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Exiting long run poverty: the determinants of asset accumulation in developing countries

Final Report Summary - IHKDC (Exiting long run poverty: the determinants of asset accumulation in developing countries)

The general idea of the research agenda that was proposed was the study of asset accumulation by poor people in developing countries. The emphasis of the research was on understanding the mechanisms through which this process is developed or not. For this purpose it is crucial to understand the investment process, the factors that limit it and constraint it and the specific policy contexts within which these processes are implemented. The research was divided into 9 projects that were conducted by different groups of researchers, in some case in a very interdisciplinary fashion.

Investment is an inherently dynamic phenomenon that must involve the consideration of future returns. Researchers have often made more or less arbitrary assumptions about the formation of expectations. These arbitrary assumptions are most of the times imposed by the lack of data on subjective expectations, which is what, in fact, drive individual decisions. We therefore invested some resources in the study of reliable measurement tools for subjective expectations and their use. The starting point and the first of the project was the characterization of subjective expectations.

Human capital is one of the most important assets that can be accumulated and the research projects recognized that the most effective investment, according to the most recent literature, is in the early years. We therefore analysed extensively interventions and, more generally, the process of human capital development during the first five years of life. The objective of this research was to characterize the process through which human capital develops, what economists call the production function of human capital and its determinants. We put particular emphasis in characterizing the interaction between the different inputs that enter the production function. We also wanted to characterize the investment choices made by individual actors, mainly – but not only- parents. And finally we wanted to characterize the restrictions faced by parents.

We studied existing interventions, such as community nurseries that serve mainly disadvantaged children, and interventions that we contributed to design and evaluate, such a large pilot for a home visit programme in Colombia. The focus of these evaluations was not only that of identifying the impacts that they produced, taking into account the fact that children might be selected into specific interventions, but also the identification of the mechanisms behind certain impacts. This is key for the design of effective policies.

The results we have obtained, studying interventions in different countries, including Malawi, Brazil, Colombia, Mexico; have had a considerable impact on both researchers and policy makers. This research has led to both publications and to new interventions and pilots of new interventions that are being developed in countries as diverse as Peru and India.

Investment decisions are made by parents, who live in households. One of the projects we pursued looked at how decisions are made within the household. In particular, we avoid considering the household as a monolithic decision unit and recognize that couples might have different taste and might not agree on their objectives. We relate this type of model to social programmes, such as many conditional cash transfer programmes that are explicitly targeted to women so to improve their position within the household. We find strong evidence that giving more control over resources to women change spending patterns and therefore, constitutes a strong indication that models that explicitly consider intrahousehold allocations are extremely relevant.

Conditional cash transfers have received much attention and have been hailed as a silver bullet to solve many social problems. And yet, their impact in certain areas has been quite modest. We have continued to study such programmes looking both at the fact that they might not be too attractive to some eligible households and to the reasons why they might have modest impacts on, say, enrolment. The papers that have come out of this research agenda have suggested specific changes to existing programmes that have been acted upon by some agencies.

In addition to human capital, our research has also looked at other policies, such as micro credit and the impacts that they might have on the clients. In particular, we have looked at the relative impact of different modalities of micro credit programmes. We have also looked at social capital and at how it can be affected by certain social programmes.

While we have accomplished much, some of the projects we have started are still continuing. Some delays have been caused by delays in the policies that they were supposed to evaluate. Others have led to further investigation that we are still pursuing. The more detailed summary we provided above offers a description of these projects.

* Please, notice that this summary may be published