Clean water: Great! Fair-trade coffee: Not so much…

28 Feb

UCSF Economist Bruce Wydick surveyed a bunch of development wonks on the cost-effectiveness of some of the most popular types of aid to the poor:

A plethora of options exist today for ordinary people with a little bit of extra means to help the poor: donating a yak to a Nepalese family in the name of the “rich uncle who has everything,” making a microfinance loan to a Nigerian cobbler through Kiva, sponsoring a child in virtually any developing country in the world. Courtesy of the web, today it is not just big governments and multinational organizations that do all of the heavy giving. Ordinary people give to the overseas poor now more than ever.
So among the popular means through which ordinary people try to help the poor overseas, which are the most effective? I decided to take a poll of our peers and have each rate, on a scale of 0-10, some popular interventions.   Specifically, if someone wanted to donate $X to alleviating poverty in developing countries, which of these approaches would be the most (10) and least effective (0) means of increasing the welfare of the poor in developing countries?
(Full article here. Full survey (highlights below) here.)
The findings:
Best means of aid:
1. Providing Clean Water to Rural Villages.  (Average Rating: 8.31) A colleague of mine at USF had his large undergraduate global economics class take the poll as well. Even the undergrads came up with the same answer for the #1 ranking, so it seems you don’t have to be a development economist to get this one.  A million children die from drinking unclean water each year. One famous WHO study found clean water in a rural village reduces infant mortality by 35% to 50% at a cost of roughly $10 per person per year. Bang for the buck, clean water is hard to beat.
Runner up:
2. De-worming Treatments for Children.  (Average Rating: 7.81) This one was probably ranked high for three reasons. First, because de-worming is so effective at a medical level, it’s cheap, and also because this early intervention was the subject of one of the most famous early randomized trials. Miguel and Kremer’s celebrated study found that regular de-worming treatment in worm-infested areas of the developing world could reduce school absenteeism by 25% at a cost of $0.50 per year. While impacts of this magnitude are not likely to have external validity in areas with lower worm infestation, there are plenty of places left where deworming impacts would likely be huge.
Not as good as people think:
6. Microfinance.  (Average Rating: 4.19)  Development economists now are nearly all aware of one major fact about microfinance: it’s astounding growth over the years is significantly larger than its impact.  Most of the recent studies of microfinance using RCTs, including the relatively recent 2011 papers by Duflo et al. study in Morocco, and the new Attanasio et al. study in Mongolia  find modest impacts: increases in entrepreneurialism and business investment, but little or no increase in income. Microfinance clearly exhibits some modest positive impacts, but it isn’t the silver bullet in the heart of poverty some had hoped it might be. At least by some measure, development economics and microfinance have lost that lovin’ feeling.
Outright shitty ways to give:
10. Fair-Trade Coffee. (Average Rating: 1.94) How can fair-trade coffee, as it is commonly practiced, continue to thrive when the most rigorous evidence shows that it doesn’t work?  (and even clearly explains why). In a paper certain to amplify the caffeine jitters in the fair-trade coffee industry, De Janvry, McIntosh, and Sadoulet (2011) find zero average impact on coffee grower incomes over 13 years of participation in a fair-trade coffee network. Low impact is due to extremely poor institutional design: growers have to pay for fair-trade “certification,” recouping these costs only in years when the coffee price falls below the $1.41 price floor. (The New York Coffee price is about $2.55 right now.) Moreover, here is a program that promotes the cultivation of coffee, when it is obvious that coffee growers would be collectively better off if everyone grew less. Clearly a case where development economists are aware of the deficiencies of a program, but word hasn’t “filtered down to the average Joe.”
11. Laptops for Kids. (Average Rating: 1.80) The One Laptop per Child program gives away laptops to kids in developing countries who have at least a thousand more pressing needs. The bang for the buck on this one is at best a whimper, at worst inaudible. A recent study presented at the NEUDC by Cristia et al. at the Inter-American Development Bank evaluated the impact of the One Laptop per Child program in Peru, finding zero impact on learning or on expectations about future education.

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