There are two new episodes of the Development Drums podcast now online.

Episode 4 with Shanta Devarajan discusses the impact on developing countries of the financial crisis; latest developments in the food crisis; the award of the Mo Ibrahim prize for good governance in Africa.  Sheila Page discusses moves towards a Free Trade Area from Cairo to Cape Town.

And there is a special extra edition of Development Drums about currente events in the Eastern Congo.  Patrick Smith of Africa Confidential explains the background to the crisis.

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Chris Blattman and Bernd Beber are looking at the economics of child soldiering.  Why do rebel armies, such as the Lords Resistance Army in Uganda, recruit adolescents?  According to Blattman and Beber, because younger children are ineffective soldiers; and adults are too difficult to indoctrinate. 

Chris Blattman has this graph

What I find interesting about this work is that from premises which sound intuitively plausible, Chris and Bernd then arrive at policy conclusions that are initially counterintuitive:

• anti-insurgency measures (eg increasing military spending by the government) may increase child soldiering (because it increases the size of army needed by a rebel commander)
• measures to reduce child labour may increase child soldiering (because it reduces alternative options for children)
• increased educational and economic opportunities for children will only reduce child soldiering if those opportunities increase faster for children than for adults
• a good strategy to reduce child soldiering would include “abduction training” - teaching children how to resist indoctrination and to escape if captured (rather as Japanese children learn to deal with earthquakes)

Chris calls himself a political scientist, rather than an economist. But I think this is exactly the sort of work that economists, at their best, should be doing.  This work is a fascinating combination of insights into human motivation and incentives, and the use of quantitative techniques to test whether those ideas correspond to the world we observe.

The third edition of the development podcast, Development Drums, is now online.

This week the guests are:

• Ngaire Woods
  Professor of Political Economy at Oxford University, and Director of the Global Economic Governance Programme.
• David Roodman
  Center for Global Development in Washington DC, and architect of the Commitment to Development Index.

This week the focus is on the impact of the financial crisis on developing countries, and on proposals to reform international institutions.

The podcast is now hosted on a new server.  If you have already subscribed, you may need to remove the old subscription and then subscribe again.  You can use this link:

If you use iTunes, you can search for Development Drums in the iTunes store, or use this link:

In the meantime, I’ve made some more technical improvements.  I have moved the server, to make it easier and faster to download for our listeners in Khartoum and Kinshasa; and though the file size is smaller (15Mb) the sound quality is a little better.  I’ve also kept is a bit shorter, to just 45 minutes.

As ever, I’d welcome feedback about this podcast.  Do you find it interesting? Do you have suggestions for future topics, or guests?  Perhaps you would like to come on yourself?

Ray Fisman writing in Slate asks whether falling commodities prices cause civil wars in commodity-rich countries:

To reduce violence in Colombia and other commodities-rich countries, care has to be taken to recognize how fluctuating prices actually affect the situation on the ground. If lower coffee prices drive poor farmers to desperation, we need to do something to cushion the blow to their incomes. One recent suggestion from University of California, Berkeley, economist Edward Miguel and myself is to shift some amount of international development assistance away from long-term investment and toward short-term emergency aid for countries hard-hit by a collapse in prices of labor-intensive commodities. (Countries would similarly get aid if pummeled by weather shocks like drought.) This aid would kick in as soon as prices headed south, before famine or war broke out. So we’d channel aid to Colombia’s farmers when coffee prices fell (or if the Colombian rain gods failed to nurture their crops). These emergency funds would be scaled back when prices stabilized—as they did in 2001—or the rains returned.

I must say, I’m now a bit confused about whether we think the main problem facing developing countries is rising commodity prices or falling commodity prices. Of course part of the answer is that both rising and falling commodity prices can hit people in poor countries hard (namely different people in different countries), and either way, these are people least able to cushion the effect through savings, insurance, borrowing or changing jobs.

As Fisman and Miguel say in Economic Gangsters, we need a more flexible channel of large scale development assistance which can be deployed quickly to smooth the impact of the financial crisis on developing countries. Preventing the outbreak of conflict or famine will be much cheaper than coping with the consequences, quite aside from the human tragedy that will follow from failure to act quickly.

The BBC sub-editor picked an angle, with the headline Prudence pays off in Ethiopia and the teaser:

With the financial turmoil affecting many of the world’s economies, Elizabeth Blunt in Addis Ababa considers how Ethiopia and other parts of Africa may escape the worst of the credit crisis.

But that headline does not seem to be consistent with the rest of the article which goes more like this:

Over the past few years, Ethiopia has been having something of a boom of its own, and Addis Ababa is littered with building sites.

But a lot of these ambitious construction projects seem to have got stuck halfway. Some may have run out of cement, but others, even more of them, have probably run out of money.

… In all of this, the only money coming in from outside that is a significant flow in most African countries might be remittances from workers overseas.

I think the financial difficulties might hit Ethiopia, and other African countries, pretty hard; especially if remittances dry up, investment (such as it is) falters, and rich countries become more protectionist and less likely to give aid.

Incentives for Global Health have published a new report:”The Health Impact Fund: Making New Medicines Accessible for All”

The Health Impact Fund, our flagship proposal, is a new way of stimulating research and development of life-saving pharmaceuticals. To provide wide access, medicines need to be affordable-but low prices don’t create strong incentives for innovators to invest in research and development. The Health Impact Fund is an optional mechanism that offers pharmaceutical innovators a supplementary reward based on the health impact of their products, if they agree to sell those products at cost. The proposed Fund is to be financed mainly by governments.

I personally find this idea attractive. It shares a lot of characteristics and thinking with the Advance Market Commitment idea that I have worked on in the past. The main difference is that the AMC leaves patents in place; under the IGH they are signed away. If the pharmaceutical industry is willing to participate, this would be very attractive; my guess is that many firms will find this too challenging to their existing business model.

The World Bank published new estimates of the number of people in poverty yesterday. They are very important and they’ve been universally misreported.

The estimates show:

• the developing world is poorer than we thought; there are 1.4 billion people living in poverty (about one quarter of the developing world), not 985 million as we previously thought
• nonetheless, progress in reducing poverty has been about as fast as previously believed - poverty has been declining at the rate of about one percentage point a year, from 52 percent of the developing world’s population in 1981 to 26 percent in 2005. This is a reduction in the number of poor of about 500 million people.

As the full paper explains, the new poverty line is $1.25 a day in 2005 prices, compared to the old poverty line of $1.08 a day in 1993 prices.   This is actually a downward revision of the poverty line in real terms: if it had been kept the same in real terms (ie adjusted only for inflation) it would be $1.45 a day in 2005 prices.  (There are currently 1.7 billion people living on less than $1.45 a day in 2005 prices, the equivalent today of the old poverty line - which is nearly twice as many as we previously thought lived in poverty.)

The meaning of the poverty line is often misunderstood.  Some people assume that the poverty line measures the number of people who have an income of $1.25 a day; and they reassure themselves by thinking “a dollar will go a long way in some countries”.   But the poverty line is measured as $1.25 a day at purchasing power parity - that is, people below this line are able to buy each day what $1.25 would buy them in the United States.  This really is an absolute measure of poverty.

Of course, the newspapers got this all wrong:

James Politi in the FT reported

The new figure was estimated after researchers at the bank raised the threshold for extreme poverty from earnings of $1 a day to $1.25.

(Not true; the threshold has been reduced in real terms). The BBC reported

The new estimates suggest that poverty is both more persistent, and has fallen less sharply, than previously thought.

(Not true: it has fallen at the same rate as previously thought; just at a much higher level.)

Finally - a big untold part of this story is the big changes in the purchasing power parity estimates that underpin these poverty figures.  These show massive changes in the estimates of GDP at PPP. For example, here in Ethiopia, GDP per capita is now estimated to be $591 per year, compared to $1084 under the previous estimate.  India is down 40%, now below Pakistan in income-per-head; and China’s income per head is also 40% lower than the previously estimated.

Scott Adams on Economists:

If you think it is okay to ignore economists because they are so often wrong, you’re looking at the wrong questions. Economists are generally wrong with complicated models but right about concepts. For example, they know that additional domestic drilling won’t make much of a dent in the energy problem. And they know that free trade is generally good for all economies. (You can argue with my examples, but the point is that some things are generally known by economists while not being understood by the general public.)

By analogy, a mechanic knows that changing your oil is good for your engine, but he can’t tell you what problems you will have with your car next year. You shouldn’t ignore the mechanic’s advice on changing oil just because he doesn’t know when your battery will die, or because he didn’t personally perform any scientific studies on oil changes.