C15 Economic Policy Analysis

ECON 3007 Economic Policy Analysis

Description of Topic 3 and reading list

Topic 1 : Alleviating poverty: education and nutrition policies in developing countries.

Lecturer: Marcos Vera-Hernandez

In recent years many countries have adopted policies that try to foster the accumulation of human capital among poor individuals as a way to alleviate poverty in the long run. In these lectures we will discuss the theoretical justifications for these interventions and discuss also the available evidence on some of the programs that have been tried around the world to promote human capital accumulation. In the first lecture we will mention some of the motivations to justify a government intervention: the presence of an externality in human capital and the presence of imperfections to the credit market (borrowing restrictions). We will also look at the evidence on the effect of nutrition on long run outcomes. We will then move to the discussion of the problems in evaluating the effects of social interventions. While we start with a methodological discussion, we will then move to discuss specific interventions to foster the accumulation of human capital. We will discuss both the details of these programmes and the evaluation of their effects.

PartI. Theoretical foundations for government interventions in education and nutrition with a focus on developing countries

Poverty alleviation is not only important in its own right but also to improve economic performance. Many economists think that human capital is an important tool for poverty relief. Moreover, several market failures could justify public intervention to foster human capital accumulation in developing countries: First, credit markets are imperfect, especially in developing countries. Second, lack of insurance markets is an important phenomenon might adversely affect human capital accumulation. This will be especially important in developing countries where public insurance schemes are usually scarce. Third, human capital has important positive externalities. In presence of these market failures, a competitive equilibrium would result in a sub-optimal level of human capital investment.

Part II. What interventions: nutrition, education, child care.

Many possible interventions are possible. In particular, international organizations and governments have targeted nutrition, education and other programs. Another important issue is when to intervene. There is growing evidence that early interventions (even before age 2) can have long lasting effects. What do we know about the production function for human capital? We will look at some evidence on the long run effects of nutrition, as well as the effect of different schooling policies.

Part III. Methodological problems in evaluating the effects of social programs

There are some very difficult problems in measuring the impact of social programs. The main one is the so-called absence of counter-factuals. These problems are created because of the targeting mechanisms that interventions usually have. We will discuss several approaches to policy evaluation that have been proposed in the literature.

Part V The evaluation of Progresa in Mexico

The PROGRESA program in Mexico, recently renamed Oportunidades, was one of the first interventions to impose conditions on cash transfers. This program provided cash subsidies for education and for nutritional supplements. The transfers were conditional on the child attending school and having regular medical check-ups. This program has received a considerable amount of attention. One of the reasons for this attention has been a rigorous evaluation of its effects that was started at the same time as the program: the program was introduced in the form of a randomized trial with some villages being ‘treated’ and others used as controls. We will discuss extensively the program, its evaluation and the results of the evaluation.

Part VI. The evaluation of Familias en Acción and Hogares Comunitarios in Colombia

Familias en Acción is a program sponsored by the World Bank and the IADB that is very similar to Progresa. The nutrition component of Familias is widely perceived as an alternative to a pre-existing program bade on child care and food provision. We will discuss the evaluation of these two programs

References

(*) Indicates optional reading

Importance of human capital accumulation in early years later in life:

Behrman, J. J Hoddinott, J Maluccio, R Martorell (2005) The Impact of Experimental Nutritional Interventions on Education into Adulthood in Rural Guatemala. Type the title in to download the PDF. This paper is also an example of a evaluation using a randomized experiment.

(*) Early childhood nutrition and academic achievement: a longitudinal analysis •
Journal of Public Economics, Volume 81, Issue 3, September 2001, Pages 345-368
Paul Glewwe, Hanan G. Jacoby and Elizabeth M. King (Downloadable from the Library website)

(*) Paul Glewwe (2002) “Schools and Skills in Developing Countries: Education Policies and Socioeconomic Outcomes” Journal of Economic Literature (Downloadable from the Library website)

About approaches for policy evaluation:

Ravallion, M. (2001): “The Mystery of Vanishing Benefits: Ms Speedy Analyst Introduction to Evaluation” , World Bank Economic Review, Link to PDF The article is free if you access it from a UCL computer

Interventions that can promote human capital accumulation:

Wagstaff, A and Menno, P. (2005) “Insurance health impacts on health and non-medical consumption in a developing country” Policy, Research working paper ; no. WPS 3563 Worldbank. Link to PDF . This is also an example of an evaluation using Diff-in-Diff

(*) Galiani et al. 2005. “Water for Life” Journal of Political Economy 113: 83-120 [in response to a student’s comment, this paper shows that privatizations are not necessarily bad for poor people] Link toPDF. The article is free if you access it from a UCL computer. This is also an example of an evaluation using Diff-in-Diff

About Conditional Cash Transfers in general:

Vermehren, A. “Conditional Cash Transfer Programs. An effective Tool for reaching the Poorest and Most Vulnerable” En Breve, December 2003, Worldbank. Link to PDF

Rawlings, L. A and Rubio, G. (2004) “Evaluating the Impact of Conditional Cash Transfer Programs” The World Bank Research Observer 2005 20(1):29-55. Linkto PDF The article is free if you access it from a UCL computer

(*) Rawlings, L. A (2004) “New Approach to Social Assistance: Latin America's Experience with Conditional Cash Transfer Programs” Social Protection Discussion Paper No. 0416; LinktoPDF

About PROGRESA, Familias en Accion, and Hogares Comunitarios:

Gertler, P. (2004) “Do Conditional Cash Transfers Improve Child Health? Evidence from PROGRESA’s Control Randomized Experiment” American Economic Review
Vol. 94, No. 2, May 2004 336-341 (Available from You might need to access the website from a UCL computer). This short paper is also an example of a evaluation using a randomized experiment.

Attanasio et al (2005) “How effective are conditional cash transfers? Evidence from Colombia”, IFS Briefing Notes, BN54. Link to PDF

Attanasio and Vera (2004): “Medium and Long Run Effects of Nutrition and Child Care: Evaluation of a Community Nursery Programme in Rural Colombia”, This is also an example of an evaluation using instrumental variables. You do not need to print the long appendix.

(*) Skoufias, E. (2001): “PROGRESA and its Impacts on the Human Capital and Welfare of Households in Rural Mexico: A Synthesis of the Results of an Evaluation by IFPRI”, IFPRI. Downloadable from: progresa/pdf/Skoufias_finalsyn.pdf

Interesting websites