A growing share of the world population is getting access to a formal bank account. This allows a move from cash to account based payments. Grounding our hypothesis in behavioral economics, we conjecture that being paid on an account instead of in cash can play a major role in encouraging savings. When paid on the account, the money is saved by default, while - as long as payments are done in cash - the money is ready to be spent. We test our hypothesis in rural India, with villagers who either had an account, or were asked to open one. They received weekly payments of Rs 150 for about 10 consecutive weeks. We randomly allocated them to being paid on the account (treated) or in cash (control). We found that the treatment increases the account balance by about 110 percent, and that the effect is long lasting. The control villagers do not save more in other assets, but increase their expendi- tures on regular consumption items. We exclude two alternative mechanisms that could explain the result. First, using lab in the field games, we show that the treatment does not enhance the trust in or empathy towards the banker. Second, we provide evidence against the treated having developed an active savings habit on the account: they behave like the control, when we switch from account to cash payments.
This paper develops a model with sequential production stages and international trade frictions that permits an analysis of how decreases in trade costs shape the interdependence between countries, with special focus on the joining and industrialization pattern of developing countries into the global value chains (GVCs). I show that in a two-country setting, a decrease in trade costs of intermediates is associated with South moving up the value chain and both North and South experiencing welfare improvement, combined with a non-linear wage response. Then I extend the model into a multi-country setting with two simple thought experiments. I show that when global trade frictions fall, South countries join supply-chain networks due to wage differentials and low trade costs; this increases the North wage but may decrease the wages of an insider South. In addition, “Factory South” are regionally clustered. The model provides a first look at GVCs from the development angle, and raises several interesting policy concerns regarding GVC governance.
This paper shows that debt crises do not always have a fiscal nature and suggests that fiscal retrenchment may not be the optimal response to a crisis that did not originate from irresponsible fiscal policies. The paper starts by discussing the origin of debt crises and the unexplained part of public debt and for avoiding debt explosions linked to financial crises or poor debt management. The paper concludes with a discussion on liquidity and solvency crises.
Understanding the institutional features that can improve learning outcomes and reduce inequality is a top priority for international and development organizations around the world. Economists appear to have a good case for support to non-governmental alternatives as suppliers of schooling. However, unlike other policy domains, freer international trade or privatization, economists have been remarkably unsuccessful in promoting the adoption of this idea. We develop a simple general positive model of why governments typically produce schooling which introduces the key notion of the lack of verifiability of socialization and instruction of beliefs, which makes third party contracting for socialization problematic. We use the model to explain variations around the world in levels of private schooling. We also predict the circumstances in which efforts to promote the different alternatives to government production like charter, voucher, and scholarship- are likely to be successful.
This article examines the procurement of goods and services by multilateral organisations from suppliers, based on a panel data including industrialised countries and emerging economies over 11 years. It presents the results of an empirical study – the first of its kind – on the explanatory factors of variations between countries, which are mainly attributable to such factors as the strength of the manufacturing sector and business ties established in the past. The results seem to indicate that the contributions paid by donor countries may have a positive influence on the procurement of goods and services, despite the fact that multilateral organisations purchase goods and services through international tendering procedures. Geographical proximity, cultural and linguistic affinities and the presence of the headquarters of a multilateral organisation in the country also play a positive role. The purchase of goods and services by multilateral agencies may be considered as an indirect effect of official development assistance (ODA). With many donor countries facing serious economic and budgetary constraints, documentation of the ‘return on investment’ may serve as a means of encouraging policymakers to increase – or at least to not reduce – ODA budgets, including for multilateral agencies. Such arguments must nevertheless remain marginal with respect to the key debates on aid effectiveness and on on the performance of multilateral organisations.
It is well established that private information is critical to our understanding of asset prices. In this paper we argue that it also affects international capital flows and use a simple two-country DSGE model to illustrate its impact. We show that private information (i) increases the volatility of both net and gross capital flows, (ii) leads to a high correlation between capital inflows and outflows, (iii) leads to a disconnect of capital flows from observed macro fundamentals and (iv) implies that capital flows contain information about the future macro fundamentals. We also show that dispersed information affects capital flows both through asset prices and directly, so that the impact on flows is not just the mirror image of the impact on prices.
