Analysis (CenEA / Poland)
- Anders Olofsgård, Deputy Director of SITE and Associate Professor at the Stockholm School of Economics (SITE / Sweden)
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Regional Economic Development Along the Polish-German Border: 1992-2012
In this brief, we summarize the results of a recent analysis focused on the regional economic development in Poland and Germany along the Oder-Neisse border (Freier, Myck and Najsztub 2021a). Economic activity is approximated by satellite night-time light intensity, a comparable proxy available for regions on both sides of the frontier consistently between 1992 and 2012. This period covers the time of economic transformation and the first eight years of Poland’s membership in the European Union. We find that convergence in overall activity across the border has been complete: Polish municipalities that used to be economically much weaker have caught up with those on the German side of the Oder and the Neisse rivers.
Introduction
The question of the harmonious development of economic activity is at the heart of the European integration project (Art. 2, Treaty of Rome, 1957), and the Maastricht Treaty (1992) made economic convergence between member states an explicit objective. In a forthcoming paper (Freier et al. 2021), we take a new approach to the question of regional European integration.
This brief derives from a recent publication in Applied Economics (Freier et al. 2021a), in which we examine the degree of regional economic convergence along the German-Polish border by taking advantage of satellite night-time illumination data covering the period between 1992 and 2012. The data allows us to study detailed regional patterns of economic development along the river-delimited part of the frontier and further inland.
The seminal work by Henderson et al. (2012) was the first to use night-time light intensity data which covers the entire globe to measure economic activity. Unlike traditional regional economic indicators, light intensity data is independent of administrative border reforms and has been collected in a consistent format over the studied two decades.
Our analysis suggests that, over the analysed period from 1992-2012, there has been essentially full convergence in economic activity between municipalities on both sides of the Polish-German border. While the average value of night-time illumination in our selected group of municipalities in 1992 was 3.7 (on a scale between 0 and 63) in Poland and 7.7 in Germany, the respective values were 9.0 and 9.7 by 2012, and the latter difference is not statistically significant. This convergence suggests a much stronger rate of growth in economic activity on the Polish side of the border. Additionally, we show that within Germany, the distance to the border has much less relevance for economic activity compared to Poland, where it reflects interesting trends. In 1992, Polish towns farther from the border showed significantly higher economic performance. Within Poland, this gap has been greatly reduced over the 20 years we analyse, with regions closer to the border growing much faster compared to those farther away.
Night Lights Along the Polish-German Border
In our dataset, we include municipalities that are located within 100 km from the river delimited part of the PL-DE border. To avoid the sensitivity of the analysis to top censoring of the night-time light intensity data, we removed regional capital cities: Berlin (with surrounding municipalities), Dresden, Gorzów Wielkopolski, and Zielona Góra. This leaves us with 488 municipalities on the German side of the border and 193 municipalities on the Polish side.
The night lights data series, provided by the National Oceanic and Atmospheric Association (NOAA), starts as early as 1992 and continues in a consistent, comparable format to 2012. The data is independent of the administrative structures of local governments, which over time have changed on both sides of the border. This allows us to aggregate the night-time lights information for municipalities using the most recent available administrative borders. This data is essentially the only source of information on economic activity that is consistently available and comparable on both sides of the border over such a long period of time.
The night-time lights data has been applied widely as a proxy of economic development on the country and regional level (Henderson et al., 2012; Bickenbach et al., 2016). Clearly, the intensity of night-time lights does not capture the entire spectrum of economic activity. It has been pointed out that the relationship between night-time light intensity and conventional measures of economic development, such as GDP, is likely to differ depending on a region’s stage of economic development (Hu and Yao, 2019). However, we focus on mostly rural and sparsely populated areas (where there is little risk of top censoring of the data), and compare dynamics between regions that are similar in terms of their stage of economic development, geography, and weather. All these factors support the use of night lights as a proxy for regional development in our application (a number of technical steps are necessary to validate and calibrate the data for use in our analysis, see: Freier et al. 2021).
Economic Convergence Along the PL-DE Border
To understand the overall development of economic activity over the period of interest, we map the changes in the night-time light intensity in Figure 1. The colour scale on the map represents differences in light emissions between 1992 and 2012, with the range going from -40 to 40. A negative value indicates a reduction, and a positive value highlights an increase in light intensity. The negative values have been coloured in a blue-green scale (-40 to 0), while positive values in a red scale (0 to +40).
Figure 1. Night lights: changes in light intensity between 1992 – 2012 along the Polish-German border
Notes: municipalities along the PL-DE river border up to 100 km to the border; municipalities marked in grey treated as outliers and excluded from analysis due to high proportion of top-coded lights pixels in 1992; municipality borders as of 2013 (DE) and 2012 (PL). Source: GeoBasis-DE / BKG 2013, PRG 2012, DMSP OLS v4, OpenStreetMap, own calculations. For details see Freier et al. (2021).
As notable in Figure 1, the red areas are predominant. This exemplifies that between 1992 and 2012, nearly all municipalities in this area witnessed positive economic development as manifested in the intensity of night-time lights. We have a few areas that reflect negative dynamics on the German side of the border. This is mainly due to the regional implications of shutting down activity in agriculture and traditional industries as they were unable to compete with West-German technology and productivity. In Poland, green-blue areas are essentially non-existent, illustrating a universally positive economic development over the studied period. This difference in the pace of changes in light intensity between the German and the Polish side reflects a process of rapid convergence of economic development between municipalities on both sides of the border. These developments are represented in Figure 2 which shows the difference between the night-time light intensity in Germany and Poland by year and provides a test for its statistical significance. The estimation is done on mean log pixel values per municipality and clearly highlights the steep path of convergence. In the early nineties, the difference in mean light intensity was around 100 percent – i.e., the mean difference was as high as the mean level of lights on the Polish side of the border. Already ten years later it reduced to around 50 percent and disappeared by the end of the analysed period. It is notable that, after an initial steep convergence, the difference in light intensity had a period of stagnation between 2002 and 2008. Interestingly, the full convergence which followed coincides with Poland’s entry into the Schengen agreement in December 2007. As seen in Figure 2, the difference in the average night-time light intensity between Poland and Germany was statistically insignificant and essentially zero since 2009.
Figure 2. Difference in mean night-time lights between Germany and Poland over time
Notes: Difference in log of average pixel values per municipality; year fixed effects included, weighted by municipality area; 95% CI. Source: see Figure 1.
Regional Development and Distance from the Border
Thanks to its high degree of geographical precision, the night-time lights data allows us to study the detailed spatial patterns within each country and, in particular, the relationship between distance to the border and economic activity. This is done by looking across the years 1992 to 2012 and examining three-year windows at each end of the analysed period. Our results, which are reported in Table 1, confirm a strong positive relationship between economic activity and distance to the border on the Polish side of the Oder-Neisse rivers. Overall, Polish regions farther from the border show a greater degree of economic activity, but this relationship has substantially diminished over time. While in Germany, economic activity was higher in regions farther from the border and increasing at the average rate of about 0.3% per km, this rate was about three times higher in Poland, falling from about 1.2% per km in 1992-94 to 0.6% in 2010-2012.
Table 1. Total night-time lights along the Polish-German border, 1992-2012
Notes: Notes: municipalities along the PL-DE river border up to 100 km to the border; municipality borders as of 2013 (DE) and 2012 (PL); mean municipal total lights calculated using average pixel values per municipality and weighted by municipality area. Standard errors in parentheses, statistical significance: + p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.001. Source: see Figure 1.
Table 2 reports changes in light intensity between the beginning and the end of a specific period. Here, we find some interesting and perhaps disconcerting results on the relationship between the distance to the border and changes in light intensity. While the distance-to-border coefficient in the Polish case for the full period is negative, suggesting that regions closer to the border were catching up to the more developed regions farther away, the corresponding coefficient for the final three years is positive. This means that, in the years 2010-2012, economic development was faster in municipalities farther away from the border. Although the relationship is not very strong (the change in light intensity grows by about 0.1% per kilometre of distance to the border), it still suggests a reversal in the fortunes of municipalities close to the border on the Polish side. This result points towards the fact that homogeneity of development cannot be taken for granted and that physical distance might continue to play a role in determining the regional rate of growth in the future.
Table 2. Changes in night-time lights along the Polish-German border: 1992-2012
Notes: Notes: municipalities along the PL-DE river border up to 100 km to the border; municipality borders as of 2013 (DE) and 2012 (PL); mean municipal total lights calculated using average pixel values per municipality and weighted by municipality area. Standard errors in parentheses, statistical significance: + p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.001. Source: see Figure 1.
Conclusion
In this brief, we report results from a forthcoming paper (Freier et al. 2021) in which we evaluate regional development in municipalities on the German and Polish side of the Oder-Neisse border between 1992 and 2012, using night lights data as a proxy for economic activity. We find that driven by rapid growth in Polish municipalities and somewhat sluggish growth in German ones, the light intensity levels across the Oder-Neisse border show no significant differences by the end of our observation period. This is despite significant initial differences just 20 years earlier and the fact that municipalities on the German side also experienced increases in economic activity. In as far as economic development can be proxied by the intensity of night-time illumination, it seems that economic convergence between regions on both sides of the border was complete by 2012.
We also show interesting patterns regarding the relationship between economic activity and distance from the border. For Germany, this relationship is weakly positive and remains stable throughout the analysed period. In Poland, distance is strongly and positively correlated with light emissions at the beginning of the period, hence indicating that municipalities farther from the border show higher average economic activity. By 2012, however, the border regions have closed most of the gap and the distance to the border is a substantially weaker predictor of economic activity, suggesting a much more homogenous pattern of activity.
Acknowledgements
This brief draws on results reported in Freier et al. (2021a). The authors gratefully acknowledge the support of the Polish National Science Centre (NCN), project number: 2016/21/B/HS4/01574. For the full list of acknowledgements and references see Freier et al. (2021a).
References
- Bickenbach F, Bode E, Nunnenkamp P and Söder M (2016) Night Lights and Regional GDP. Review of World Economics 152(2): 425–47.
- Freier, R., Myck, M., Najsztub, M (2021a) Lights along the frontier: convergence of economic activity in the proximity of the Polish-German border, 1992-2012. Applied Economics, available online: doi: 10.1080/00036846.2021.1898534.
- Freier, R., Myck, M., Najsztub, M (2021b) Night lights along the PL-DE border 1992-2012. Dataset used in Freier et al. (2021a), Zenodo, DOI: 10.5281/zenodo.4600685.
- Henderson JV, Storeygard A and Weil DN (2012) Measuring Economic Growth from Outer Space. American Economic Review 102(2): 994–1028.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The Political Economics of Long Run Development in Eastern Europe: Insights from the 2019 SITE Academic Conference
Thirty years after the fall of communism, many assume that the economic transition of Eastern Europe and the former Soviet States towards a system of market economy is complete. But the region faces new challenges, of both economic and political kind, which renders a thorough understanding the past even more important. This policy brief is based on the scientific contributions presented at the 7th SITE Academic Conference held at the Stockholm School of Economics from December 16th to December 17th, 2019. Organized by the Stockholm Institute of Transition Economics (SITE), the conference brought together academics from all over Europe and the United States to share and discuss their research on economic and political development in Eastern Europe.
The Imperial and Soviet Periods
In the first section of the conference, papers with a focus on the long-term history of Eastern Europe and its implications for more recent events were presented. Marvin Suesse presented his research on how the Russian State Bank financed Tsarist Russia´s belated industrialization, a question that had been discussed by historians, but never thoroughly analyzed quantitatively. By geo-coding historical manufacturing censuses around the turn of the century and using distance between bank branches and factory location, the causal impact of the expansion of the State Bank is estimated, revealing large effects on firm revenues and productivity. These effects are largest in areas where alternative means of financing were least available and where human capital was more abundant.
Natalya Naumenko presented her findings on the economic consequences of the 1933 Soviet famine, which in terms of casualties was extremely devastating. She uses the meteorological conditions a year earlier as an instrumental variable and finds that the famine, which was mostly a rural phenomenon, had a persistent negative effect on the urban population while the rural population recovered relatively quickly.
Gerhard Toews discussed the long-term consequences on regional development of the displacement of an estimated 3 million “enemies of the people”, political prisoners typically belonging to the elite of the society, into the gulags in the early years of the Soviet Union. Using archival data, he has constructed a large database describing the gulag population in terms of the shares of “enemies” relative to other prisoners and taking into account their socio-economic characteristics i.e. the much higher levels of education of the former group. Exploiting variation within gulags, the results suggest that a historically higher density of “enemies” means higher economic prosperity today as measured by nightlight intensity.
Taking another angle, Christian Ochsner investigated the effects of the Red Army´s occupation on post-war Europe, using the demarcation line crossing the Austrian state of Styria as a natural experiment. His conclusion is that even the temporary occupation affected the region’s long-term development, the main channel being age-specific migration.
Finally, Andreas Stegman offered an analysis of the effects of the 1972 East German Extended Visitors Program. The program reduced travel restrictions for West German visitors traveling to certain districts of East Germany. Using a geographic regression discontinuity design comparing similar districts with and without the program, he shows that included districts indeed received much more visits from West Germany and that their citizens were more likely to protest against the Communist government and less likely to vote for the ruling party. This suggests that face-to-face interaction can influence beliefs and attitudes in non-democratic regimes, in turn influencing individual behavior and societal outcomes during transition.
Corruption, Conflict and Public Institutions
Another topic of the conference was the current role of corruption, conflict, electoral fraud and public sector effectiveness for the region. Scott Gehlbach presented his most recent research on the ownership patterns and strategies of Ukrainian oligarchs before and after the Orange revolution. By mapping oligarchs to changing political leadership, he shows how firm owners in Ukraine take actions to protect their property depending on their connections with the current government. He finds that obfuscation of ownership behind holding companies and complicated structures is a potentially valuable strategy in this environment in general but becomes particularly important when an oligarch loses direct connections to the ruling regime.
Likewise, Timothy Frye analyzed election subversion by employers in Russia, Argentina, Venezuela, Turkey and Nigeria. He finds that in Russia, public sector employers and especially state-owned firms are more likely to influence their employees’ decision to vote than private companies. Furthermore, work place mobilization by employers in Russia is clearly negatively associated with the freedom of the press. Election subversion is more likely to be successful when the degree of dependence of the employee is high and the employer’s potential threats are credible. Among Russian firm officials, the most frequently named motivations for them to practice election subversion are the desire to improve their relationship with the authority and the intention to help their party.
Michal Myck studied the impact of the transition experience on economic development around the Polish-German border. Polish communities close to the border were economically backward at the beginning of the transition but could potentially benefit from trade opportunities with an opening towards the West. Using similar methods to those of Stegman above, and nightlight intensity as a measure of economic activity as for instance Toews, Myck finds significant evidence for economic convergence both between Germany and Poland, and between Polish border regions and the rest of Poland.
Vasily Korovkin presented his research on the impact of the conflict in Eastern Ukraine on trade in non-conflict areas in Ukraine, hypothesizing that the conflict may cause a trade diversion away from Russia, particularly so in areas with many ethnic Ukrainians. Using variation in the share of the Russian speaking population at the county level as well as detailed firm level export and import data, he finds that the decrease in trade with Russia is negatively correlated with the share of the Russian speaking population. Potential mechanisms include a decline in trust at the firm level and changes in local attitudes including consumer boycotts.
Finally, Tetyana Tyshchuk analyzed the effects of a Ukrainian public sector reform on civil servants’ capacity and autonomy. The reform created public policy directorates parallel to the regular bureaucracy in 10 ministries. Members of the directorates were hired based on a different procedure and different merits relative to regular public servants and received significantly higher salaries. Tyshchuk finds that the better paid civil servants indeed score higher on many, though not all, indicators of capacity and autonomy.
Information, Populism and Authoritarianism Today
The final important theme of the conference was the role of information and media, old and new, in today’s politics. In the event´s first keynote speech, Ruben Enikolopov analyzed the political effects of the Internet and social media whose low entry barriers and reliance on user-generated content make them decisively different from traditional media channels. On the one hand, this represents a chance for opposition leaders and whistleblowers to make their voice heard and may improve government accountability. On the other, these media may also become a platform for extremists. Enikolopov presented some of his work analyzing to what extent social media has contributed to fighting corruption in Russia. Using the timings of blog posts by the famous Russian opposition leader Alexei Navalny on corporate governance violations in state-owned companies, he shows that revelations resulted in an immediate drop in the price of the traded shares of the respective companies. He also finds evidence suggesting that Navalny´s blog posts resulted in management changes in these companies. In related papers, he exploits the spread of VKontakte (VK), the Russian version of Facebook, to better understand the influence of social networks on political activism, voting and the occurrence of hate crime. He finds that the spread of VK is indeed causally related to political protests, though not because it nurtures opposition to the government, but rather because it facilitates protest co-ordination. With respect to hate crime, he finds that social media only has an effect in areas where it falls on fertile grounds and where there already are high levels of nationalism. The tentative conclusion is that in Russia – as in Western countries – social media seems to have increased political polarization.
On a similar topic but taking a more theoretical approach, Galina Zudenkova investigated the link between information and communication technologies (ICT), regime contestation and censorship. In a game theoretical framework, where citizens use ICT both to learn about the competency of the government and to coordinate protests, governments can use different tools to censor information to increase their chances of survival. Zudenkova finds that less competent regimes are more likely to censor coordination, whereas intermediate regimes are more likely to focus on censoring content. These theoretical predictions are then tested using country level data.
The targeted use of information has also played a key role in Putin’s Russia according to Daniel Treisman. In his keynote speech, he argued that while the 20th century dictatorships were mainly based on violence and ideology, the 21st century has been characterized by a sizeable shift towards what he calls “informational autocracy”. Constructing a dataset on the methods used by authoritarian regimes to maintain power between 1946 and 2015, he shows that the use of torture and violence peaked among those dictators who took power in the 1980s and has declined since. Furthermore, he highlights a remarkable shift from topics of violence towards topics of economic competency in dictators’ speeches. However, Treisman finds that by instrumentalizing information, dictators fool the public “but not the elite”. In democratic regimes, those with tertiary education tend to rate their political leaders higher than people without tertiary education. In the new informational authoritarian regime, the opposite seems to be the case. According to Treisman, this is because the “informed elite” has a better understanding of the political reality in places where the media is censored, Putin’s Russia being a good example. Treisman concluded that this new model of authoritarianism has become the prevalent model outside of Europe and today also has its advocates inside the European Union.
The conference ended with a final keynote speech by Sergei Guriev on the political economy of populism. Using existing definitions, he first confirmed that Europe has seen a rise in right-wing populism in the last 20 years. Secular trends, such as globalization and new communication technology, but also the recent global financial crisis, are driving factors behind the rise of populist parties. For instance, analyzing regional variation in voting patterns suggests that the Brexit vote was primarily driven by economic motives rather than by anti-immigrant sentiments. Ironically, though, most evidence suggests that populist governments have a below-average economic performance once in office, the US and Poland being notable exceptions. A key point of Guriev’s presentation was that populism seems to be a good method to obtain power, but, once in power, populists tend to be less successful in promoting citizen welfare. These findings seem to be of high importance given the increasing public support for populist parties around the world and in parts of Eastern Europe
The conference was very well received and on behalf of SITE, the authors would like to express their appreciation to all speakers and participants for sharing their knowledge and to Riksbankens Jubileumsfond for financial support. For those interested to learn more about the papers summarized very briefly above, please visit the conference website and the presenters’ websites as indicated in the text and here below.
Speakers at the Conference
Andreas Stegman, briq – Institute on Behavior and Inequality
Christian Ochsner, CERGE-EI and University of Zurich
Daniel Treisman, University of California, Los Angeles
Galina Zudenkova, TU Dortmund University
Gerhard Toews, New Economic School Moscow
Marvin Suesse, Trinity College
Michal Myck, CenEA
Natalya Naumenko, George Mason University
Ruben Enikolopov, New Economic School Moscow
Scott Gehlbach, University of Chicago
Sergei Guriev, Sciences Po Paris
Tetyana Tyshchuk, Kyiv School of Economics
Timothy Frye, Columbia University
Vasily Korovkin, CERGE-EI
Some More Reflections on RCTs
In preparation of next year’s elections, the Swedish government chose recently to replace the Minister for International Development Cooperation. During her long mandate, former Minister Gunilla Carlsson championed the importance of aid evaluation and result focus, and managed to move aid from a quiet consensus to become a hotly debated topic. She also closed down the aid evaluation agency SADEV, following the publication of critical reviews about the work of the agency. Now, an expert group is in charge of rethinking and redesigning development policy evaluation and planning. One of the tools under consideration is randomized control trials (RCTs). This is an area in which Swedish development cooperation has no previous experience. Here are some reflections on RCTs.
In recent years, the methods of development economics have been crucially altered by the introduction of randomized control trials (RCTs). The idea behind RCTs is that development policies can be evaluated similarly to clinical trials in medicine, where subjects are randomly assigned to receive a treatment or to function as a reference or control group. The main benefit of this approach is that the random assignment allows for an estimation of the effect of the treatment (that is, the policy in question), while avoiding unobservable confounding factors or selection issues (see more about the advantages of the method in Banerjee et al. (2008)).
The diffusion of experimental methods in development economics has undoubtedly been a revolution in the academic and, if not yet fully, in the policy world. In the blogosphere there has even been talk of awarding Sveriges Riksbank’s Prize in Economic Sciences in Memory of Alfred Nobel, informally called the Nobel Prize of Economics, to the MIT couple Banerjee – Duflo. Due to their young age and the closeness in time of their contribution, this would be a ”shock” prize meant to give a strong signal. Their creation, the Abdul Latif Jameel Poverty Action Lab (J-PAL), stands for a new approach to both scientific and policy work in development that is a fantastic contribution, and definitely has the connotation of seminal.
However, it might be too early for the profession to sanction a method that has much good to show for, but also potentially undesired consequences. In the camp of critics there are heavy weights such as Angus Deaton and Dani Rodrik of Princeton, and the World Bank’s Philip Keefer and Martin Ravallion. The core of their position is of course not to deny the merits of RCTs, but to advocate their use in the right way and, in particular, as one tool among many others, with important complementarities to the others.
Some points in this context are often made, well understood and widely accepted: the limits of the approach per se, in particular the problem of external validity (the question of how generally applicable are the findings from such studies); the conflict between short-run and long-run implications, especially with respect to some policy areas (support to institution-building among others), and the incentives of policy actors. Another brief in this series by Anders Olofsgård spells out these points very clearly and references to further readings for those interested.
One aspect I find to be missing in the debate is a reflection on what impact this new method has on the three main actors involved, namely the researchers and practitioners in development and their way of working, and the people living in the countries and regions where these studies take place. This will therefore be the focus of this brief.
The Impact on the Scholarly Profession
The creation of experimental infrastructures and the popularity of the RCT methodology have rubbed off on the rest of the empirical practice in development economics and beyond, with ever-increasing demands and expectations on the econometric identification of new studies. However, when it comes to what is possibly the main weakness of RCTs as compared to most observational studies, namely external validity, the corresponding demands and expectations on how this is dealt with seem to fall behind. As pointed out in Rodrik (2008), it is enough to compare the number of pages spent on describing the identification in an average observational study to that on external validity in an average RCT-based paper. If the purpose is to learn “what works in development”, as opposed to “what worked once for a set of 25 primary schools in Uttar Pradesh faced with high drop out rates” [1], it is natural to expect the researcher that really wants to serve this purpose to provide for a desired generality of her findings. With no generality, the findings may be of limited practical use to politicians and practitioners who need to choose a policy tool or make a decision in conditions, which are likely to differ from the exact setting of the study.
During a recent presentation by one of the most active and prominent RCT researchers, the researcher clearly stated at some point that: “[t]his intervention was never thought for scaling up as a policy.” That made me pause. But what is the purpose, then? In my meaning, these studies should fit into a “bigger-picture” understanding, or at least hypothesizing on how development works, what the binding constraints and open challenges are, what might contribute to overcoming them, and how do we proceed from there. Once some candidates are identified, RCTs might, depending on the setting, be used to evaluate and compare before and after the preferred policy is implemented. Unfortunately, this attitude is far from common, beyond what has become the standard of the ‘Introduction paragraphs’.
Quite often RCT studies are extremely precise and accurate on “the impact of X on Y”, even in cases of very small effects, and can be perhaps a bit vague or face bigger uncertainties on the ‘bigger’ question. This means that many, more general (and very relevant) questions are not addressed by development economists just because a RCT is not feasible. An example mentioned in a recent keynote lecture by David Laitin is the BetterBirth Project. This is a WHO program that seems to be making a big difference for infant and maternal health in India’s poorest states through a list of 29 easy, low-cost, low-technology and well-known practices. The main lesson drawn by observers at the Harvard School of Public Health is that people follow the list more accordingly when it is spread through ”human contact”. No mass media advertisement campaign, no punishment or incentive schemes, just ”nice” people visiting, explaining, and demonstrating the list, while – in the words of an interviewed nurse – ”smiling a lot”. At first sight, this seems like something that could be randomized. However, the treatment is so diffuse and fuzzy that the practical implementation would be very challenging. If it is the case that the person meeting the clinics’ personnel and spreading the information has to be somewhat of a mentor in order for the transition to happen, to be kind and pedagogic, repeat the visits indefinitely to make sure that the practices have been adopted, and do whatever else it takes to make them learn, this is very hard to observe with precision. To simply define X as ”presentation of the list in person”, to be compared to, for example, the ”diffusion of the list through an information campaign” would probably run the risk of severely underestimating the impact. This would be because it would bundle together different types of informers and different levels of human interaction. This means that there would be a high risk of zero or insignificant results from such a study. A RCT would need to be complemented by other investigations, for example surveys, in order to find out if there really was an effect and how it came about. All of the above is likely to undermine the publication chances for an academic paper on the issue, thereby discouraging development scholars to study this program.
There are two main ways of augmenting the RCT methodology in the direction of generalizability and external validity: the elbow-grease approach of replication and the resuscitation of the concern for theoretical mechanisms. Replication studies are not very appealing in the perspective of a scholar that aspires academic publications. Besides completely new clever designs that establish a link of causation in a specific case – and possibly for each of these corresponding studies that establishes the absence of such a link in different settings – journals have little interest in publishing more variations on the same theme. Replications with small variations should instead be highly attractive for development institutions and practitioners, precisely for the reason, mentioned above, that they want to learn about effectiveness of alternative strategies in as many different specific contexts as possible. [2] In an ideal world, development institutions and aid bureaucracies would work in close cooperation with universities and academic institutions, involving young researchers before their career-concern-stress phase (perhaps Ph. D. students?) in the design and evaluation of as many of their planned interventions as possible. Moreover, in an ideal world this would be enough reward for the young researchers. This wealth of replications would then favor the possibility of “taking stock” and really learning about some general truth. I do not, however, have a good recipe for making this happen.
Luckily, some scholars are in the meanwhile working on making the pendulum swing back from the purest empiricism to the involvement with theory. Here is a list of possibilities that are important to reflect about, starting from a given RCT:
– The macro problem. How does the found effect compare to the “bigger issue”, the one that most likely set the scene in the ‘Introduction paragraph’ of the study? Few studies go back to this point, after presenting their results. Numerical simulations or structural estimation of theoretical models might help answering this question. (See some examples in Buera et al. (2011) and Kaboski et al. (2011)).
– The alternative hypothesis. What is the particular intervention compared against? If the set of circumstances or policy-relevant parameters that might be varied are too big or too dense for replications, maybe a theoretical model can help to vary them in a smooth and continuous way?
– The strategic reaction. How are the involved economic agents likely to respond in case of an expansion in space, time or both, of the intervention? How would they have responded in the absence of the intervention?
The Impact on Development Practices
As stated above, RCTs may be a powerful tool for the learning and decision-making in development institutions, public or private. However, this assumes a seldom-questioned willingness to learn and change practices on their part. Brigham et al. (2013) show, through a RCT, that these organizations might be subject to confirmation bias. Brigham et al. sent out an invitation to microfinance institutions, offering partnership to evaluate their programs, randomly accompanying it with a survey of previous studies finding positive impact of microcredit, or a survey of studies finding no impact. The second treatment elicited barely half as many responses as the first one, which suggests that at least this type of organizations might not be so interested in learning whether what they do is effective or can be improved. Coupled with the mentioned publication bias, this might skew the distribution of reported, published and established findings even further.
The Impact on the Local Context
Individual studies can of course be affected by the so-called Hawthorne effect or experimenter effect. The phenomenon, by which the act of being experimented upon changes a subject’s behavior, was first observed and got its name in the 1920s in industrial psychology. Although it is clearly hard to establish, it has for decades been a central criticism of the ”participant observation” methodology in anthropology and ethnography. Also behavioral economists, that more recently started using experiments both in labs and in the field, are explicitly careful about it.
Depending on the definition of causality that the researcher has in mind, the fact that having knowledge about being treated impacts outcomes, might not be an issue at all for the measurement of the overall effect of an intervention. The overall effect should include also the (optimal) reaction of the agents (for example a change in behavior, the adoption of other complementary inputs, etc.) and this is actually considered one of the advantages of the method. However, this raises problems for the interpretation of the size of the effect and the analysis of the channels that bring it about. This point is made very clearly by Bulte et al. (2012), who compare a double-blind RCT with a regular one. If all or most of the effect simply comes from the participants knowing to be ”treated” and reacting to it, is the effect still going to be there when the intervention becomes a regular policy? The majority of both authors and critics mostly ignore this important question.
Beyond the perspective of a single study, a different concern comes to mind when considering how a substantial number of RCT studies are clustered geographically. The map below shows a snapshot of the J-PAL interventions in Africa and Asia, which are only a fraction, albeit substantial, of the total.
Figure 1. J-PAL Interventions in Africa and Asia
Reading study after study set in Kenya, or some Indian state, I wonder if people there are starting to get used to private organizations going around giving away assets, or used to temporary local government programs with funky benefit schemes. To my knowledge, no study has yet reflected upon the aggregate impact of experiments and randomized interventions in an area that has many. Might it be the case that exposure to many conditions eventually results in ”experimental fatigue”, or practice effects, which may influence the results of the studies and make the interpretation of the findings difficult?
Even more worrisome, given the frequency of and the resources involved in these interventions, perhaps we should expect an impact on the local political economy. As a parallel, I think about the agrarian reform and the later establishment of the welfare state in post-war Italy, and how they gave major local actors the ability to uphold their clientelistic systems. The newly established rights and entitlements, the various benefits and redistribution programs, were ”filtered” by the local elites and channeled through the traditional ties of family, kinship, friendship and neighborhood. According to comparative analyses of European welfare regimes, clientelism exists, in different forms and intensities, in all Mediterranean welfare states, and it appears to be linked to the process of political mobilization and the establishment of welfare state institutions in these nations.
A recent study by Ravallion et al. (2013) finds that unemployed fail to act on information about the National Employment Guarantee Scheme (NEGS) in India. They hypothesizes that the bottleneck lies with the local government institutions (Gram Panchayats). The GP are supposed to receive the applications and apply for central government resources for planning and implementation of projects, so as to guarantee 100 days of work per year to all adults from rural households who are willing to do unskilled manual labor at the statutory minimum wage. But perhaps – argue the authors – given the strict controls on corruption, the GP officials do not find anything in it for themselves, and hence do not proceed. Of course this is just one of the possible explanations, and moreover the NEGS is not a RCT. But in general the involvement of local official or unofficial power structures in contexts where this type of interventions are increasingly common could be interestingly related to the hypothesis on the ”Mediterranean welfare state” outlined above. The idea definitely deserves investigation.
Conclusions
The popularity of RCTs among development scholars is finally spreading to practitioners. This is mostly good news, there is much to gain and learn from this approach, especially in contexts where it is grossly underexploited, as has been the case in Sweden. However, a near-monopoly of this approach is though not granted, given its non-negligible limitations, often belittled in light of its numerous strengths. Spurring development “one experiment at a time” might take unnecessary extra time and efforts, and bring about other undesirable consequences. Both development scholars and practitioners should not forget the other arrows in their quiver.
References
- Bannerjee, A. and E. Duflo (2008), “The Experimental Approach to Development Economics”, NBER Working Paper 14467.
- Brigham, Matthew, Michael Findley, William Matthias, Chase Petrey, and Daniel Nelson. ”Aversion to Learning in Development? A Global Field Experiment on Microfinance Institutions”. Technical Report, Brigham Young University March 2013.
- Buera, F. J., J. P. Kaboski, and Y. Shin (2011). ”The macroeconomics of microfinance.”
- BREAD working paper.
- Bulte, E., Pan, L., Hella, J., Beekman, G. and S. di Falco (2012). ”Pseudo-Placebo Effects in Randomized Controlled Trials for Development: Evidence from a Double-Blind Field Experiment in Tanzania.” Working Paper.
- Kaboski, J. P. and R. M. Townsend (2011, July). ”A structural evaluation of a large-scale quasi-experimental microfinance initiative.” Econometrica 79, 1357–1406.
- Olofsgård, A. ”What Do Recent Insights From Development Economics Tell Us About Foreign Aid Policy?” FREE Policy Brief Series, October 3, 2011.
- Ravallion, M., et al. ”Try Telling People their Rights? On Making India’s Largest Antipoverty Program work in India’s Poorest State.” Department of Economics, Georgetown University, Washington DC (2013).
- Rodrik, D. (2008). ‘The New Development Economics: We Shall Experiment, but How Shall We Learn?’. Harvard Kennedy School Working Paper No. RWP08-055.▪
[1] The example is fictitious. Any resemblance to real studies is unintended and purely coincidental.
[2] At least in theory – this point is discussed more in the next section.