Archive for category: Economy

Information and stories about economy.

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Conflicting Results on Microcredit Alleviating Poverty


A new experimental study, out June 10th of this year, examines how microcredit, or the lending of small amounts of money at low interest to new businesses in the developing world, may not help jump start poor populations’ financial growth as much as some may think.

The authors of the study, Bruno Crepon, Florencia Devoto, Esther Duflo, and William Pariente, randomly assigned 162 villages in rural Morocco to either receive microcredit (these villages would serve as the treatment group) or not to receive it (and these would serve as the control group).

The researchers, who are affiliated with the Abdul Latif Jameel Poverty Action Lab (or J-PAL), found that microcredit does not lead to families and businesses exiting poverty in the long-run.

This is in opposition to a similar study conducted by Shahidur Khandker and Hussain Samad of the World Bank in March 2014 which found that microcredit increased personal expenditure, labour supply, household assets and schooling of children in impoverished communities of Bangladesh.

Furthermore, Bono, whose humanitarian work in developing nations is highly documented, has lauded microcredit as an effective means of alleviating poverty, stating, “Give a man a fish, he’ll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime.”

However, the researchers at J-PAL found that microcredit decreased the amount of time Moroccan laborers spent on work. The effect on investment was greatly offset by a reduction in income from wages. The researchers concluded that access to microcredit, at least in Morocco, did not result in income gains, personal consumption or education of the youth.

Writers at the Economist are attempting to analyze the conflicting results of these two studies, and learn why they produced such significant differences. One theory is that microcredit may only reduce poverty and increase income in the long run, making short term studies irrelevant and ineffective at gleaning a meaningful answer.

The two studies also took place in two very different countries on separate continents. One can reasonably conclude that there may be social, environmental, or political factors at play, as well. Economists refer to this issue as “external validity,” meaning the extent to which a study’s results are generalizable outside of its given context. The effects of microcredit may not be clear until researchers readily take place, setting, and social and political structures into account.

Further research is needed to know whether lending sums of money to businesses in poor areas of the developing world may actually be a beneficial policy. Crepon and his co-authors are currently planning a follow-up experiment to study the long term implications of microcredit. All involved hope to find some answers to these questionable methods of alleviating global poverty.

-Paige Frazier

Sources: The Economist, The World Bank, MIT Economics, Look to the Stars
Photo: African Microfinance Network

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Free Markets Can Reduce Poverty

The development of free market economies has been accompanied by a large decrease in poverty around the globe. Extreme poverty is virtually nonexistent in the most industrialized countries.

Many people believe that after the fall of the Soviet Union more than 20 years ago, the world went through a wave of globalized development. Capitalism spread and free markets were adopted in numerous countries. Industries became a focus of countries everywhere.

Thirty years ago, 50 percent of people in poor nations were living in extreme poverty. Since the development of global markets, however, 21 percent of people in poor nations around the world are considered to be living in extreme poverty.

Capitalism has some clear effects on a country’s economic system, and therefore on its citizens. Free markets open up trade opportunities, increase competition for jobs and extend life expectancy.

When countries use free markets, they immediately become a global partner in trade. They are more able to import and export their products to a larger market, thus increasing their economic wealth greatly. Countries with higher economic success generally see less poverty in their citizens.

In a capitalistic system, jobs are given to those who work for them, and the workers only get paid when they complete their requirements. When there are more people than positions available, people will increase their efforts to rise above the rest and claim that position. Creating a competitive environment can increase the effort people put forward. Efforts to alleviate poverty must come from a system that rewards productivity and industriousness.

With the increase of economic prosperity in countries with many people living in poverty, they can move from the lowest global income bracket to the middle-income bracket. Data shows that by moving up in economic status, life expectancy increases. When people are in the lowest bracket, life expectancy is around 40; however, in the middle bracket, it increases to 60.

As seen in past experience, developing the free market system may be the best solution for the countries that are facing large amounts of poverty.

Ismael Hernandez, a writer for News-Press.com, said, “Wherever culture and institutions focus on creative and productive activity, you put in motion processes where great civilizations emerge and the lives of people are enhanced.”

— Hannah Cleveland

Sources: Market Oracle, News-Press
Photo: BlogSpot

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USAID: Initiating Smart Investments in Kenya

In January of this year, USAID announced a new poverty reduction initiative in Kenya. In partnership with Kenya Commercial Bank (KCB) and General Electric (GE), USAID promotes investments in Kenya between the KCB and medical institutions that need financial assistance to offer appropriate medical care.

To provide this assistance, banks will grant loans to hospitals and other health centers. These investments in Kenya would have previously been considered unsafe and unlikely to be returned, but under the agreement with USAID, they are guaranteed reimbursement. If a full return cannot be made, USAID will pay back 50 percent of the loan.

The KCB, according to the deal, is obliged to divvy $1 million for medical equipment like MRIs, incubators and other standard-increasing machinery to be used in local health centers. GE has left $660,000 dollars for USAID to use as potential reimbursement funds, though only $500,000 (50 percent) should be used. In return, the Kenyan health services will purchase GE equipment, expanding GE’s global market.

There are some, however, such as Monica Onyango of Boston University, who are afraid this may lead to an overstated importance of imported goods, when in fact, locally manufactured equipment is better for local economic development.

Michael Metzler, director of Development Credit Authority (which is the tool used by USAID to promote loans, as in the initiative in Kenya,) reassures skeptics like Onyango that local business and manufacturing will still have the power Kenya needs it to have to grow. Quoted recently in a Global Post article, Metzler said that “we’d be very sensitive to a deal in which that was the case.”

Aside from the deal’s economic influence, clearer effects of the enhanced medical treatment new loans insure will be seen in public health. This expedites poverty reduction in Kenya by reducing the number of deaths caused by preventable diseases thriving in impoverished communities. These include diseases such as HIV, diarrhea, tuberculosis and malaria.

Illness and poverty go hand in hand, and until one is dealt with, the other is likely to expand. This new USAID initiative incorporates this idea and acts accordingly.

— Adam Kaminski

Sources: Health Poverty Action, Global Post, Federal News Radio
Photo: USAID

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Hunger in Pakistan: Famine or Inadequate Policy?

Hunger in Pakistan has killed many people and affected the lives of many more, especially children. After a drought hit the Tharparkar district of Pakistan’s southern Sindh Province earlier this year, at least 132 young children died, many as a result of malnutrition.

The problem of hunger in Pakistan is not limited to Sindh Province, however. While Sindh certainly has the highest rates of malnutrition and least access to food, Pakistan’s National Nutrition Survey reported that 58 percent of all Pakistani households were food-insecure.

Malnutrition is also widespread; the Pakistan Demographic and Health Survey found that 24 percent of Pakistani children under 5 exhibited “severely stunted growth.”

Why is hunger such a prevalent issue in Pakistan? Some of it has to do with past inflation of wheat prices in the late 2000s, as it was more difficult for people to afford domestic grain. Infrastructural difficulty, such as providing electricity to flour mills, also poses a problem.

Still, the largest factor causing food insecurity in Pakistan is the nation’s own government and its policies that hinder food production and distribution.

Take, for example, the deaths from the drought: the government did not work to distribute food until after the crisis. As the Pakistan Dalit Solidarity Network reports, “the government didn’t act until [it received] reports of children dying” last December, even though animals had been dying since October and rainfall was decreasing. Moreover, government-run hospitals and clinics in the region have been constantly understaffed, making it difficult to get medical care to those who needed it.

Other government policies affect all of Pakistan, not just Sindh. Under the Corporate Farming Ordinance, the Pakistani government leases large tracts of land to foreign investors looking to stockpile crops for their own countries. This takes valuable land away from local farmers while keeping the food away from Pakistani citizens that need it.

The government of Pakistan seems to prioritize profits over its people. During the inflation of wheat prices in 2008, the government increased its wheat exports, depriving many hungry people of food. Even today, much of the wheat that large corporate mills produce leaves the country.

In reality, Pakistan should be capable of providing its citizens with enough food to survive, and there should not be as much food insecurity as there is now. Arif Jabbar Khan, Oxfam’s Pakistan director, affirmed that “missing public policy action and persistent economic inequalities are the main causes of malnutrition,” not droughts or famine.

How can hunger and malnutrition be reduced in Pakistan? Foreign aid providers may be able to earmark funds for the redistribution of grain to poorer areas, and this aid could be cut if the government does not comply.

Nevertheless, political pressure to change food distribution policy must come from within Pakistan itself. The citizens of Pakistan must demand change and hold elected officials responsible for their actions in the polls if the system is to be fixed.

 — Ted Rappleye

Sources: The Guardian, South Asia Masala, Triple Bottom-Line
Photo: Tribune

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TaiwanICDF Provides Clean Water

April 11 marked the official opening ceremony commemorating the completion of a new, groundbreaking water supply system made possible by the Haitian government, the Red Cross Society of the Republic of China and the International Cooperation and Development Fund of Taiwan (TaiwanICDF.) The new water system will reportedly supply safe and clean domestic water for over 90 percent of the area’s inhabitants.

In January 2010 a magnitude seven earthquake devastated Haiti and rendered about 1 million Haitians homeless, a number of which relocated from its capital, Port-au-Prince, to New Hope Village in Savane Diane. As a result, the need for accessible and clean water  increased exponentially, and the new system accommodates this need and serves as a sustainable, long-term solution. TaiwanICDF reportedly showed residents how to maintain and fix the system in the event that it breaks down.

The Taiwanese ambassador to Haiti, Peter Hwang, attended this special celebration, as did TaiwanICDF’s Secretary General, Tao Wen-lung. Wen-lung said the system would provide enough water not only for over 200 homes, but additionally for the village’s health facility, school and nearby agricultural irrigation needs. He described it as “a real godsend for local residents.”

In a video on the TaiwanICDF website, a local resident describes the arduous three-hour process he formerly endured to transfer water from a far-away source back to his home. Now, he has a quick and easy water source practically in his backyard. In the video, the resident also thanks TaiwanICDF for their instrumental role in developing and maintaining the system in his village.

China and Taiwan are hosts to numerous humanitarian organizations. TaiwanICDF is particularly focused on infrastructural and economic development for long-term stability in needy nations and regions, as well as technical cooperation, humanitarian assistance and international education and training. This type of maintainable, long-term investment in developing nations has provided a model by which helpful contributions in such countries can make significant long-term differences.

– Arielle Swett

Sources: ICDF, Taipei Times
Photo: Taiwan Today

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Global Health Investment is a Win-Win Situation

Economists, public officials and humanitarian leaders across the globe are all echoing a new stance on foreign aid: treat it like an investment.

Sure, many areas of the world still require immediate relief in the form of solid goods, but what these communities absolutely require is the stability and means to sustain themselves long-term. In order to break the cycle of poverty, impoverished people need a new cycle altogether characterized by improved economic infrastructure and stability.

The best aspect of the investment approach is that it promises profit. Business executives are now realizing the untapped workforce potential of the world’s destitute. By developing interest in these areas from an economic standpoint, companies are not only opening up access to the world market, but they are seeing positive returns as well.

Companies like Samasource, a Silicon Valley-based startup, have illustrated success in the private sector. Samasource’s model involves big data projects that they break down into manageable tasks for their overseas workers. American tech giants such as Google and LinkedIn benefit from the work and finance of the paychecks of their outsourced employees. As a result, Samasource is profitable and growing while people in rural areas have new access to the technological world market.

Now, imagine taking the approach a step further and funding industries that directly address the critical issues impoverished people face, such as global health investments. Could financing ventures that treat HIV, malaria and infant mortality help those in need and actually boost the economy? More and more people are answering this question with a solid “yes.”

The solution won’t be so simple, however. Devex editor Rolf Rozenkranz recently sat down with Annie Baston who is the chief strategy officer at PATH, an international nonprofit that specializes in long-term solutions to break cycles of poverty. Baston explained the common challenges faced when determining a “best buy” for global health investment. Multiple factors come into play involving technological solutions and systemic reform. These elements need to be carefully orchestrated and illustrated to investors to generate interest and maintain longevity.

In fact, organizations such as The Lancet and their team of researchers have laid out a complex global health investment plan, titled “Global Investment Framework for Women and Children’s Health,” that will secure high health, social and economic returns. Through simulation modeling, The Lancet has found that “increasing health expenditure by just $5 per person per year up to 2035 in 74 high-burden countries could yield up to nine times that value in economic and social benefits.” Their models, published late last year, approach maternal and newborn health, children’s health, malaria, HIV/AIDS, family planning and immunization.

– Edward Heinrich

Sources: DEVEX(1), DEVEX(2), The Lancet, Samasource
Photo: University of Delaware

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How to End Hunger Around the World

Currently, around 1 billion people live in hunger around the world. That’s the same amount as the total populations of the United States, Canada and the European Union combined.

Nearly 98 percent of hunger around the world exists in developing countries, and 62.4 percent of people living in hunger live in Asia and the South Pacific.

However, the number of people living in hunger is not caused by a lack of food. The world produces enough food to feed the entire global population, but the people living in hunger have neither the land nor the money to acquire food.

Poverty is the main cause of hunger, just as hunger is a cause of poverty. When people go without food, it causes the brain to lose functionality so that they cannot contribute to their economy and allow it to grow. Providing the additional calories needed by the 13 percent of the world’s population living in hunger would require just 1 percent of the current global food supply.

There has been some development in terms of reducing hunger — the governments of Brazil and Ghana have significantly cut the number of people living in hunger by providing aid to their poor, raising their minimum wage and investing in small farms, especially those owned by women.

There are ways that global hunger can be stopped, though. One way is to prevent land grabbing. One of the negative aspects of the uncertainty of future food supply are wealthy yet small nations, like South Korea or the Gulf countries, gaining land from developing countries to use as additional farms.

Another way to prevent global hunger is to block out speculators from the global market. Since the financial crisis of 2008, money from investment funds have flooded the commodities market. The automated trading systems make it difficult for traditional traders to keep the prices of food stable and prevent spikes.

Producing less biofuel allows for sugar, maize and other food crops to be used as food, thus increasing the amount of food available to the global population and reduces the price on those items allowing for more people to access them.

However, those solutions mentioned above are short term and also hard to regulate. The most surefire way to end global hunger is to increase education. Less than 1 percent of what every nation in the world spends on developing weapons could put every child in the world in school.

An increase of education does not just help to put food in the stomach of one person, but also helps to increase the economy of the town or city the educated person is living in.

An educated person from an underdeveloped town would then have the means to open their own business and then employ others in their town who could then use their pay to invest in furthering their own education.

Education also provides children access to a stable food source and is a “strong incentive to send children to school and keep them there.” By sending children to school, it also allows families in underdeveloped countries to increase their food security in times of famine.

– Monica Newell

Sources: The Guardian, Do Something, Millions of Mouths, Huff Post, WFP
Photo: Jewels Fab Life

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Unemployment In Spain

In his first speech since his father Juan Carlos abdicated the throne, Spain’s future King, Crown Prince Felipe, addressed his country’s begrudgingly slow economic recovery. He referred to Spain as “united and diverse.” These remarks came a week after a new report noted that 1.26 million Spaniards have been without jobs since 2010. These citizens, unemployed for at least three years, are representatives of the 500 percent increase in Spain’s long-term unemployed population since 2007. They are 23.1 percent of Spain’s unemployed population and their numbers are continuing to grow with each passing year.

In the first quarter of 2014, Spain’s unemployment rate fell to 25.73 percent, down from a record high of 26.94 percent last year. During the same quarter, Spain’s economy grew at a quarterly rate of 0.4 percent, its best period since 2006. These increases have caused politicians and the International Monetary Fund to reassert their confidence in Spain’s recovery prospects, but that confidence has proven divisive within Spain.

Fiscal policies by Prime Minister Mariano Rajoy and his conservative Popular Party have been lukewarmly received by the general public. On June 6, the Spanish government approved a $15 billion stimulus package to spur growth and promote their renewed confidence in the economy. However, 26 percent of Spain’s population remains on government benefits. This figure is second in the EU only to Greece.

As reform efforts begin to take hold throughout Spain, civil unrest has resurfaced. Much of the focus is now geared toward high levels of income inequality. There has recently been a boom in tourism in Barcelona, accounting for a record high of 7.5 million visitors in 2013, but the unemployment rate still looms at 18 percent. Protesters are noting changes in government policies which have only affected the well off and have left the despondent with little to aspire to.

Spain’s corporate tax rate has recently been lowered to 25 percent from 30 percent, but the ability of the country’s educational institutions to produce well-trained students for prospective employers is questionable at best. Two-thirds of Spain’s 38.6 million residents over the age of 16 have only a basic education. Of these residents, 32.5 percent are currently unemployed. The youth unemployment rate is also nearly double that of the national rate. Slow recovery rates have dissuaded international investment and stymied growth in Spain’s financial sector.

Spain recently announced an early 1.3 billion euro repayment of a 41 billion euro EU banking rescue loan. This announcement was positioned as a confidence boosting measure. Whether it proves a catalyst for a Spain bereft of chronic unemployment, only time will tell.

– Taylor Dow

Sources: Digital Journal, Euro Weekly News, Fox News Latino, Latin Post, The Local, RTE News, The Spain Report
Photo: Wall Street CN

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What is the U.S. Climate Action Network?

In the fight against climate change, nothing is more important than mutual cooperation. Organizations like the U.S. Climate Action Network (USCAN) facilitate networks of NGOs who share the common goal of helping the environment. Such networks maximize the impact of individual organizations.

USCAN operates under a theory of change which includes three dimensions: relationships, process and results. The network provides the space to foster each. Relationships are built on the local, national and international levels between organizations with diverse approaches to climate change mitigation. USCAN facilitates the process of sharing information through issue briefings and coordination. Ultimately, these three dimensions serve to exponentially increase the impact of the organizations.

Members of USCAN have access to information, resources and services from a coalition of like-minded organizations. Members collaborate over policy recommendations for all levels of government, share information on campaign information such as IPCC reports and spread each other’s message.

To become a member an organization must share the vision that climate change must be fought by both mitigation and adaption. USCAN seeks to understand how climate processes and events affect communities, wildlife and businesses. It recognizes that these effects negatively impact not just the environment but the economy as well. This is why USCAN believes it is in the world’s best economic and environmental interest to fight climate change.

The Guardian highlights the importance of coalitions for affecting change and gives “13 tips on building a coalition to tackle climate change.” One tip is given by Robert Laubacher, the project director of MIT Climate CoLab. He writes that even a small level of collaboration can have a strong influence. Laubacher cautions against focusing too much on government progress, which is slow, and instead to see the virtue in small coalitions of non-governmental organizations — coalitions that USCAN helps to build.

Individual efforts to mitigate climate change are organized through societal organizations. USCAN, in turn, coordinates the efforts of the societal organizations, thus transforming the passion and desire of an individual into lasting change in the fight against climate change.

– Julianne O’Connor 

Sources: The Guardian, USCAN
Photo: news.com.au

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Latin American Youth Struggle to Find Employment

Latin American youth are finding it increasingly difficult to find gainful employment. Of the region’s 108 million people in the 18 to 24 year age bracket, 21.8 million of them are known as NEETs – not in employment, education or training. In Spanish they are called NiNis – ni estudian ni trabajan (they do not study, nor do they work). NiNis are a stigmatized group, pegged as lazy, unmotivated and apathetic.

To make matters worse, many Latin American youth who do find jobs end up working in poor conditions and lack the protection of labor rights. Six in every 10 young people in Latin America work in unlawful labor conditions, according to a recent International Labor Organization report.

The ILO study, titled Trabajo decente y juventud: políticas para la acción (Decent Work and Youth: Policies for Action), also reported that the youth unemployment rate is three times as high as that of adults and twice as high as the overall rate. Young people are unable to find decent jobs even though the current generation is better educated than any previous cohort.

In Guatemala, 78 percent of NiNis work informal positions doing housework and other menial chores. Yet the hard core of NiNis exists in Paraguay and Uruguay, with 48 and 45 percent of young people respectively neither employed, nor enrolled in an academic institution.

Several causes for youth unemployment exist. Education is key – if the education system is not in sync with an area’s labor market, graduates will not leave their educational institution with the necessary skills to break into and thrive in the workforce. Population growth has also contributed to the existence of such high numbers of unemployed youth around the globe. Additionally, during times of economic hardship, employers are more likely to lay off younger workers who do not represent as significant of an investment as their older, better trained counterparts.

The fundamental problem, outlined by the ILO report, is that not enough opportunities exist for Latin American youth. Guy Rider, director of the International Labor Organization, says that the “lack of access to opportunities for decent work generates frustration and discouragement among youth. There are 108 million reasons why we must act now.”

The good news is that some organizations are acting. Work4Youth, a collaborative project between the ILO and MasterCard Foundation, seeks to match underprivileged youths aged 14 to 24 with local businesses in order to give young people the resources they need to break into the workforce. W4Y has operations all around the globe, and it maintains a presence in Brazil, Peru, El Salvador and Colombia.

The young generation currently entering the workforce is a valuable resource. Some estimates hold that if unemployment among young people were halved, the global GDP would experience an increase of 4 to 7 percent. In the words of 21-year-old Astrid Estefanía Garibay of Mexico: “People think ‘young’ and ‘NiNi,’ and they think about drug addicts and bums.” These young people simply need help connecting with opportunities rather than being stigmatized for their employment status.

– Kayla Strickland

Sources: IB Times, ILO, Pravda.ru, Press TV
Photo: Work4Youth