CDC is sometimes accused of practicing trickledown economics, because we talk about the indirect effects of investments and we want to help create economic growth in the expectation this will help eradicate poverty. Sometimes our investments have a direct impact on poverty, by improving the livelihoods or meeting the needs of low-income sections of society. At other times the direct impact may be felt by the relatively well-off and we are looking for an indirect impact on poverty. How does relying on indirect effects differ from trickledown economics?
Trickledown economics is the discredited idea that if you want to help…
Caveats: this is my personal opinion and has nothing to do with my employer. I’ve posted this to solicit feedback that will improve the proposal. If anyone with more reach and influence than me thinks this is a good idea and would like to republish and promote it, I would be delighted.
When should African countries make new fossil fuel investments? It would be nice to answer: never. The world faces a climate emergency. But Africa also faces a poverty emergency. Around 2.5 million children under 5 die each year in sub-Saharan Africa each year. Africa must tackle both emergencies.
To steal from the great Cosma Shalzi: Attention Conservation Notice: this is me worrying away at modern monetary theory. Unless that’s your bag, move along.
I want to pick nits with two articles of MMT faith. What concerns me is whether any policy prescriptions follow from them. MMTers portray themselves as having reached new policy conclusions because they are the only ones who really understand how the modern financial system works.
I will take one article of faith at a time. This post is about the idea that banks don’t need deposits to lend. Another post Governments don’t need taxes…
MMTers set great store by the idea that the government ushers money into existence when it spends, because if you understand how government finances actually work, you will know that the government can electronically credit accounts at the stroke of a keyboard.
Now I may be wrong, but this looks to me like another case of putting too much importance on the order in which things happen (this is the other case: Banks don’t need deposits to lend. They just really want them).
MMTers then say that because governments create money in this fashion when they spend, taxes are not…
Suppose there are 10 banks, who collectively lend £1bn, and each bank has some slack so could lend somewhat more if it met with demand. For now let’s set aside the possibility of new suppliers affecting prices, and just think quantities.
Because the other 9 banks could step into the breach, if a researcher was to investigate the impact of one bank using the experiment of subtracting it from the market, they would find zero impact by gathering data on its former customers (households) and comparing them against a control group of non-customers. If the researcher was somehow able to…
[Originally published by ODI’s Supporting Economic Transformation]
Morten Jerven made a splash with his exposé of the woeful state of economic data in the developing world, Poor Numbers, and his second act Africa: Why Economists Get it Wrong has won him more fans. In this book he argues that economists were misled by cross-country growth regressions into thinking that Africa is incapable of development, and that by seeking to explain a failure of growth economists missed the chance to study historical growth episodes and show how Africa can grow.
Additionality is the thorn in the side of Development Finance Institutions (DFIs). It means: making an investment happen that would not have otherwise. The problem is that DFIs cannot provide rigorous evidence that their investments are additional.
Rigorous quantitative evidence based on investment data requires some credible method of estimating the counterfactual (what would have happened otherwise). And that requires something like a randomised control trial, or a ‘natural experiment’, or that mythical beast of econometrics a ‘valid instrumental variable’. And, to my knowledge at least, none of that is feasible in the world of DFIs. …
Standard impact evaluation methods are often not up to the job of identifying the effects of individual investments, which make themselves felt all over the economy. Factories in coastal cities reduce rural poverty, hundreds of miles away. If you like the idea that economies are complex adaptive systems, then incremental investments can take economies closer to some unobservable tipping point, with no apparent effect until that point is reached. If you like the idea that economies are networks that are only as strong as their weakest link, then you might not see any action until all the links are fixed.
I do not know whether CDC — the UK’s development finance institution — receives too large a share of the UK aid budget, or too little. But I do know that seeking out examples of CDC’s worst investments and using them to characterise what it does is not providing evidence: it is deliberately misleading. This is exactly what the Daily Mail does in its attacks on UK aid spending. It is disappointing to see NGOs adopt the same tactics in The Guardian, and disappointing that the FT can do little better.
At this year’s ODI CAPE conference we debated the question of whether development effectiveness principles, as codified in the Busan Partnership for Effective Development Cooperation, should apply to public investment in private enterprises. It is worth watching our two debaters, Jesse Griffith, director of the NGO network EURODAD, and Neil Gregory, head of thought leadership at the World Bank’s International Finance Corporation (IFC), to see two opposing worldviews articulated so eloquently [Youtube].
It is not obvious that the official development effectiveness process holds much sway over development finance institutions (DFIs) such as the IFC, but as public support to private…
Paddy Carter
Development finance researcher, lapsed foreign aid academic and macroeconomics hobbiest
