Does microfinance build lasting relationships among borrowers?

Whether microcredit alleviates poverty or not is a hot topic. And although this undoubtedly is a very important question, other potential consequences of microfinance should not be overlooked. One example is found among the results from a recent field experiment led by researchers of J-PAL (the Abdul Latif Jameel Poverty Action Lab) where it is suggested that access to credit can increase social capital among the borrowers.

Social capital, according to political scientist Robert Putnam, is the collective value of social networks. In the standard microfinance model, which in large part was developed by the Grameen Bank of Bangladesh, a key component is that borrowers form groups of five people and meet on a regular basis. These constellations are intended to put social pressure on borrowers to repay their debt on time. Most research has hitherto focused on whether the meetings with other group members increase the probability of timely repayments. The J-PAL researchers now take the issue in a different direction by instead asking whether these formal meetings lead to the creation of new relationships among borrowers living in urban communities.

In the study, member of 174 different microfinance groups in urban India were interviewed. To see what impact group meetings may have on formation of social capital, the researchers randomly assigned the groups to a different meeting frequency where some borrowers would see each other on a weekly basis whereas others did so only on a monthly basis. Social capital was measured based on how many interactions of both professional and personal nature that the group members had with each other as a result of the meetings.

The results showed that those who met weekly were far more likely to form long-lasting relationships with other group members compared to those who were required to meet only monthly. The economic value of a larger social network may at the onset seem negligble. But these social-capital gains resulted in an increasing willingness to share risks with other group members, which the authors reckon would lead to significant economic returns in the long run.

Increased pooling of risks to make joint investments could certainly give entrepreneurship and innovation a boost. To what extent these social-capital gains could eradicate poverty, however, is unclear since the authors do not provide any estimates of the effect of social capital on income or economic growth.

Social-capital gains may not be how microcredit advocates would normally envision to help the poor, but they may still be pretty useful.

Simon Hedlin

Gender-equal parents are happier

Regrettably, gender equality is often seen as a women’s issue. The dominant notion seems to be that we should embrace equality for the sake of women, and that gender equality is a zero-sum game where women gain at men’s expense. In economic terms this is of course bogus; the labor market, for instance, is not a zero-sum game, and just as immigrants can fare well on the labor market without hurting natives so can women without making men worse off. The notion does not hold up in non-economic terms either. The following graph is an evaluation of about 5,000 Swedish parents’ level of happiness from 1990 to 2000 based on how they chose to divide the paid parental leave days that every parent is entitled to.




What the inverted-U relationship in the chart shows is that parents who share paid parental leave days unequally (mothers take all the 480 paid parental leave days and fathers take 0 days, just to play by the stereotype), have on average lower levels of subjective well-being than parents who embrace gender equality. Gender equality is not only associated with higher wealth and economic growth (while controlling for other factors), but also with higher levels of happiness.

Simon Hedlin

Prostitution laws and sex trafficking in the European Union

The following graph shows the average number of identified and presumed sex trafficking victims per million people in the European Union’s (EU) 28 member states in 2008, 2009, and 2010, sorted by the type of prostitution laws each country had. The countries have been divided into four groups depending on whether their prostitution laws punish only those who sell sex, neither sellers nor buyers, both sellers and buyers, or only those who buy sex. Data on sex trafficking is from the EU’s own harmonized dataset on trafficking and data on prostitution laws is based on the US Department of State’s Human Rights Reports.

ImageAs can be seen in the chart, countries who only punish sex buyers had, on average, lower prevalence of sex trafficking than countries with any other type of prostitution laws. Those who punish only those who sell sexual services (which morally, of course, is wicked since one then risks ending up de facto prosecuting the trafficking victims for selling, but not their buyers for buying) have, on average, the highest trafficking prevalence.

The descriptive results in this chart are in line with the so-called “demand model” that draws on basic microeconomic lessons and predicts lower prevalence of sex trafficking when sex buyers are targeted because that approach supposedly pushes down demand for purchased sex and makes trafficking less profitable.

Simon Hedlin

Excerpt from “The Webern Variations”

What to make of a season’s end,
the drift of cold drawn down
the hallways of the night,
the wind pushing aside the leaves?


The vision of one’s passing passes,
days flow into other days,
the voice that sews and stitches
again picks up its work


And everything turns and turns
and the unknown turns into the song
that is the known, but what in turn
becomes of the song is not for us to say

- Mark Strand

Positiv särbehandling cementerar fördomar

The following op-ed was published today in the Swedish newspaper called Svenska Dagbladet:

”Stopp!” Jag vänder mig om. ”Du är kines, eller hur?” frågar tullvakten. Jag har precis anlänt till Frankfurts flygplats från Boston. ”Nej, jag är svensk”, svarar jag. ”Men du har rest hit från Kina, eller hur?” gissar han felaktigt medan han genomsöker mitt bagage. Jag ser hur alla andra asiatiska passagerare stoppas. Utfrågningen fortsätter. ”Vad är din bärbara dator värd? När köpte du den?” Vakterna är på jakt efter asiater som smugglar teknikprodukter.

Den tyska tullens fokus på etnicitet påminner om en pågående debatt i USA om ”stop-and-frisk”, vilket innebär att den amerikanska polisen stoppar människor på gatan och muddrar dem i syfte att förebygga brott. Miljoner har stoppats de senaste åren. De flesta tillhör etniska minoriteter och är oskyldiga. Skillnaden mellan de amerikanska poliserna och de tyska tullvakterna är att amerikanerna främst genomsöker afroamerikaner efter vapen i stället för asiater i jakt på teknikprodukter.

Stop-and-frisk har kritiserats för att negativt särbehandla minoriteter. Men är positiv särbehandling bättre? En annan aktuell fråga i USA är den om ”affirmative action” som leder till att personer från underrepresenterade etniska grupper blir antagna till universitetet trots lägre betyg och sämre testresultat än snittet. Många är för affirmative action, men emot stop-and-frisk. Men att muddra etniska minoriteter för att vi är överrepresenterade i brottsstatistiken är faktiskt -jämförbart med att låta oss gå före i kön till universitetet för att vi är underrepresenterade i utbildningsstatistiken. Båda behandlingarna kollektiviserar individer utifrån etnicitet.

Etniska minoriteter möter fördomar varje dag. Ett exempel ges av USA:s tidigare arbetsmarknadsminister Hilda Solis, vars föräldrar invandrade från Mexiko och Nicaragua. Solis berättar för mig att hennes studievägledare på gymnasiet ansåg att hon på grund av sin bakgrund inte var lämpad att läsa på universitetet. Affirmative action riskerar dessvärre att cementera fördomen om hispanics som okvalificerade för högre utbildning på samma sätt som stop-and-frisk befäster stereotypen av våldsamma afroamerikaner. Dessutom är positiv särbehandling något av en motsägelse eftersom att ge preferenser till en viss grupp automatiskt leder till att alla andra grupper särbehandlas negativt.

Frågan om positiv särbehandling dyker upp även i svensk debatt – nu senast om könskvotering till bolagsstyrelser. Har kvoteringsivrarna glömt hur mycket gemensamt den positiva särbehandlingen har med den negativa?

Simon Hedlin Larsson studerar public policy vid Harvard University och är adopterad från Taiwan.

Fractionalization and flawed data

Ethnic and cultural fractionalization have become popular concepts in the social sciences. Intuitively, one may hypothesize that more fractionalized countries are more prone to ethnic conflicts and civil war, which is why there has been a stream of papers published on this topic. However, one may question the data that such research uses.

The popular fractionalization dataset that Alesina et al. have developed was supposed to ameliorate many of the problems that previous data have suffered from. Nevertheless, this dataset also seems to have major drawbacks . First of all, like most fractionalization datasets, it lacks a time dimension. Estimating correlation at one fixed point in time naturally yields less powerful results than an analysis that estimates the relationship over time. The question “Does ethnic fractionalization increase the probability of civil war?” is likely best answered by instead directly approaching the question “Does increased ethnic fractionalization over time increase the probability of civil war?”

A second problem is that many countries in the dataset are coded in terms of “citizenship fractionalization” rather than ethnic fractionalization, and there is no consistency or rationale for this coding. For example, Finland – according to the data – is considered more fractionalized than Sweden because the 6 percent Swedes in Finland are counted as an ethnic minority, whereas all Western Europeans in Sweden are considered part of the ethnic majority. So Swedes in Finland increase the fractionalization in Finland, but Finns in Sweden decrease the fractionalization in Sweden. Or in other words, if a Danish family moves to Finland, it will increase Finland’s fractionalization, but if the same family moves to Sweden, it will decrease it.

Simon Hedlin

Ernest Hemingway on New York

New York looked very beautiful on the lower part around Broad and Wall streets where there is never any light gets down except streaks and the damnedest looking people. All the time I was there I never saw anybody even grin. There was a man drawing on the street in front of the stock exchange with yellow and red chalk and shouting ‘He sent his only begotten son to do this. He sent his only begotten son to die on the tree. He sent his only begotten son to hang there and die.’ A big crowd standing around listening. Business men you know. Clerks, messenger boys. ‘Pretty tough on de boy.’ Said a messenger boy absolutely seriously to another kid. Very fine. There are really some fine buildings. New ones. Not any with names that we’ve ever heard of. Funny shapes. Three hundred years from now people will come over from Europe and tour it in rubber neck wagons. Dead and deserted like Egypt. It’ll be Cooks most popular tour.

Wouldn’t live in it for anything.