DEVELOPMENT ECONOMICS II

SUMMARY ASSIGNMENT

Arranged by:

Shabrina Ayu Larasati C1G016013

ECONOMICS AND BUSINESS FACULTY

MINISTRY OF RESEARCH, TECHNOLOGY AND HIGHER EDUCATION
JENDERAL SOEDIRMAN UNIVERSITY

ACADEMIC YEAR 2018

 LECTURE 3

DEVELOPMENT ECONOMICS: MICROECONOMIC ISSUES AND POLICY

MODELS

THE DEMAND FOR HEALTH AND CALORIES

Some striking facts are :

1. Achieving a minimum nutrition standard is fairly cheap

2. There is plenty of malnutrition
3. Household spend considerable share of their budget on health care, and visit doctors
frequently
4. Take up of cheap, highly effective preventive care remain really low

Understanding Health Demand

The Function : H = f (y , p, r , X )

Where is :

H = an health input. Health depends on :

p = price

y = Income

r = characteristics and anticipated impact of these inputs on health

X = characteristics which may influence the demand for health itself (social norms, education,
etc.)

Does Income Affect Nutrition: The Engel-Curve Approach?

Non-parametric estimates of the relationship between total expenditures per capita in the
household and calories consumed.

Points to keep in mind :

1. Food expenditure is not equal to nutrition

2. Need to go from food items consumed to nutrients consumed through conversion tables
3. Some other adjustments needed
4. This is not a structural relationship
 5. It is also cross-sectional

Methods to estimate y = g (x )

Results :

1. Clear relationship between total expenditures per capita and calorie consumption
2. The relationship does not appear to be non-linear, at least in this range, and the elasticity
is never above 1
3. There is also a strong relationship between price of calories and expenditures
4. Since the relationship is more or less log-linear, they proceed to estimate a log-linear
relationship, which allows them to add control variables

The Demand For Calories: Price Effect

1. Large increase in food prices since 2005

2. Very concerning for the welfare of the poor.
3. increase in prices will have a both an income and a substitution effect (since food is an
important part of the budget).
4. Income effect should lead to a substitution towards cheaper food items (even if they
all increase proportionally)

The demand for Calories: Jensen-Miller

In one region, calories consumption actually worsens. No perceptible improvement on

the other items except fat. In the other region, no change in calories consumption,

Caveats: short term decrease in food prices: people may be using the windfall to have
good food rather than to improve their nutritional status. Long term increase/decrease may
have very different impacts.

The Demand For Health: Price Effects

Small positive price: Cohen-Dupas: Take up of insecticide treated bednets by pregnant women
:

1. Experimental Approach: Different maternity clinics randomly assign to give away nets
or to sell them at different prices.
2. Huge elasticity of take up:
No elasticity of use conditional on take up (contrary to what is
 often hypothesized)

Why These High Price Elasticities?

1. High price elasticities, particularly for preventive health.

2. Basis for the “Conditional Cash transfer approach” (e.g.Progresa, Mexico), which has
become very popular in many countries: cash transfer is conditional on health.
3. Puzzling in light of health demand model we started with:
a. Large benefits
b. Prices (or opportunity cost) are not that high to begin with
4. High discount rates or hyperbolic discounting?
5. Problem with this explanation is that it would imply a pretty high degree of naivete to
keep postponing

Conclusions

1. At a literal level, the Das Gupta - Ray model is not doing very
well so far... the income elasticities of calory consumption are probably not zero, but
clearly not huge either.
2. However, this may need to be re-interpreted less literally
3. May be health rather than income.
4. Think of the very high price elasticity for the very poor. If
those were much lower for the rich, small differences in the political environment could
generate huge difference in health outcomes for rich and poor.
 LECTURE 4

DEVELOPMENT ECONOMICS: MICROECONOMIC ISSUES AND POLICY

MODELS

DOES HEALTH AFFECT PRODUCTIVITY?

The Impact Of Health On Productivity?

1. Strong biological reasons to think that health (and nutrition) affects productivity:
strength, days of illness, etc
2. At the micro-level, some indicators of health show fairly strong relationship with
earnings
3. At the macro-level, some have argued extremely high impact of health on GDP per
capita

The Rubin Causal Model

The Functions : Yi = Yi (1)Wi + Yi (a)(1 − Wi )

Consider a binary treatment W : 1 for treated, a for control, and an outcome Y (e.g.
the treatment is : received an iron pill, the outcome could be: anemia, or earnings).

Ex-ante, each individual i has two potential outcomes, Yi (1) if treated, Yi (a) if non-
treated.

The treatment effect for individual i is Yi (1) − Yi (a).

Estimand

1. We could be interested in the average treatment effect for the population:

E [Yi (1) − Yi (a)].
2. We could want to know the average treatment effect for those who receive the
treatment: E [Yi (1) − Yi (a)|Wi = 1].
3. Could be interested in the average treatment for those who have some characteristics
(observed or unobserved): E [Yi (1) − Yi (a)|Xi = x ]
4. Or we may want to know other things about the treatment:
a. How the treatment is affecting the distribution in treatment and control groups
(quantile treatment effects).
 b. The quantile of treatment effects (this is not the same, and it
is very hard to know)

Estimating Average Treatment Effect

E [Yi (1)|Wi = 1] − E [Yi (a)|Wi = a]

= E [Yi (1)|Wi = 1] − E [Yi (a)|Wi = 1] + E [Yi (a)|Wi = 1] − E [Yi (a)|Wi = a]

= E [Yi (1) − Yi (a)|Wi = 1] + E [Yi (a)|Wi = 1] − E [Yi (a)|Wi = a]

First term : ATT.

Second term : difference in the underlying characteristics of the treated and non
treated population (selection effect).

Difference in Differences

1. Individual i belong to one of groups G = 1, treated group, G = 0, non treated group

2. and is observed in one of two periods (or cohorts) T = 1 (post) and T = 0 (pre).
3. Group G = 1 is treated when T = 1, not when T = 0.
4. Identification Assumption: Potential outcome Yi (0) can be written:
Yi (0) = a + βTi + γGi + ei
with ei ⊥(T , G ), i.e. ei is independent of the group indicator
and its distribution does not change over time.
5. Then: Yi (1) = Yi (0) + τDID

Difference In Difference Estimator

TDlD = (E [Yi 1G = 1, T = 1) - E [Yi 1G = 1, T = 0]) - ((E [Yi 1G = 0, T = 1) - E [Yi 1G =

0, T = 0]))

Sample equivalent:

•
1. Replace expectation by population averages:

TDlD = (Yll - YlO ) - (YOl - YOO )

2. Or equivalently estimate OLS on

Yi = al + βlTi + γlGi + TDlD (Ti * Gi ) + ei

Acemoglu And Johnson: A More Macro Approach

Acemoglu and Johnson (2OO7) use the same identification strategy as Bleakley, but in a cross-
country setting, for the disease against significant progress were made in the post-war period.
(mainly turberculosis, pneumonia, malaria)

Long Term Impact of Low Nutrition on Productivity

1. ”Barker” hypothesis (or fetal health). What matter in early childhood continue to matter
later in life
2. Evidence: Doblhammer–long term impact of month of birth, likely linked to nutrition
available to mother.
3. Almond, Qian: long term impact of famine in China (even on survivors, despite
selection)
4. Almond: people who were in gestation during l9l8 influenza epidemics have lower life
expectancy

5. Banerjee, Duflo, Postel-Vinay and Watts: impact of shock at birth on height at 2O.

6. Field: Iodine supplementation

Strategy And Results

1. Calculate the probability that a child born in a given month was covered when in Utero
and introduce district fixed effect and month fixed effect
2. Carry out the analysis within households (siblings born a little bit too late or too early).
3. Results in : Large effects, especially for girls
4. Robustness: Given the dose, effect should be highest when IDD is not too high and not
too low

Conclusion: Back to Das Gupta and Ray

1. There is a strong relationship between health and productivity at the micro level (and
also between education and productivity)
2. Role of Micro-nutrients seems particularly important (iodine, iron: Thomas).
3. No very solid estimate of the impact of nutrition on productivity but earlier estimates
suggest an elasticy of about O.4
4. Impact of nutrition in-utero and in childhood may be much larger than later in life, since
it may cause permanent damage on health, and also through amplification impacts
through education.
5. Need to go back to thinking in more detail about what is happening within the
household