The long journey from research to impact: remittance regulation in sub-Saharan Africa

Antonia Esser ’11 (International Trade, Finance, and Development)

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I started to work on remittances around three years ago when I joined my current organization, the Centre for Financial Regulation and Inclusion (or Cenfri in short) as a researcher. We are an independent, not-for-profit think-and-do-tank based in Cape Town, South Africa, trying to answer complex questions around the role of the financial sector in improving individuals’ welfare in emerging economies. Remittances is one of our key focus areas and we have received donor funding from Financial Sector Deepening Africa (FSDA) to understand why the cost of sending funds into Africa is still the highest in the world.

According to the World Bank, the average cost of sending remittances globally stood at just under 7% of the total value of the transfer in the first quarter of this year; in sub-Saharan Africa (SSA), consumers had to pay on average 9.25% – by far the most expensive region in the world. The SDGs want to bring down the cost to between three and five percent. Most disturbingly, intra-Africa transfers can cost way more than 15% in some corridors, even when the countries are neighbours (e.g. Nigeria and Cameroon where a transfer can cost 15%). The following graphic shows the average prices some time in 2017 between the UK and selected African countries.

chart
The cost of sending remittances to and within Africa are the highest in the world. Sources: FSDA (2017) and The World Bank (2017)

When one considers that around 80% of African migrants stay within Africa, this is an incredibly high burden in terms of cost that reduces the positive impact of these essential flows for recipients. Many migrants are therefore forced to use informal mechanisms that are often cheaper, more trusted and more convenient. Yet informal mechanisms can be fronts for illicit financial flows, including money laundering and the financing of terrorism. They also indirectly influence competition as they mask the true size of a remittance corridor, deterring providers from entering the market.

Formal remittance flows are now higher than the value of official development assistance (ODA) and foreign direct investment (FDI). They have shown to have significant positive impact as they flow directly in the hands of those that rely on these funds as a primary source of income, and they tend to be more stable than ODA or FDI.

Based on all this evidence, FSDA asked us to understand the cost drivers and why it is still so expensive to send money to and within the continent despite all the innovations in the FinTech space with apps from players such as WorldRemit. We embarked on a journey to collect evidence through stakeholder interviews (with private sector players such as money transfer organisations, banks, FinTechs, and post offices, as well as regulators, policy makers and experts), mystery shopping, speaking to consumers, and ploughing through existing literature. We travelled to important remittance markets such as Nigeria, Ethiopia, Côte d’Ivoire and Uganda last year to understand the situation on the ground.

What I’ve learned since then is that remittances are an incredibly complicated business. It consists of providers in the first mile (where cash sending happens), the middle mile (where the processing of payments happens) and the last mile (where the recipient collects the money). The value chain is therefore very long and brings with it not only partnership complications but also technical issues. Cross-border money transfers are heavily regulated due to money laundering fears and severe risk exposure, but especially in Africa capital outflows of any kind are also heavily controlled in many markets still. To get a money transfer license can sometimes take a decade, we heard from some providers.

Overall, there were many interesting insights but at the end of the day we narrowed the reasons for the high costs down to four categories: business case barriers, regulatory barriers, infrastructure barriers and consumer-facing barriers. We then evaluated the number of citations and their impact on cost and access for the consumer to show how severe the barrier is for both providers and consumers:

Chart summarizing insights
Click to view the full-size image

From these insights we produced a range of reports, that you can access here, if you are interested, with the aim to disseminate them at key events and bring them into relevant discussions with the various stakeholders.

One avenue we are pursuing is to reduce the regulatory burden for providers to stimulate competition, especially in intra-Africa corridors. Many cross-border corridors are still dominated by one or two companies such as Western Union or MoneyGram that can set their prices freely. They are helped by the regulation as the licensing requirements in some cases can be incredibly high. For example, you may need to show capital of USD 20 million, be operational in at least seven countries for at least ten years. Of course, none of the newer players that can offer cheaper remittances through using apps, for example, can meet all
these requirements.

We were therefore on the hunt to influence regulators to revise some of the regulations. And a lot of regulation touches cross-border remittances: payment system act, banking act, foreign exchange act, agent banking regulation, e-money regulation, telecommunications regulation, cross-border transfer regulation etc – the list goes on and on. Every country seems to have their own set of rules and regulations that need to be made interoperable or at least harmonise to reduce the regulatory burdens in a value chain that can cross many jurisdictions. Definitely not an easy task! Many African countries are still heavily dependent on natural resources, such as Nigeria on oil for example. Their exchange rate with the dollar is fixed by the central bank. Yet, the Nigerian Naira is overvalued, leading to a parallel shadow market where one can get better rates for dollars on the streets of Lagos, impacting the use of formal remittance channels. But of course, the regulator is very concerned with financial stability and the impact a devaluation could have on foreign exchange reserves, inflation etc. Attracting more formal remittances does not sway the regulator enough to change the exchange rate policies. All of these realities need to be taken into consideration when approaching the regulators to try and achieve change based on research, and of course protocols play a huge role.

As part of this effort to reach regulators and based on the research we had done, I was recently invited to attend the inaugural meeting of experts, organized by the African Institute for Remittances (AIR), which is a programme established by the African Union. We were called from all over the continent based on our research and professional experience to build a cohort that would give technical assistance to willing African regulators. Last month we met in Mombasa, Kenya, and learned more about the planned interventions. On the one hand, we want to achieve better remittance data quality in the individual countries as the data can be questionable, but on the other hand we want to assist with writing the right kind of regulation that fosters innovation, reduces cost without reducing the access for consumers, and incentivise the uptake of formal remittance mechanisms.

I learned which data point to allocate to which balance of payment code at the central bank to make sure there is consistency across countries. I also learned how we will go about understand the regulatory background, as of course there is a difference between de jure and de facto regulation, i.e. we need to understand how regulation is interpreted from a stakeholder point of view.

So far it has been an exciting journey to see how we can take our insights into regulatory change. Some countries have already shown interest in being assessed and assisted and we will receive a list of our country missions as the expert cohort soon. Judging from our past work with regulators, this process can take many months, years if not decades but the potential impact of such fundamental changes is immense, especially for the individual person on the ground. System-level impact takes patience and perseverance.

ITFD taught me to be precise and on-point with my research to effect change – policy makers do not want to read 300 pages no matter how well-researched the material is. Insights need to be relatable and digestible, yet you also need to be able to raise funding for important interventions even if they seem cumbersome. We are lucky that FSDA has such a mandate and I look forward to continuing this journey with them and the African Union. Hopefully I will be able to report a significant drop in remittance prices due to regulatory change soon..ish.

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Antonia Esser ’11 is an Associate at Cenfri in Cape Town, South Africa. She is an alum of the Barcelona GSE Master’s in International Trade, Finance, and Development.

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Economics by Barcelona GSE alumni at CaixaBank Research (Vol. 2)

Recent work by alumni at CaixaBank Research

It’s our second roundup of articles by Barcelona GSE Alumni who are now working as research assistants and economists at CaixaBank Research in Barcelona (see Vol. 1).

This roundup includes posts and videos from the second half of 2018 and early 2019, listed in reverse chronological order. Click each author’s name to view all of his or her articles from CaixaBank Research in English, Catalan, and Spanish.

Education as a lever for inclusive growth

Ricard Murillo ’17 (International Trade, Finance, and Development)

The importance of education for people’s well-being throughout all stages of their lives is beyond any doubt. At the economic level, individuals with higher levels of education tend to enjoy higher employment rates and income levels. What is more, all the indicators suggest that in the years to come, the role of education will be even more important. The challenges posed by technological change and globalisation have a profound effect on the educational model.


Social cohesion and inclusive growth: inseparable

Javier Ibáñez de Aldecoa ’18 (Economics)

Faced with the major transformation of the productive system brought about by technological change and globalisation, as well as the challenges posed by an ageing population, it is important to take action to strengthen social cohesion – an indispensable element if we are to carry out reforms that foster an inclusive and sustained form of growth.


The central banks, at the helm of a more volatile environment

Adrià Morron ’12 (Economics) and Ricard Murillo ’17 (ITFD)

The US and the euro area are at different stages of their financial cycles: while the Fed’s monetary policy is close to becoming neutral or even restrictive, the ECB remains in clearly accommodative territory. However, to some extent, both are facing a common risk: the decoupling between their monetary policy and the financial conditions. The two institutions will try to manage their tools carefully, in order to facilitate a gradual adjustment of the financial conditions in the US and, in the case of the euro area, to keep them in accommodative territory.


Regulation more appropriate to the nature of the banking sector

Gerard Arqué ’09 (Macroeconomic Policy and Financial Markets)

Thanks to the implementation of the measures introduced following the financial crisis, today the financial sector is more robust than before. This will help to minimise the impact to the economy and financial stability in periods of upheaval, since countries with better-capitalised banking systems tend to experience shorter recessions and less contraction in the supply of credit. However, the outstanding tasks we have mentioned should be properly addressed sooner rather than later.

Bonus video! An unconventional monetary policy cycle

Adrià Morron ’12 (Economics)

Central banks are facing the challenge of removing the extraordinary measures imposed during the financial crisis of 2007-2008 and the subsequent economic recession. In normal times, central banks would simply raise interest rates up to the desired level. However, monetary policy is currently in a rather unconventional cycle.


Source: Caixabank Research

If you’re an alum and you’re also writing about Economics, let us know where we can find your stuff!

The Effects of the South African Minimum Wage on Labour Market Outcomes for Low-Income Earners

Master project by Samuel Jones, Annanya Mahajan, Maria Oliva, Debora Reyna, Marta Vila

A maid cleans a hotel roomimage source: Supplied

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2018. The project is a required component of every master program.


Authors:

Samuel Jones, Annanya Mahajan, Maria Oliva, Debora Reyna, Marta Vila

Master’s Program:

International Trade, Finance, and Development Program

Paper Abstract:

We capitalise on the 2006 implementation of a minimum wage for the hospitality sector to make well-evidenced inferences about the impact of the upcoming National Minimum Wage (NMW) Legislation on low-wage workers. Our paper focuses on the two largest low-wage sectors currently without minimum wage regulation, which are manufacturing and construction. Two regression specifications and sensitivity analysis are used to provide insights into the implication for wages, hours worked, employment, formality and poverty rates. In light of our results and a comprehensive review of the literature, we conclude that the NMW will be largely beneficial for low-wage labourers. Our critical recommendation for policymakers is the need for complementary policies to ensure compliance and facilitate the transition of vulnerable groups (particularly black women) into the formal sector.

Conclusions and key results:

From our first specification, our analysis suggests that wages and hours worked will increase in manufacturing and construction sectors as a result of the minimum wage, mostly driven by increases for black and female workers. Although the policy is likely to increase the formality rate among male workers, we predict formality will fall among females as employers try to circumvent the legislation. Therefore it is crucial that adequate complementary policies are implemented to ensure the benefits are captured by all population groups. Our second specification exploits the variation in the median wage across provinces. In doing so, we find no significant effect on wages, which signals regional impacts of the minimum wage are fairly homogeneous. Therefore, compared to other countries adopting a similar policy, the implementation of safety-nets combating the adverse effects of the minimum wage will be relatively more straightforward. By conducting sensitivity analysis around compliance rates and poverty lines already stipulated in the literature, we predict between 100,000 and 300,000 manufacturing and construction workers will be lifted out of wage poverty as a result of the minimum wage. We combine our empirical partial equilibrium analysis with theoretical general equilibrium forces to provide statements on the anticipated lower bound of wage changes.

Download the full paper [pdf]


More about the ITFD Program at the Barcelona Graduate School of Economics

CNN interview with Miguel Angel Santos (ITFD ’11, ECON ’12) on the crisis in Venezuela

Miguel Angel Santos was interviewed on CNN’s Global Portfolio where he shared his analysis of the economic crisis in Venezuela.

Master’s alum Miguel Angel Santos was interviewed on CNN’s Global Portfolio where he shared his analysis of the economic crisis in Venezuela. From his post on LinkedIn:

“The collapse of Venezuela has a magnitude never before seen: it is the only country in the top ten of falls in GDP in five years in history (ninth, 45%), of falls in imports (third, 75%), and is also projected as one of the most intense hyperinflations in history, comparable only to Germany and Zimbabwe. There is no country on those three lists which has suffered collapses in imports, production, and hyperinflation at this level of intensity. It’s unprecedented.”

 

Miguel Angel is a graduate of both the Barcelona GSE Master’s Program in International Trade, Finance, and Development and the Master’s Program in Economics. He is now Adjunct Lecturer in Public Policy at Harvard Kennedy School, and Senior Research Fellow at the Center for International Development (CID) at Harvard University.

Can import promotion increase export performance in times of global value chains? Firm-level evidence from Russia

Master project by Deepshikha Deb, Nils Handler, Vladimir Peciar, Ksenia Proka, Juliane Stolle

Port of Novorossiysk

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2018. The project is a required component of every master program.


Authors:

Deepshikha DebNils HandlerVladimir PeciarKsenia ProkaJuliane Stolle

Master’s Program:

International Trade, Finance, and Development

Paper Abstract:

This paper analyzes whether access to imported intermediate goods can raise export performance of Russian firms. We employ an instrumental variable strategy which exploits variation in firm-specific input tariffs to identify the effect of imported intermediates on firm exports during the period 2007-2013, utilizing a unique firm-level database on firm characteristics and customs declarations. We find that input tariff reductions can raise firm exports significantly, as can other measures aimed at increasing imports of intermediate goods of exporting firms in Russia. Import promotion targeted at exporting firms in high-tech sectors can be up to three times more effective. Better access to imports can also help increase the currently low share of exporting firms within the Russian enterprise landscape. Our results suggest that with the rising globalization and fragmentation of production processes, countries interested in raising exports need to think strategically of promoting imports as well. We propose and discuss several policy measures for Russia in the areas of tariff regulation, non- tariff measures, trade facilitation and trade integration.

Conclusions:

Using a comprehensive firm-level dataset which combines information on Russian company characteristics, involvement in trade and input tariff rates, we reveal a strong positive impact of intermediate imports on firm exports in the manufacturing sector. These results imply that improved access to intermediate goods at the international market can serve as a means to raise Russia’s currently weak export performance outside the natural resource sector. Import promotion policies targeted at intermediate goods imported by firms in high-tech sectors can be especially effective and raise exports by up to three times more than in other sectors. Better access to imports can also help increase the currently low share of exporting firms within the Russian enterprise landscape.

Our estimation results indicate that a one percentage point decrease in input tariffs would raise firm exports by approximately one percent. Even though tariffs have been significantly decreased over the past decade in the context of regional integration and Russia’s WTO accession (see figure 1), there is still ample room to lower input tariffs in order to promote exports. More than 40 percent of intermediate goods imported by Russian exporting manufacturing firms and more than 30 percent of goods imported by exporting firms in high-tech manufacturing sectors still entered the customs union at a tariff rate above 5 percent in 2015. Besides tariff reductions, Russia could consider lowering non-tariff measures (NTMs) and enhancing trade facilitation, which can also contribute to better access to intermediate goods of exporting firms, as suggested by our IV results. As can be seen from figure 2, NTMs have increased sharply since Russia joined the WTO in 2012. It should be pointed out, however, that trade policies aimed at promoting imports of intermediate goods alone will not be sufficient to boost non-oil export growth and export competitiveness of Russian firms. To bring the desired success, they need to be combined with a range of other important policies, including improving access of Russian exporters to foreign markets and simplifying the existing export regulation, as well as comprehensive structural reforms and measures to improve the business environment.

Key Figures:

figure figure

Download the full paper [pdf]


More about the ITFD Program at the Barcelona Graduate School of Economics

Barriers to Free-Trade: Is it only Trump?


 By Carl Christian Kontz (ITFD ’18)

As a European liberal and free-trade advocate, it has become quite entertaining to skim through social media, opinion pages, or listen to conversations about the latest tariffs imposed by the U.S. administration. One cannot help but wonder why a large fraction of Europeans, who just three years ago where protesting on the streets across all major European cities against the Transatlantic Trade and Investment Partnership (TTIP) and the infamous U.S. chlorinated chicken, are now the ones running their mouth about how “ignorant,” “stupid,” and “dangerous” Donald J. Trump’s decision to impose steel tariffs is. Surely, a lot of this has to be attributed to the very person associated with the tariff. It seems unlikely that people who regularly blame “neo-liberal” politics for the demise of literally everything are now in favor of a liberal stance on free trade and see a trade war as a threat to the welfare of the world.

Whatever one’s personal opinion about the 45th President of the United States is, we should acknowledge one thing: He is not alone in putting up trade barriers. Contrary to recent common belief, it’s not only Donald Trump who’s the biggest threat to increased welfare through global trade but also Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States and the European Union. If you counted the latter, you already know where this is going: G20.

A recent policy brief addressed to the G20 members and their policymakers by Evenett[1] et al. (2018) shows this clearly. The policy brief states that over 6,000 interventions introduced by G20 members since the crises of 2009 that harm commercial interests are still in force. This is quite remarkable given the responses of the G7 members to the refusal of the United States to stand behind a common declaration of the recent sitting condemning protectionism. Moreover, it is in direct contradiction to the G20 summit declaration of 2008 and 2009, which posits that the G20 governments reject protectionism.

Further, the policy brief holds some uncomfortable truths for free-trade advocates as well as for globalization critiques. The former might be surprised by the extent to which trade barriers have grown since 2009, whereas the latter might be dazed by the consequences these barriers have on the least developed countries (LDCs).

Since the Great Recession and the financial crises of the late 2000s, trade barriers have risen sharply. Data gathered by Global Trader Alert, which has the most comprehensive coverage of all types of trade-discriminatory measures according to the IMF, indicates that a total of 200-250 new policies that harm foreign commercial interests have been implemented each quarter by G20 governments since November 2008. This amounts to a staggering 6,842 distortions to global commerce. It is imperative to emphasize that only 34% of them were outright import and export restrictions that a non-economist would normally think of when asked about trade barriers. Almost half of the trade distortions involve some type of state aid (e.g. subsidies, export incentives, and the like). Figure 2 of Evenett et al. (2018) summarizes this trend in the state of trade distortions by G20 members.

 

Notwithstanding, the picture of who imposes trade distortions is quite heterogeneous. Figure 3 of Evenett et al. (2018) gives an impressive graphical presentation of the reciprocal nature of the trade distortions of G20 members vis-á-vis each other. The heat map also unmasks one of Trumps notorious lies, or ignorance, i.e. that the United States is the “fair player” in global trade and that the world is cheating them. From the figure it is evident that since 2009 the U.S. has established a high number of protectionist measures across all G20 member countries, whereas only Germany, India, and Russia seem to have the same level of reciprocal measures against the U.S.. Poster children of free trade are emerging market economies like Turkey and South Africa, whereas the long-standing free-trade advocate United Kingdom is only somewhere in the upper third of free-traders. Unsurprisingly, the country which suffers the least from protectionist measures is Saudi Arabia, given its status as the world’s largest oil producer.

 

 

Using fine-grained UN trade data, the authors are able to identify to what extent these distortionary measures are affecting the export of goods of G20 members:

 

  • The percentage of G20 goods exports facing harmful policy acts has risen from 40% in 2009 to 80% in the first quarter of 2018.
  • Close to 9% of G20 goods exports compete in foreign markets where import tariffs have been raised.
  • Just under 19% of G20 exports compete in foreign markets against subsidies or bailed out domestic firms.
  • 75% of G20 exports now compete in foreign markets against foreign rivals that are eligible for some sort of state export incentive (mostly through incentives in the national tax systems).
  • 79% of LDC’s goods export compete in foreign markets against trade distortions implemented by G20 countries.

 

Where the final point should be emphasized. The trade distortions that LDCs face in exporting to G20 countries are also present in the competition on third country markets, further limiting the growth and development prospects of the poorest of the poor. Moreover, if the developed countries go ahead with this kind of policy and less developed countries adapt to this new state of the world by imposing trade distortions, we might end up in a bad equilibrium where less developed countries are excluded from global value chains.

 

We actually see this already happening. In the wake of the financial crises, the U.S. whipped up a massive fiscal stimulus to help their economy (and ours!) recover. However, the stimulus package had a provision that demanded that public procurement should buy national, effectively putting up a huge barrier to import goods. Figure 4 of Evenett et al. (2018) shows how fast this idea spread around the world. Almost all of the other G20 countries followed suit and so did some developing countries. Policymakers might think this kind of procurement provision helps their national industries, however, they have to take into account that it also might have a negative effect on the government budget through higher prices, because domestic producers do not face international competition.

If we want globalization and trade to be inclusive and lead to sustainable growth and development even in the least fortunate parts of the world, we must acknowledge that the trade barriers the G20 put in place are detrimental to this effort.

 

The policy brief by Evenett et al. (which includes two proposals to reverse the dangerous path we are on) can be obtained here.

 

 


[1]Simon J. Evenett is Professor of International Trade and Economic Development at the University of St. Gallen, Switzerland, and Co-Director of the CEPR Programme in International Trade and Regional Economics. He gives Policy Lessons on the international trade systems to students in the ITFD programme.

Economics articles by BGSE alumni at CaixaBank Research

Ricard Murillo, Marta Guasch, and Mar Domènech in front of Caixabank. Photo by Marta Guasch.

We’ve just come across some articles written by several Barcelona GSE Alumni who are now Research Assistants and Economists at Caixabank Research in Barcelona. New articles are published each month on a range of topics.

Below is a list of all the alumni we found listed as article contributors, as well as their most recent publications in English (click each author to view his or her full list of articles in English, Catalan, and Spanish).

If you’re an alum and you’re also writing about Economics, let us know where we can find your stuff!

Gerard Arqué (Master’s in Macroeconomic Policy and Financial Markets ’09)

The (r)evolution in the regulatory and supervisory framework resulting from the crisis

Mar Domènech (Master’s in International Trade, Finance, and Development ’17)

Registered workers affiliated to Social Security: situation and outlook across sectors

Active labour market policies: a results-based evaluation

Equal opportunities: levelling the playing field for everyone

Cristina Farràs (Master’s in Macroeconomic Policy and Financial Markets ’17)

The financial situation of Millennial households in the US and Spain: will they catch up with previous generations?

Measures to improve equality of opportunities

Marta Guasch (Master’s in International Trade, Finance, and Development ’17)
and Adrià Morron (Master’s in Economics ’12)

Jay Gatsby’s American Dream: between inequality and social mobility

Ricard Murillo (Master’s in International Trade, Finance, and Development ’17)

Inflation will gradually recover in the euro area

Millenials and politics: mind the gap!

The sensitivity of inflation to the euro’s appreciation

Ariadna Vidal Martínez (Master’s in Finance ’12)

Situation and outlook for consumer financing


Source: Caixabank Research

How to do research and write about it.


 By Carl Christian Kontz (International Trade, Finance, and Development ’18)

As we are already in the third term and the time to write the analysis for our Master’s project approaches steadily, I thought it might be a good idea to share some resources about (economic) academic writing I came across over the last years.

 

John Cochrane of U Chicago, known for his contributions to financial macroeconomics and his blog The Grumpy Economist, provides us with a concise yet comprehensive guide on how to write a paper:

 

Another great resource covering nearly all issues of a (term) paper are the notes produced by Plamen Nikolov of Harvard University:

 

The most comprehensive guide on how to write economics I have come across during my undergraduate is by Robert Neugeboren and Mireille Jabocson of Harvard University. The guide outlines the economic approach, writing economically, the language of economic analysis, finding and researching your topic, as well as formatting and documentation.

 

Matthew Gentzkow (Stanford) and Jesse M. Shapiro (Brown) wrote a fantastic practitioner’s guide on how you should structure your code, why you should automate almost everything, and how important version control is. More general, the handbook is about translating insights from experts in code and data into practical terms for empirical social scientists. It’s a must-read for everyone working empirically.

 

Deidre McCloskey, another U Chicago household name, provides a deeper analysis of how an economist writes and thinks in her seminal works on the rhetoric of economics.

 

A great resource on how to communicate your research using data visualization is given by Jonathan A. Schwabish of The Urban Institute. Schwabish is considered a leader in the data visualization field and is a leading voice for clarity and accessibility in research.

 

Last but not least, the all-time classic by Berkeley’s Hal Varian on how to build an economic model.

 

Other useful resources are

 

Good general purpose books on writing, including organization and style, non-fiction books are

 

Strunk, White, and Angell – Elements of Style

 

William Zinsser – On Writing Well: The Classic Guide to Writing Nonfiction

 

Michael Billig – Learn to Write Badly: How to Succeed in the Social Sciences

Does tenure reduce incentives for high quality research?


By Carl Christian Kontz (International Trade, Finance, and Development ’18)


Economics is a very diverse field of social science with sub disciplines ranging from cultural economics, climate change economics, or sports economics to more traditional fields like trade theory or finance. A fascinating sub discipline, however, is economics itself.

In the following, I will give a brief summary of an interesting article recently published in the Journal of Economic Perspectives. In this contribution the researchers employ econometrics methods and economic theory to examine their own ecosystem.

But why would economists be interested in conducting research about their own profession? Colander (1989, p.1) provides some insight:

“The economics profession is interesting to economists for a number of interrelated reasons:

(1) For prurient and professional interest: It is fun to know about oneself and one’s profession.

(2) As a case study: If economic theory is correct, it should apply to the economics profession. Since economists have firsthand knowledge of the economics profession and relatively easy access to data, it makes an excellent case study.

(3) Because one has an interest in the sociology of knowledge: Recent developments in methodology and philosophy of science have made a knowledge of the scientists an important aspect of a knowledge of science; they are the lens through which science is interpreted. Understanding the tendency of scientists to aim that lens in particular directions and to distort the reality they are studying is necessary if one is to interpret their analyses correctly.”

In the current issue of the Journal of Economic Perspectives (JEP, Vol. 32, No. 1 – Winter 2018), Brogaard and company published an interesting contribution on the impact of tenure on research productivity. The authors examine whether the granting of tenure leads faculty to change their research and publishing behavior by using a sample of all academics who pass through top 50 U.S. economics and finance departments from 1996 through 2014. By using the extreme tails of ex-post citations as a measure of risk-taking in research, they find that both output of research and quality of output peak at the point where tenure is granted and decline thereafter. However, the opposite patterns hold true for the weak end of the tails with rising numbers after tenure. Using a subsample of academics at top 10 U.S. departments, the authors are able to show similar outcomes.

To obtain their results, the authors hand-collect a sample of employment and publishing data of academics at top 50 economics and finance departments in the United States. The sample encompasses the years from 1996 through 2014 and contains a total of 2,763 names, of whom 2,092 are eventually tenured at some point prior to 2014. Brogaard et al. (2018) consider two variables in the years before and after being granted tenure: the total number of publications, which serves as a measure of output; and the number of “home run” publications, meaning highly influential writings, as a measure of quality. By matching these names to publications in the 51 leadings journals in finance and economics, the authors are able to obtain their measure of output. The measure of quality, “home runs”, is defined as publications among the 10 percent’s most cited of all papers published in a given year.

Their findings indicate that both variables peak at the time tenure is granted and decline thereafter. The average output of annual publications by just tenured academics in economics declines by approximately 30 percent over the two subsequent years and further falls by an additional 15 percent over the next eight years. The average number of “home run’s” also falls by 30 percent over the two years after being granted tenure. Moreover, in the subsequent eight years it drops by another 35 percent. Given these findings, the authors calculate that the likelihood of a given publication to receive “home run” status declines by approximately 25 percent during the ten years following tenure.

Given their results, the authors set out to test different explanations which could have effects on the quantity and quality of tenured academics. Among those are:

  • Age effects the ability to produce top-rate tenure
  • Rise in non-research related work which is associated with becoming tenured
  • Tenured academics might branch out into our (sub) disciplines
  • Truly novel research may need time to gain momentum
  • Some schools may have poor tenure contracting

However, the authors test for those and claim that none of the explanations above seem likely given the data.

Brogaard et al. (2018) suggest two explanations which fit their general results: On the one hand, the decline in publication rates is coherent with the idea that tenure is granted once an academic has proven her merit through publishing success. On the other, tenure might reduce risk-taking behavior which leads to lower quality output. Overall, their findings indicate that “tenure is not providing incentives to undertake research in the same quantity and quality that led up to the tenure decision.” (p. 181).

In their conclusion the authors hasten to clarify that “[t]his paper should not be read as an indictment of the institution of tenure” (p. 192) as they only consider one aspect of tenure. Moreover, their work focusses on economics and finance only and cannot be generalized to other fields. However, they believe that their findings raise some practical questions for economic academia and it’s institutions (p.193):

“For economists, the findings suggest that they should be wary of allocating their research time in a way that seems likely to lead to low-impact papers, and instead consider if there is a way for them to continue their earlier research efforts—at least in terms of quality, if not necessarily in quantity. When making a tenure decision, departments of economics and their home institutions should be aware that the research productivity of the person receiving tenure is likely to decline, in both quantity and quality terms, over the following decade. Thus, institutions should consider whether there are methods to sustain (or at least not to impede) high-quality research efforts.”

The paper is available as a PDF using this link to the AEA website:

https://www.aeaweb.org/articles?id=10.1257/jep.32.1.179

 

Citations:

  1. Colander, David. 1989. “Research on the Economics Profession.” Journal of Economic Perspectives, 3(4): 137-148.
  2. Brogaard, Jonathan, Joseph Engelberg, and Edward Van Wesep. 2018. “Do Economists Swing for the Fences after Tenure?” Journal of Economic Perspectives, 32(1): 179-94.

The Web 2.0 in Nigeria: Evaluating the Impact of Increased Internet Access and Usage on Migration


By Roberta Sgariglia (International Trade, Finance, and Development ’18)


High speed internet and connectivity are among the main drivers of economic development in today’s information-intensive societies. Hence, in the context of the social sciences, increasing attention has been devoted to implications of technology adoption for traditional outcomes, such as migration, civic engagement and political participation, with particular emphasis on developing countries. As a matter of fact, numerous scholars argue that bridging the digital divide, hence fostering enhanced communication and ease of information access, has the potential to foster empowerment and beneficial innovation opportunities.

Therefore, this paper analyzes the impact of increased internet access on both internal and external migratory flows in Nigeria, where a national broadband expansion plan targeting existing infrastructure in urban areas was enacted in 2013. This effect is evaluated using two difference-in-difference estimations.

The first one assesses whether the policy was successful in enabling higher internet access rates. Convincing evidence was found to prove the effectiveness of the broadband expansion policy to date: in 2015, urban residents were approximately 7% more likely to have access to the internet on average, and these results are robust to different specifications.

The second estimation sets out to understand whether this effect triggered mobility and relocation. The analysis shows that there is a positive and significant effect in the order of 2%, robust to all specifications. However, the model’s explanatory power is low, as structural characteristics of the relevant sections of this dataset used pose significant limitations to the analyses and their potential for generalization. In any case, in the most basic form of the model, it appears that after the policy change urban residents were 1.5% more likely to move. This marginal impact becomes 1.9% once household fixed effects are accounted for. Finally, with respect to external migration probability, the overall significance of the model is not ascertained, so that even though increased internet access seems to have had a slightly negative effect on this outcome, we cannot safely conclude anything about this particular relationship.

As previously mentioned, results are hardly generalizable due to the structural limitations of the dataset, the lack of meaningful control variables and the mostly unexplored nature of migration dynamics in Nigeria.

Indeed, many of these setbacks arise from the relative scarcity or availability of surveys that include questions on information and communication technologies, particularly in developing countries. This in turn is due to the fact that data on mobile connectivity and other digital technology-related information is difficult to obtain, especially for rural communities. In this particular dataset the range of questions on the topic was very limited, which significantly narrowed the scope for the empirical analysis, and hampered the inclusion of meaningful control variables. Questions on mobility were also rather scarce, given that respondents were not directly asked about reasons for their decision: data on labor, education, health was collected in different sections and often could not be merged given that observations were not uniquely identified.

Consequently, the analysis started here can be meaningfully expanded and improved. Interesting extensions would explore the relationship between intrastate migration, a phenomenon which has only recently received the attention it requires, and internet usage: controlling for educational, health-related and employment decisions more accurately, it would be possible to better isolate the effect of internet access on migratory flows. In particular, it would be insightful to verify whether a causal relationship exists, perhaps by identifying a meaningful instrumental variable for this purpose. This would also shed light on whether determinants of internal migrations are actually comparable to those of external flows, as the literature seems to suggest. More specifically, the latter dynamics are largely unexplored in the specific context of Nigeria, and meaningful contributions could attempt to shed light on country-specific drivers of these migratory flows.

Finally, an interesting area of research which is somehow connected to the scope of this paper analyses the impact of digital technology on mobilization, both violent and peaceful, with important implications for policy making. Indeed, internet increases information availability and enhances communication, solving the collective action problem in some instances, while leading to secret coordination with anti-democratic objectives in others. Understanding through which channels, if any, mobilization works analogously to mobility, as well as which factors determine outcomes favorable to democratization rather than not is an extremely relevant question to answer.

 

Source: GSMA Intelligence