Academic journal article NBER Reporter

Development Economics Program

Academic journal article NBER Reporter

Development Economics Program

Article excerpt

Identifying what actually works to reduce poverty and improve population well-being is a key challenge in development economics. When something is thought to work, the next challenge is determining why it works and the conditions under which it works; that is, assessing the extent to which conclusions are generalizable. These are key research themes in the Development Economics Program.

One exciting source of new results on these questions arises from a multifaceted, focused initiative known as the "Graduation" Program. This program, developed by BRAC, a large NGO formerly known as the Bangladesh Rural Advancement Committee, was designed to provide the poorest people with a sustainable pathway out of extreme poverty. The program provides resources to address participants' immediate needs and longer-term investments, with the goal of building sustainable livelihoods. The Graduation Program has three central planks designed to provide a holistic set of resources and services to increase the productivity of the ultra-poor: a grant to acquire productive assets, access to a savings account, and two years of training and support, including life skills coaching. (1)

To investigate how well the program works, Abhijit Banerjee, Esther Duflo, Nathanael Goldberg, Dean Karlan, Robert Osei, William Pariente, Jeremy Shapiro, Bram Thuysbaert, and Christopher R. Udry conducted an ambitious set of coordinated randomized controlled trials (RCTs) in villages in Ethiopia, Ghana, Honduras, India, Pakistan, and Peru. They identified the poorest households in each study village and randomly offered about half of them the BRAC program, with the other households serving as controls. The program was a stunning success, as measured by a very large and broad set of markers of well-being.

At the end of the intervention, which lasted two years, relative to controls, Graduation Program households reported higher levels of per capita consumption, more income, greater savings, more assets and improved mental health. Effects were not only large and statistically significant, but also long-lived, persisting for at least a year after the intervention ended in all the study settings (2) and in India for at least another four years. (3)

Figure 1 illustrates estimates of the magnitude of some of the average standardized treatment effects two years after the start of the program in the six countries. Based on this evidence, many countries are currently experimenting with this type of multifaceted package as they endeavor to reduce persistent poverty.

New Thinking about Poverty Alleviation Strategies

The study clearly establishes that the Graduation Program has transformed the lives of the poorest not just in one small area but across vastly different settings over three continents. This is important because many of the most promising anti-poverty programs that have documented successful poverty reduction in some contexts have not been successful in other settings.

Microcredit is one example of an anti-poverty strategy that has been extensively analyzed. In 2006, the Nobel Peace Prize was awarded to Muhammad Yunus and Grameen Bank for leading the microcredit revolution that brought small loans first to the poor in Bangladesh, and then to the poor more broadly. Micro-loans, which are made mostly to women, involve some form of group liability and report excellent repayment rates. The number of people who have received the loans has grown rapidly and microfinance for a time was heralded as the magic bullet that would end poverty as we know it. However, results from rigorous studies investigating the impacts of microcredit have not been encouraging. Duflo, Banerjee, Rachel Glennerster, and Cynthia Kinnan conducted a randomized evaluation of the impact of a micro-finance firm entering markets in Hyderabad, India, and found that, while loans were made and recipients invested in their new businesses, the effects were transitory, with no discernible improvements in consumption or well-being for any but a small fraction of recipients at the top of the income distribution. …

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