Development Channel

Rather than building schools and clinics, or donating solar lights and cows, is the best way to fight global poverty simply to give poor people money? That’s the question a group of smart economists are testing, and their answers could stand the multi-billion dollar aid industry on its head. In an effort to unpack the promises and challenges associated with unconditional cash transfers (UCTs), I hosted a conversation at the Council on Foreign Relations last month with Paul Niehaus, an assistant professor at UC San Diego, and the co-founder of GiveDirectly, an innovative NGO implementing and evaluating a cash transfer program in Kenya; and Chris Blattman, an assistant professor at Columbia University and popular blogger whose research is also breaking new ground on cash transfers. The most common concern about UCTs is that recipients will squander the money on detrimental activities such as drinking, gambling, and prostitution. To test this theory, Blattman conducted a field study in Liberia and selected participants not known for financial responsibility - drug addicts, former combatants, criminals, and the homeless. The preliminary results defy expectation: the Liberian recipients did not blow their cash on guilty pleasures. Instead, they spent it on useful things like clothing and shelter, and bought wholesale goods to start their own small businesses. Few of the criminals-turned-entrepreneurs succeeded in keeping their businesses afloat -- likely due in part to the tough economic conditions in the post-conflict country, and the fact that, as microcredit programs have shown, not everyone is cut out to be an entrepreneur. Still, even with no strings attached, the Liberian participants generally made good efforts to invest in and improve their quality of life. One of the main arguments for UCTs is that they allow poor people to spend money on what they actually need, not what outside aid experts assume they need. Niehaus (who was just recognized as one of Foreign Policy’s Leading Global Thinkers of 2013) noted that metal roofs are one of the most common purchases of GiveDirectly recipients in Kenya – something he admits he did not anticipate. Metal roofs turn out to be a high-return investment – they are sturdier and last much longer than thatched roofs, improve families’ security and health, and allow inhabitants to collect rain water. UCTs empower the poor to prioritize their own investment decisions to chart their rise out of poverty. Both Blattman and Niehaus agree that UCTs are not a cure-all - conditionality can be an important element of some poverty alleviation efforts. For example, aid conditional on school attendance for girls can help boost enrollment in places where cultural and economic barriers limit girls’ education. In other cases, pairing cash with skills training and support can lead to better results. But Blattman and Niehaus’ studies are – appropriately – examining just how much these additional services cost. Blattman’s work in Northern Uganda sheds light on this topic. To start, the team gave unconditional cash grants to women and observed that many became petty traders and nearly doubled their earnings within eighteen months. When social workers added follow-on services – visiting the women to hold them accountable and provide technical advice – the results were even better, but not so much better to justify the cost of the services. Blattman’s bottom line: “just give more women more cash.” Based on his work with aid organizations, Blattman estimates that hand holding can cost around $500 per aid recipient – typically more than three times the amount of the actual cash transfer. Although recipients who receive training and follow-ups do somewhat better than those who do not, the alternative for the same amount of money is helping more people and leaving them to their own (productive) devices. So far, UCT programs have been conducted on relatively small scales – but that could soon change. Advances in technology have made it easier than ever to efficiently identify the neediest households and distribute cash to people in remote places. In Kenya, GiveDirectly cost-effectively uses satellite images to identify families with thatched roofs (a sign of poverty) and safely and efficiently delivers cash to them through M-Pesa, the country’s mobile-phone-based banking system (those without cell phones were given them). As I discussed in a previous blog post, the results of a recently released GiveDirectly impact evaluation are positive. Unconditional cash transfers led to increases in assets and incomes, up 58 percent and 33 percent respectively, and improvements in food security and women’s empowerment. Spending on alcohol and tobacco, meanwhile, did not increase. The study also shows significant improvements in recipients’ mental health. As Niehaus noted in a recent National Public Radio interview, “being poor is really stressful and that can make it hard to . . . plan and make good decisions.” At the recent CFR event, he emphasized that mental health benefits could be one of the most important long-term gains to come from UCTs – something his work will continue to study.

Every year, the World Economic Forum publishes its Global Gender Gap Report, tracking the world’s progress toward eliminating gender inequality. This year’s report, published in October, included some good news: in the nearly 140 countries counted, more than 90 percent of the divide in health and education has been closed. Still, there remains a huge gender gap in economic participation, particularly in the Middle East and North Africa (MENA) region, where men are 60 percent more economically empowered than women. In many MENA countries, including Algeria, Bahrain, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, and Saudi Arabia, there are higher tertiary education enrollment rates for women than for men. Overall, women in the MENA region are more likely to graduate from university than their male peers. Yet the female labor participation rate remains only half the global average, which hampers growth and leaves the region lagging behind the rest of the world. As Christine Lagarde, director of the International Monetary Fund, noted in a recent visit to Kuwait: For the entire Middle East and North Africa region, the gap between men and women’s participation in the labor force over the past decade was almost triple the average gap in the emerging market and developing economies. If this gap had simply been double instead of triple, the gains for the entire region, the Gulf countries included, would have been enormous—almost $1 trillion in output, amounting to annual gains of about 6 percent of GDP. As my colleague Isobel Coleman highlights, many women in MENA countries are outperforming their male peers in science and math, as well as technology and engineering -- an unusual fact given that women fall behind men in math, science, and engineering globally. Earlier this fall, Algerian college student Meriem Chehih made it to the final round of the Harvard Undergraduate Women in Business Innovation Competition. Her invention: a mobile platform, called E-care, which allows users to track their blood pressure by taking measurements throughout the day and helps local doctors prevent premature deaths. At a recent Microsoft-sponsored competition for young technology entrepreneurs, two of the three all-female teams were from the MENA region. Furthermore, Saudi Arabia is home to one of the biggest gatherings of all-female gamers in the world, GCON. A number of social enterprise incubators and crowd funding organizations now prioritize empowering women entrepreneurs from the MENA region. For example, the Arab Women’s Entrepreneurship Project, started in 2011, provides training, mentorship, and other skills-building programs to women. Social enterprise innovator Ashoka is also working to support women entrepreneurs in MENA countries and recently partnered with General Electric to launch Women Powering Work: Innovations for Economic Equality in MENA, an initiative designed to spur innovations that enable the full economic participation of women. The three winning projects will each be rewarded $25,000 in unrestricted funding. One of the 107 competitors is the Roudha Center, a Qatar-based NGO that describes itself as a “one stop shop for women entrepreneurs” and has already engaged more than 6,000 women in its events. The Center also offers a free six-month program to help Qatari women develop and gain the skills they need to grow their businesses in competitive markets. Another contestant is Nabbesh’s Work that Works for Women Initiative, also known as the “www Initiative,” which creates flexible work opportunities for Emirati women in virtual skills markets. The initiative works with private-sector companies to create thousands of employment opportunities that allow Emirati women to “earn an income and build an online reputation based on merit and not gender.” Platforms and competitions like these provide women entrepreneurs a chance to showcase their creativity and potential and connect with other businesswomen. Thanks to women, entrepreneurship is becoming an increasingly important tool in fighting the high unemployment rates seen across the MENA region. According to a 2013 study by the International Labour Organization and the United Nations Development Programme, youth unemployment in the Arab region is the highest in the world at 23.2 percent. Eliminating the gender gap would have a huge economic impact. A study on Women, Work, and the Economy: Macroeconomic Gains From Gender Equity, estimates that if female participation rates in Egypt were equal to those of men, GDP would grow by 34 percent. Similarly, the United Arab Emirates – which continues to hold the top position among Arab countries in women’s economic participation and is the only MENA country to have fully closed the educational attainment gap – could grow its GDP by 12 percent. At a time when the world is riddled with economic hardship and inequality, all innovators should be allowed and encouraged to fully contribute to the global economy.

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is by Paul Callan, Andria Thomas, Sebastian  Burduja, Leticia Kawanami, and Adam Bradlow of or formerly of Dalberg Global Development Advisors. Here they review how the agreements of the Paris Declaration played out in practice.   The Paris Declaration, signed in 2005, was a milestone in the effort to improve aid effectiveness; donors agreed to give money directly, and with fewer strings attached, to developing country governments, who in turn promised to improve their management and use of aid. Six years after the agreement, the Paris Declaration Evaluation, conducted by IOD PARC from 2009-2011, found that donors had made almost no progress on their commitments and that some, but far from all, developing countries had improved their management of aid. At Dalberg, we used the results of the evaluation to track the progress developing countries made in strengthening their national aid systems and meeting their Paris Declaration commitments. We identified three Paris Declaration indicators for which developing countries were principally responsible: creating national development strategies and expenditure plans, strengthening public financial management systems, and monitoring results via performance assessment frameworks. In Chart 1, we plot changes in these three Paris indicators between 2005 and 2007 against changes in Official Development Assistance (ODA) inflows from 2005 to 2009. We found no clear correlation between stronger implementation of Paris commitments by developing countries and increased inflows of ODA, even though the data in Chart 1 allow for the possibility of a time lag between progress by developing countries and increases in ODA from donors. A few countries, including Honduras, Zambia, and Ghana, made significant improvements on Paris indicators between 2005 and 2007, yet their aid actually decreased over time. Meanwhile, for some other countries, such as Burundi and Kenya, whose performance on the Paris indicators disimproved between 2005 and 2007, ODA significantly increased. Despite asserting, in the Paris Declaration and elsewhere, that they want developing countries to use aid more effectively, donors do not appear to actually invest more in countries that do what is asked of them. Even without additional aid, making progress toward aid effectiveness should, in theory, improve a developing country’s use of resources and development. In Chart 2, we plot changes in Paris Declaration indicators between 2005 and 2007 against percentage change in the Human Development Index (HDI) between 2005 and 2010 in those countries. The data do not show any correlation. This suggests that improvements in the management of aid (and of a government’s own resources) are not enough to further development goals, at least in the short term. Of course, our analyses must be read with some caution, especially in the case of Chart 2. The three Paris indicators we measured might not fully capture the extent of improvements in a government’s management or use of aid. Development results also depend on many factors and often lag significantly behind improvements in government policies and institutions. In addition, donors must consider factors other than aid effectiveness, such as overall need or humanitarian crises, in deciding how to allocate aid. Nevertheless, it seems particularly counterintuitive that donors do not give more aid to developing countries that meet their Paris Declaration commitments. Failing to do so is potentially counterproductive: donors who do not hold up their end of the bargain and do not reward progress threaten to undermine the legitimacy of the Paris Declaration and other aid effectiveness agreements.