Archives for February 2016

NYU’s Michael Waugh to speak on “Risk, Selection, and Rural-Urban Migration”

February 26, 2016 by Lu Yu

On Tuesday March 1^st, Michael Waugh will speak on “Risk, Selection, and Rural-Urban Migration” (4pm, E530 Dealy). Prior to joining NYU’s Stern School, Professor Waugh (MA Fordham, 2003; PhD University of Iowa, 2008) was a research economist at the Federal Reserve Bank of Minneapolis. A common theme in Waugh’s research is the large potential welfare gains from movement of goods and people. In a paper entitled “Macroeconomics of Rural-Urban Migration”, Dr. Waugh and coauthors David Lagakos and Mushfiq Mobarak use new 2009-2010 tracking surveys from Tanzania, Uganda and Malawi to explore the impact of migration on total consumption. Migration is driven by a rural-urban gap that incorporates migration risk, worker sorting, and the utility cost of migration. The model and data show that “rural-urban migrants experience large increases in consumption on average.” Only 5% of migrants experience consumption declines. “On average, migrants doubled their consumption between survey years, while the median migrant had a consumption gain of 49 percent…. Relative to households that stayed in rural areas, migrants had 40 percent higher consumption…” Though policy makers are often reluctant to encourage people to move, this paper’s findings suggest large potential gains from rural urban migration.

Similarly, Professor Waugh’s research points to large unrealized welfare gains from international trade. A recent paper coauthored with B. Ravikumar, “Measuring Open ness to Trade”, (forthcoming, Journal of Dynamics and Control) proposes a new measure of “trade potential”, which compares country’s observed trade/GDP share to “frictionless” trade share. Each country’s potential welfare gain from moving to a world with frictionless trade is computed using a standard multi-country trade model. Each country’s potential depends only on its trade elasticity and the country’s observed trade and income. It is found that poor countries have larger unrealized trade potentials compared to rich countries. Rich countries are generally more open to trade realizing a greater share of their trade potential. Trade potential index correlates strongly with estimates of trade costs, while the welfare cost of autarky and the observed volume of trade exhibit weak correlations with trade costs. Despite large potential welfare gains from trade, rich and poor countries are surprisingly close to autarky as measured by this new trade potential index (see the top panel of Figure 2). A closer look (zooming in on autarky, lower panel Figure 2) reveals that Germany, Luxembourg and the Netherlands are realizing the largest share, though by no means all of their potential welfare gains from trade.

Department Seminar: Tuesday, 1^st March, 4 – 5:15 pm Topic: Risk, Selection, and Rural-Urban Migration

Economics Conference Room, Dealy Hall E-530

Columbia Professor Erick Veerhogen on innovation in the Pakistani Soccer Ball industry

February 22, 2016 by Darryl McLeod

Can sharing the benefits of technical change speed up the diffusion of cost saving innovations and make an important Pakistani export industry more competitive? This is the question the Erick Veerhogen Director of Columbia’s Center for Development and Economic Policy (CDEP) will address during Tuesday’s Department Seminar, February 23rd, 4-5.15pm in E-530 Dealy. Professor Veerhogen is Vice Dean at Columbia’s School of International Public Administration (SIPA) and Director of the Center for Development and Economic Policy (CDEP), a development research group that conducted the soccer ball innovation incentives experiments.

One of the largest soccer ball exporter in the mid-1990s, Pakistan lost ground to China post 2000 (Figure 1). A FIFA video in the last panel shows the 2010 FIFA World Cup Adidas Jabulani match ball being produced in an Addidas Factory in In Organizational barriers to technology adoption: evidence from soccer-ball producers in Pakistan Professor Veerhogen and his coauthors explore the process of cost saving innovation in the Pakistani soccer ball industry. A new technology proposed by Veerhogen and collaborators increases the number of pentagons that can be cut from a rectangular sheet of material “by implementing the densest packing of pentagons in a plane known to mathematicians.” “The most common soccer-ball design combines 20 hexagonal and 12 pentagonal panels” (see Figure 2 below). The panels are cut from rectangular sheets of an artificial leather called rexine, typically by bringing a hydraulic press down on a hand-held metal die. This new die reduces material cost by about 7% yielding a 1% drop in overall soccer ball costs. Yet producers in the manufacturing city Sialkot were slow to adopt this new cost saving technology. Experiments suggest the technology diffusion process was slowed by resistance from both workers and employers. Yet even small incentives to spread the gains among workers and employers led to faster adoption of the new technology. The famous Bucky Ball designed by R. Buckminster Fuller is shown as Photo #1 below, Figure 3 shows workers in a soccer ball factory in Sialkot, Pakistan. Note that while workers in Bangladesh’s garment export industry are mainly women, almost all of the skilled Sialkot cutters are men. Figures 3 and 5 show various stages in the production process. The final photo takes you to a FIFA video shows the official 2010 World Cup Adidas Jabulani match ball being manufactured in China: “All Official Match Balls for the 2010 FIFA World Cup have the same weight and the same circumference and are therefore always the same size. Production capacity for the Official Match Ball for South Africa: 1760 balls per day..” Compared to Pakistan the production process in China is quite automated, though fundamental aspects of the process are similar, including hexagon stamping dies. The production process is quite global. Assembled in China, the balls use latex bladders made in India along with thermoplastic polyurethane-elastomer from Taiwan and ethylene vinyl acetate, isotropic polyester/cotton fabric, glue, and ink from China.”

Kansas City Fed Economist speaks Tuesday 12-1pm on Monetary Policy Regime Switches.

February 8, 2016 by EL Mechry EL Koudouss

This Tuesday 12-1pm Andrew Foerster Economist at the Kansas City Fed will speak on “Optimal Monetary Policy Regime Switches.” Dr. Foerster gained some notoriety for his 2014 Macro Bulletin on the The Asymmetric Effects of Uncertainty on Employment. This analysis of how market volatility affects employment growth underlies what the Wall Street Journal Real Time Economics call the Fear Gauge (Figure 1 below). As reported in a 2014 Kansas City Fed’s Macro Bulletin Foerster’s finds an asymmetric response of firms to uncertainty as measured by the VIX (Figure 2). When uncertainty increases firms slow hiring, but after the VIX returns to normal levels firms are slow to return to previous hiring rates. This means a spike in the VIX can have significant and long lasting negative impact on employment. His results suggest that the spike in the CBOE “fear” index triggered by the 2010 Euro crisis led to a cumulative lost 400,000 jobs while the 2011-12 U.S. debt ceiling crisis cost even more jobs. Without these jumps in CBOE volatility index the U.S. economy would have added almost about 16,000 more per month from 2010 to 2013 or a total of 600,000 jobs, suggesting this uncertainty slowed the slowed the U.S. recover from the 2008 Global Financial Crisis.

Department Seminar Note new Time: Tuesday, Feb 9, 12 – 1 pm

Optimal Monetary Policy Regime Switches

Place: Economics Conference Room, Dealy Hall E-530

Andrew Simons speaks on Ethiopia’s Productive Safety Net Program

February 8, 2016 by Darryl McLeod

Andrew Simons, PhD candidate at Cornell University will discuss alternative approaches to managing Ethiopia’s Productive Safety Net Program. As discussed in the World Bank’s Catching Hope video (below) this innovative cash transfer program pays farmers to improve local infrastructure in the off-season. Focusing on groundwater renewal and reforestation in rural Ethiopia this program reduces poverty even as it promotes sustainable development. More recently these transfer and conservation programs are credited with helping attenuate the impacts of a severe drought some compare to the 1984.

Simons’s research focuses on how funding and administrative control affect program outcomes. When communities have more control Simons finds they are more “pro-poor” directing more assistance “to underprivileged groups with lower wage earnings potential (e.g., teenage girls vs. teenage boys, adult women vs. adult men, elderly vs. working age adults).” However, these pro-poor programs do not significantly lower overall poverty rates unless the program is fully funded. Moreover, simulations indicate fully funded programs reduce poverty whether they are administered locally or not. “The major policy takeaway,” argues Simons “is that the financial scale of the safety net program is more important to poverty reduction than the locus of control over implementation.” Simon’s research was supported by the National Science Foundation through Cornell University’s Food Systems and Poverty Reduction Integrative Graduate Education and Research Traineeship program. Andrew Simon’s paper is available here or on his webpage www.andrewmsimons.com.

ANDREW M. SIMONS What is the Optimal Locus of Control for Social Assistance Programs?: Evidence from Ethiopia
Date: Tuesday, Febuary 9 Time: 4:00 PM- 5:15 PM Lincoln Center Location: LL 802 Rose Hill Location: Hughes Hall 212