27 January 2014

Safety nets and economic growth

Stefan Dercon wrote a paper a couple of years ago about how cash transfers might boost growth - by focusing on investments in ECD, smoothing geographical mobility, or smoothing the school-to-work transition.

To those possible avenues, Harold Alderman and Ruslan Yemtsov (ungated) now add:
  • improving financial markets
  • improving insurance markets
  • improving infrastructure (through public works programmes), and
  • relaxing political barriers to policy change
I find the last one particularly interesting. So for example, Ghana recently tried to offset the removal of fuel subsidies with a doubling of the coverage of the still-small national cash transfer programme to 150,000 households - helping to avoid Nigeria-style protests. Alderman and Yemtsov note that Indonesia pulled a similar trick on subsidy reform, and Mexico's safety nets helped usher NAFTA in.

But this political point goes beyond relaxing barriers to policy change, to relaxing barriers to technological change. Otis Reid pointed out to me this paper by economic historians Avner Greif and Murat Iyigun which argues that:
"England’s premodern social institutions–specifically, the Old Poor Law (1601-1834)–contributed to her transition to the modern economy. It reduced violent, innovation-inhibiting reactions from the economic agents threatened by economic change."
To be crude - it's worth paying off the Luddites so they don't get in the way of growth-enhancing technological change.

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