Finance runs afoul

An inquiry into why financial companies might not be following the rules.


A recent article by published the Times of India titled “Finance companies not following rules: Self-help groups,” reported on the ongoing protest of women in Nashik. These women from a number of self-help groups (SHGs) were out protesting to demand an inquiry into multiple micro finance companies in the district. The protesters claimed that these financial companies were not following the rules agreed upon between the financial companies and the SGHs. These rules mostly dealt with contact between financial companies and SGH members. Two stated violations were contacting SGH members outside of agreed upon hours and harassing SGH members to repay debts of other SGH members. Other allegations included the charging of exorbitant fees, forced recovery (also known as seizing property), and that these companies have been forging groups to increase their business. The protesters are demanding that the collector, the government, and the Reserve Bank of India review the performance of these financial companies. An employee of a micro finance company did respond for the article and denied the allegations saying the protesters were all made aware of the terms and refuse to pay it back. They further made the statement that while some collection agents do play foul they are easily identified and reprimanded.

The protestors make troubling claims that suggest behavior different than what the theory of micro credit predicts. The claim that companies are setting up their own groups to expand their business goes against the main strength of micro credit theory; which is that by lending only to groups, the groups that arise are positively assorted matches. Micro credit uses these positive assorted matches to reduce the risk of the lender by shifting it onto the borrower. In micro credit if one member of the group fails to repay all the members lose access to credit. This risk is what causes the positive assertive matching because risky people who need the extra income of their peers to cover their loan if their project fails, and safe borrowers want to match with safe borrowers to make sure they don’t have risk losing access since they wouldn’t be able to cover another members’ share of the loan if they failed.

If the claims made by the protestors are true then the companies are ignoring the benefits this positive assertive matching provides, and assuming that they are rational there must be something the model is missing. One solution could be that there are strong laws in favor of property seizure in the region. If a contract is binding and legally strong enough to allow for easy seizure of property maybe the risk of failure is not a deterrent. By expanding their business and including the amount they must be repaid they don’t have to fear if their loan fails as long as the signer has the required wealth. Based on the protestors testimony we can assume that the seizure of property is not outside of the finance companies reach, since they are protesting forced recovery. The extra cost of seizure or its ease could also help explain the allegations that these firms are charging exorbitant prices. If it is difficult to seize property the extra price could cover the cost. The flip side of the coin is that if seizure is easy maybe it is worth increasing the price as failure of a loan can be recouped through property seizure.

Another possibility is that these financial companies are not truly following the microfinance model and are instead using a model closer to the neoclassical model. This model differs from the micro credit model because it doesn’t utilize the benefits of positive assertive matching and instead has individuals responsible for themselves. This decreases the chance that the lender will get repaid because the borrower doesn’t have a group to fall back on to repay his share. Because of the decrease in chance that the lender gets repaid they charge higher prices than they would under a grouped positively assorted micro finance system. This could help explain why the prices were viewed as exorbitant. The question that must then be answered is why would a company using this model bother with forming groups instead of individual contracts. One reason would be that by creating groups of shared liabilities they are able to solve the problem of ex ante moral hazard. Ex ante moral hazard is that the borrower might choose a risky project that has a higher chance of failure and thus not being able to repay the lender. By forming groups, they can rely on a sort of social pressure to not put the group at risk or to force the group to repay the failure. With the ability to force recovery the company now doesn’t have to worry about ex post moral hazard, the risk that the borrower doesn’t repay, because even if they don’t repay the company can seize the borrower’s assets.

A third possibility is that the financial company employee is telling the truth. This is the easiest possibility to explain in economic theory. If the employee is telling the truth then the current model of micro financial theory is working as intended, and the problem lies with the protestors trying to shirk from their obligations. If there are existing cultural standards that would make the recovery of loans impossible the borrower would be much better off. They would have the support of the government and not have to repay the money that they borrowed.

The current situation shows a desire for credit in the area, otherwise people would not be protesting the financial institutions and instead just ignore them. We can also assume that access to credit is under supplied if there are claims about exorbitant fees because any company charging exorbitant fees would be undercut and removed from the market in a perfect equilibrium. In conclusion, we can see that the entire story is not being told in this article. If it were we would know why the claims made by the protesters seem to contradict the micro credit theory, why the company might be using the neo-liberal credit model, or the incentives provided to the protesters for shirking from their repayment.

Medical Care for Young Mothers and Children in India

Improving take-up of immunization and quality of health care
By Rishabh Chatterjee

Image Credit: Huffington Post

Sanchita Sharma’s “Baby steps: Our infants are surviving, but they need better medical care,” published in the Hindustan Times, addresses three major policy issues in India: the infant mortality rate, vaccinations, and the quality of health care.

Key Takeaways of Article

The infant mortality rate in India has reduced due to more mothers giving birth at public health facilities (as opposed to home births) as well as the number of children receiving vaccinations increasing. The infant mortality rate is down to 41 in 2017 (per 1,000 live births), from 57 in 2005 (National Family Health Survey-4). While this is a marked improvement, 20% of under-five deaths in the world still occur in India. Close to half of these deaths are attributed to vaccine-preventable and treatable infections like diarrhea and pneumonia.

The article advocates for the use of vaccines to reduce deaths from these preventable causes, reasoning that “vaccines are the quickest and the most cost-effective way to bring down disease and death.” Despite its sporadic delivery over the past two decades, routine immunization has played a large part in reducing the annual under-five deaths from 3.3 million deaths a generation ago to 1.3 million deaths today (NHSF-4). The Indian government is rolling out four new vaccines this year to combat under-five deaths from polio, diarrhea, measles-rubella, and pneumonia. Sharma notes that under-five deaths are expected to fall sharply with the rollout of these vaccines.

Two crucial issues come into play regarding why take-up of routine vaccinations has not reached 100% among Indian households. Take-up simply refers to the percentage of households who choose to provide immunization that is available for free to their children. Nachiket Mor, director of the Bill and Melinda Gates Foundation (BMGF) in India, noted that availability of vaccines is not the issue, but rather the issue is of accessibility. Many individuals are unable to gain access to treatment, preventing India from providing routine vaccinations to 100% of its citizens. A second issue preventing take-up is that India has had its share of conspiracies regarding vaccines, such as misled parents denying their children polio drops for fear of impotence and MMR for fear of autism. These conspiracies delay children receiving the vaccinations they need to reduce preventable and treatable diseases.

The article also touches on the quality of care at public health facilities. More than half of India’s children are born in a public health facility, making the quality of care available critical to the health of the mother and child. In fact, the BMGF notes that quality of care has surpassed immunization as the top strategic priority of the organization in India, with emphasis on understanding the level of treatment options available from delivery to when the baby leaves the facility. One way the BMGF is addressing quality of care is by sending out nurse mentors to public health facilities in Bihar and across 25 districts in Uttar Pradesh, where about 40% of India’s 27 million births take place.

Relation to Empirical Evidence

The article mentions the unfortunate reality that India has had “its share of conspiracies around vaccines,” with many families electing not to vaccinate their children due to misconceptions regarding side effects of certain vaccines. This is consistent with a key point made in a Dupas (2011) paper titled Health Behavior in Developing Countries, which reviews studies of health-seeking behavior in low-income nations and discusses its implication for policy. “Information campaigns carried out by governments with a bad track record might be doomed to fail…In India, few children with diarrhea were treated with ORT in the early 1990s, despite 10 years of vigorous ORT campaigning by the Indian government (Rao et al. 1998). One could hypothesize that the lack of success of the Indian government’s ORT campaign was related to the forced sterilization effort carried out by the government…between 1975 and 1977, and the subsequent distrust, among the population, of any government initiative related to family issues.” This point made in the Dupas (2011) paper about a general mistrust of government-led health initiatives can be seen in the article as well, with Sharma writing that misled parents are, “denying their children…vaccines for fear of big pharma dumping unwanted products in India.” As long as skepticism remains in some households over take-up of vaccines, the delay in immunization means India will continue to lose mothers and young children to diseases that are preventable.

Let’s now look at another major takeaway of the article: the importance of quality health care. This topic relates to Das et al. (2008): The Quality of Medical Advice in Low-Income Countries. The empirical paper provides an overview of recent work on quality measurement of medical care and its correlates in four low and middle-income countries—India, Indonesia, Tanzania, and Paraguay. A pertinent conclusion reached is that competence of doctors in developing countries is low and that further, the quality of care provided to patients is even lower than would be suggested by a doctor’s competence. The newspaper article provides new evidence that is consistent with the results from the Das et al. paper. The article states, “The Gates foundation is working…to improve women and newborn care at public health facilities,…[where] stillbirth rates, maternal deaths, asphyxiation at birth and sepsis are very high. We have 200 nurse mentors in Uttar Pradesh who go from facility to facility to provide additional training and guide the nurse through the process,” said Mor. The BMGF is very aware of the issue mentioned in the Das (2008) paper regarding the quality of care provided by doctors and nurses in India. They are addressing the issue of competence by sending mentors across these two states to improve education among nurses who assist in childbirth. The Dupas (2008) paper suggests that intervening in such a manner is useful as a conclusion reached in the paper is that training matters for doctors, while experience does not.

The Dupas paper refers to a Banerjee et al. (2010) study in Udaipur, India that addresses two main points of the newspaper article: quality of public health facilities and lack of accessibility. The study observes that public health facilities that are supposed to provide free immunization are subject to high rates of absenteeism, with 45% of medical staff absent from work on any given day. Many households in low-income nations face high transportation and opportunity costs, and because a full immunization complement requires at least five trips to a public health facility, unreliable service often prevents households from fully immunizing their children. The Udaipur study shows that increasing the reliability of the supply- by holding well-advertised immunization camps with consistent hours of operation – can have a significant impact on immunization rates, from 49% of children having at least one immunization when the supply is unreliable, as opposed to 78% when the supply is reliable.


There are some valuable conclusions that can be reached after considering empirical evidence and points mentioned in Sanchita Sharma’s newspaper article. The vaccine complement is fully available, but getting take-up to 100% remains an issue for two main reasons. 1) Mistrust exists regarding government-led health initiatives for some Indian citizens, delaying and in some cases preventing children from receiving immunization and 2) High rates of absenteeism among medical staff at public health facilities often prevents households from fully immunizing their children. Another major takeaway is that the quality of care available to mothers and children at public health facilities is underwhelming. Current efforts by the BMGF in India to provide training to nurses is a step in the right direction according to empirical evidence.


Works Cited

Banerjee, Abhijit Vinayak, et al. “Improving immunisation coverage in rural India: clustered randomized controlled evaluation of immunisation campaigns with and without incentives.” Bmj 340 (2010): c2220.

Das, Jishnu, Jeffrey Hammer, and Kenneth Leonard. 2008. “The Quality of Medical Advice in Low-Income Countries. “Journal of Economic Perspectives, 22(2): 93-114.

Dupas, Pascaline. “Health behavior in developing countries.” Annual Review of Economics 3.1 (2011): 425-449.

“Key Findings From NHSF-4.” National Family Health Survey, India. National Family Health Survey, 2009. Web. 08 May 2017. <;.

Sharma, Sanchita. “Baby Steps: Our Infants Are Surviving, but They Need Better Medical                Care.” Hindustan Times. HT Media Limited, 04 Mar. 2017. Web. 02 May 2017.

“Urban Productivity in the Developing World”

Julian Leal

A look at the potential effects of urbanization on developing countries and policy implications.

Glaeser and Xiong, members of Harvard’s Economics Department, in March 2017, released a working paper entitled “Urban Productivity in the Developing World”. Quoting the introduction, the paper seeks to see if “Cities help turn poor countries into rich countries”. The paper looks at several factors to determine this: productivity, density, human capital, and local entrepreneurship.

First the paper looks at the disparity in production between cities. All countries have a production disparity between urban and rural areas. More people are more densely located in cities. Industry and technological improvement is more likely to be in cities. However, the gap between urban and rural areas is more pronounced in developing countries. By understanding why parts of poor countries have become richer, we can improve the whole country. The part examines the correlation between urban density, population relative to area, and productivity in Brazil, China, and India. They use earnings, which in a classical model is equal to the value of a laborer’s production and total firm productivity. The urban-rural wage gap is established in earlier papers (urban areas earning 45%, 122%, and 176% more than rural areas in China, India, and Brazil, respectively). Data from China shows that earnings dispersion is matched with labor productivity dispersion closely (Figure 1). They show differences in labor productivity (by industry) between prefectures (small provincial areas) in China, showing that the productivity gap between the 1st and 2nd most productive is large (60%), and then lessens.


Then they look at the differences across industries in agglomeration (the extent firms locate near firms in the same industry (Silicon Valley, Wall street) and what extent firms locate in densely populated prefectures). 2000-2007 sees a rise in agglomeration in Chinese prefectures. Some industries agglomerate more than others (artificial fibers, electronic music equipment), and more traditional industries (silk-dyeing) have negative agglomeration. Agglomeration is attributed to the ability to share ideas and inputs and access a larger labor and customer pool. Looking at the industry-prefecture’s average labor productivity and the prefecture’s share of total employment in that industry, they conclude that the relationship isn’t linear. Any area with more than 2% of an industry’s employment has good productivity. The relationship between industry employment share and population density of the prefecture correlates positively, though not as much, since manufacturing isn’t urban in most cases (Figure 3).1

Lastly, the correlation between population density and labor productivity is positive, being even slightly higher than that of the U.S. While this could be a misleading effect, most likely these agglomeration economies are legitimate because large cities tend to be more connected to the rest of the world, allowing technology to enter and dramatically boost productivity. Glaeser and Xiang run several correlations and regression between several variables already discussed as well as other variables that would alter them like college degrees and export percentage. The main takeaways from these charts are that industries and firms with higher percentages of employees with college degrees tend to be more agglomerated Information sharing is valuable with knowledge-based fields, so they urbanize to facilitate it. It also provides easier access to the rest of the world. Industries based on exporting tend to be urbanized as they need access to a larger customer base and to special economic zones like ports. While these are the main interpretations, the data shows that the tendency to and returns to urbanization and agglomeration are very industry based.

Next human capital (knowledge and skills) externalities (the benefits of being around smart and skilled people) is discussed. Areas are defined by skill level, so human capital increases will increase earnings. In India, Brazil, and China, these effects are more pronounced than in the U.S. Human capital is important in developing countries because high human capital enables spread of knowledge and skills, where there is a large gap in developing countries. The more urbanized developing countries become, the more pronounced these effects become. Denser populations are in closer proximity to people with higher human capital. Glaeser and Xiang say that developing countries shouldn’t use policy to impose artificial barriers on growth, such as housing limits, to maximize this phenomenon.

Next, they address entrepreneurship’s effects on development. Previous papers looking at entrepreneurship’s affects shows that it makes urban areas resilient to declines and increases employment and establishment size. It doesn’t increase income growth, potentially from the elastic labor supply or the ability of entrepreneurs suppress keep labor costs. Modern ideas conclude that entrepreneurship is a type of human capital, so it behaves as such.

Specifically, in developing countries in Africa, entrepreneurship is low because human capital is low. Economists originally thought that foreign direct investment (FDI) would increase local entrepreneurship potential and allow exporting businesses to flourish. It appears that neither FDI or local entrepreneurship have any effect unless a certain threshold of human capital, not present in many African countries, exists. They lack the knowledge and ability to produce for global markets. What about immigrant entrepreneurs? Several immigrant entrepreneurs are noted: Sergey Brin (Google) and Fernando Duarte (Nando’s), and others from India, Europe, and the Middle East. However, Africa has difficulties attracting entrepreneurs due to its unattractive locales and pushback from local politics and regulations. Making Africa more attractive and easier to access is crucial in policy decisions. Other policy considerations include investing in education to improve human capital and make areas more attractive to entrepreneurs who can better utilize skilled and knowledgeable people. This however doesn’t encourage native entrepreneurship, so potential strategies (little evidence of their effects exists) are entrepreneurial training, providing spaces for clustering entrepreneurs to facilitate learning from each other, and deregulating and removing restrictions that deter entrepreneurs. A combination of these strategies can increase local entrepreneurship and lift businesses to global markets.

Should policy encourage the increase of city size? Benefits and costs exist. Spatially biased policies are dangerous as they favor more politically powerful regions and subsidies may be misplaced. Barriers to urban growth need to be reduced through urban life quality improvement. Cities appear to be beneficial to the economy, so their growth shouldn’t be hindered. Downsides of density in urban areas are disease, congestion, crime, etc. Decreasing these makes cities more attractive to immigrants, as well as encourages productivity. Points to improve urban areas include infrastructure, which can reduce water-borne illnesses, traffic congestion, etc. Infrastructure is expensive and in several instances costs outweigh benefits. Different types of infrastructure providers are discussed, each having strengths and weaknesses. The For-Profit Independent and the Public Integrated are determined to have the most potential, given the presence of strong independent leaders or a non-corrupt government, respectively. Property rights are less clear and aren’t well protected in the developing world. This reduces incentives to invest in property and its improvement. Labor supply decreases because people spend more time protecting property. Property rights make transactions easier when properties are defined and documented, as well as reducing crime.

In summary, this paper promotes the benefits of urbanization of developing countries. Urbanized areas are more productive and attract more educated people and local and immigrant entrepreneurs. Investing in these people and human capital overall is crucial to development. Therefore policy-makers must enact policies that decrease the negative effects of urbanization and not restrict city growth to promote these skilled people.

Original Paper:

Addressing the Learning Gap in Developing Countries: Improving Instruction for Struggling Students in India

Finding solutions to substandard education systems in developing countries
By Kevin Strasser


The lack of effective education is a significant problem faced by developing countries.  While many of these countries boast high levels of enrollment, students often advance through school without learning basic concepts in reading and arithmetic, creating a learning gap that is detrimental to the productivity of the working population.  A 2016 paper entitled, “Mainstreaming an Effective Intervention: Evidence from Randomized Evaluations of “Teaching at the Right Level” in India” (Banerjee et. al) aims to locate the causes of the learning gap faced by students in India (specifically four states: Bihar, Uttarakhand, Haryana, and Uttar Pradesh) and determine a model for a program that can be scaled and implemented to the entire Indian education system.

Causes of the Learning Gap

Government-run primary schools in India feature automatic promotion through grade 8. Each grade level teaches a common syllabus to every student, regardless of their ability.  Therefore, even students who lack a fundamental understanding of concepts taught early in school advance to the next grade with no checks in place.  For example, an Annual Status of Education Report (ASER) for Indian schools in 2014 shows that “39 percent of fifth graders could not read at a second-grade level” (Banerjee et. al 4).  Banerjee’s paper concludes that automatic promotion, along with a lack of targeted teaching based on current learning levels of students, are some of the reasons for the learning gap in India.  Solutions to these problems are readily available.  However, the authors mention that while “simple changes in pedagogy can lead to significant improvements in learning levels” (4), the government is mostly unwilling to experiment with changes in teaching style and remedial education for struggling students.  Thus, most of the burden falls on NGOs to reform education.


With evidence to support the positive effects of pedagogical changes on student success, the authors of this paper set out to produce a replicable model that would reform the government school system and improve the quality of existing government schoolteachers.  The experiment conducted in this paper is based on an instructional model devised by Pratham, an NGO that aims to improve learning on a large scale while remaining cost-effective.  Pratham implemented a system in Uttar Pradesh where students would be organized into groups based on their current ability rather than grade level.  These groups would be taught by “carefully monitored but lightly trained community volunteers” (5), and would focus on basic language and arithmetic skills.  A study from 2010 conducted by Banerjee and his colleagues (Banerji, R., Duflo, E., Glennerster, R., and S. Khemani) showed that Pratham’s program had significantly improved the reading levels of children who had attended.

The Pratham program had shown signs of progress, but its success on a national scale was uncertain.  To determine whether this type of intervention was worth pursuing at the national level, the authors of the paper set up experiments in four Indian states: Bihar, Uttarakhand, Haryana, and Uttar Pradesh.  In Bihar, a “summer camp” was conducted where government teachers were recruited for remedial classes during the students’ summer vacation.  After the summer camp, test scores improved by .07-.09 standard deviations.  This program carried on to Haryana and Uttar Pradesh, where test scores also improved (in Uttar Pradesh, on-site monitoring was a likely factor in the successful implementation of the summer camp).  In Uttarakhand, the experiment involved three different scenarios.  In the first scenario, schools were given learning materials (not specified in the paper) without any additional assistance.  In the second scenario, teachers were trained to use the Pratham strategy and the school received the same materials.  In the third scenario, materials were provided, teachers were trained, and additional in-school volunteers were hired to use the Pratham method in conjunction with the teachers.  Schools were randomly selected to receive one of these three treatments, and results were compared after two years.

The results from the experiments after the two year observation period were interesting, if not unexpected.  Exact replication of the Pratham method (conducted in Bihar, then Uttarakhand as scenario two) proved successful (see Appendix for results of the experiment), but the other scenarios failed.  Scenario one failed simply because providing additional teaching materials is not sufficient to improve test scores.  Scenario three also failed, but for an unexpected reason: instead of the volunteers functioning as valuable assets to aid teachers with implementing the Pratham method, teachers were instead using them only as assistants and reverting back to their old teaching style.

Conclusions and Importance to Future Efforts

The successes and failures of the experiments conducted in Bihar, Haryana, Uttar Pradesh, and Uttarakhand led the authors of the paper to note two “key ingredients” that play a major part in the Pratham model and its ability to scale and improve government-run schools.  The first ingredient is the grouping of children by their current learning level as opposed to grade level, and the second ingredient is focusing on concepts that are suitable for all children at a given learning level.  However, these ingredients only seem to be followed when additional support from Pratham staff is available and rigorous on-site monitoring is frequent.

Studies like this provide much-needed evidence to present to the governments of developing countries, in the hopes that they will be able to reform their schooling systems and immensely improve the quality of their education.  This paper in particular shows that simple changes in pedagogy and the method in which students are grouped can lead to a hugely improved education system (Uttar Pradesh’s summer camp presented a staggering .61-.70 standard deviation increase in test scores after only two years).  Education is one of the most important problems faced by developing countries, but the methods described in this paper detail a way forward that is simple enough for widespread implementation, and effective enough to make the effort worth it.



Banerjee, A., Banerji, R., Berry, J., Duflo, E., Kannan, H., Mukherji, S., . . . Walton, M. (2016,

October). Mainstreaming an Effective Intervention: Evidence from Randomized

Evaluations of. Retrieved May 08, 2017, from

Banerjee, A., Banerji, R., Duflo, E., Glennerster, R., & Khemani, S. (2008, September). Pitfalls of

Participatory Programs: Evidence From a Randomized Evaluation in Education in India.

Retrieved May 08, 2017, from



Pratham Model Results

The row of P2P landmines behind the “Trap”

The current underlying risks behind Chinese P2P programs.
By Ping Lu


As the Chinese economy progresses rapidly throughout the decades, its people has also became increasingly wealthy as more cash begins to flow into the public market. Many small businesses saw this as an opportunity to expand themselves, however lacked the funds to take such action. And as a result of this demand for funds, P2P(peer-to-peer) lending became vastly popular among small companies that needed urgent money, as well as people who are willing to take a risk to lend the money for a greater return.  Yet with the growing popularity, problems between borrowers and lender also begin to arise. From XinHua news, it was listed that in the year 2013, only 76 P2P platforms had credit issues, and yet only 2 years later in 2015, this number has risen to 896.

The article itself presents the problem that P2P is still mostly unregulated in China, and that platforms are abusing the P2P system for their own benefits, whereas in one case the platform owner scammed 900,000 investors into a poor investment. If the problem is not dealt with soon enough, more companies and private investors that invest their money into P2P would find that their opportunity cost in P2P is not worth the risk that they are taking, hence pulling their money out and resulting in the collapse of P2P platform due to the shortage of funds.

Building the Model

This cause and effect could be clearly explained by the lender and borrower model despite the different platforms P2P take places on. We could simplify it to a model that is composed of two lenders and two borrowers, whereas the platform itself exists as both the lender and borrower. The platform on one hand collects the money from multiple lenders that expects return, and on the other hand it lends the money to investors that they trust.

The problem with this platform is the ex-post moral hazards and the ex-ante moral hazards that the original lender faces, where ex-post moral hazard is the case where the P2P company receives the profits from the original lenders and reject to inform them about the outcome, and ex-ante moral hazard is the case where the platform fails to return profit from their investments. In both of these cases, despite the different outcomes, the original lender cannot observe the risks they face as they invest the money into the P2P platform. It is the platform that determines the actual investments.

Risks and Rewards

If we return to the news post, we could learn that the lack of regulation increases both of these two types of risks, as investment companies may make poor investment decisions that yields negative returns due to the lack of the background check for its borrowers, or simply because the platform tries to take all the profit and pretends to have failed the project, which in both of these cases the original borrower loses their investment.

However, despite many investors are aware of the risk, the opportunity cost of the P2P investment is too large to be ignored. In the year 2015 alone, P2P yields an average return of 13.29% (China Economic Watch, June 27), far exceeding the bank interest rates as well as other wealth management products. Both lenders and platforms saw this opportunity as China’s outstanding loans skyrocketed from $4.3b to $71b in only two years. But despite this rapid growth, the regulations still remain to be old and outdated, giving risky borrowers and platforms opportunities to take advantage of the lender since the punishment is minor in comparison to the profits.

Yet the lack of regulation isn’t completely negative in terms economy development. It is similar to a double edged sword, and in this case the borrower benefits the most from this system. The lack of regulation and background check enabled certain poor people to qualify for P2P loans, whereas in other financial institutions they would have been rejected. And in China, this situation is actually more common than we think (Banking On the Poor in China, March 10) as current microfinance services does not come close to meeting its demands. Government and bank regulations make it difficult for small businesses to get access to the loans they need, and the smaller the scale of the business, the harder it becomes due to the risks it poses. Therefore, these small companies could only seek investments from P2P platforms in order to continue their businesses. But because of the high risks, the platform charges borrowers extremely high interest rates as compensation in order to reduce ex-ante moral hazards, Hence P2P has high risks but also higher rewards.


Therefore, in order to both reduce moral hazards P2P faces and satisfy the need for microfinance services, new regulations have been imposed which puts different limits of lending on different people (Bloomberg News, Aug 24). This reduces ex-ante moral hazard because even in the worst case scenario, investment yields no return, the company would still be able to function rather than collapsing and losing all of its investors’ money, and that the lending amount would still help small businesses while having a decent payoff for the platform. And in terms of reducing ex-post moral hazards, monitoring and laws must be enforced to ensure the clarity of platforms such that their cost of taking the risk of defaulting is much higher than not taking such action.


Martin Chorzempa (June 27, 2016), P2P Series Part 1: Peering into China’s Growing Peer-to-Peer Lending Market, Retrieved May 2, 2017, from

Brendan Rigby (March 10,2011), Banking On the Poor China, Retrieved May 2, 2017, from

Bloomberg News (August 24, 2016), China Imposes Caps On P2P Loans to Curb Shadow-Banking Risks, Retrieved May 2, 2017, from

Disrupting Education? Experimental Evidence on Technology-Aided Instruction in India

The impact of technology-aided teaching on the development of middle school students skills in math and Hindi.


Human capital is a key ingredient for the continued progress of a developing country, and is largely determined by the education the children receive. Even though these countries have seen improvement in school enrollment over the years, the quality of the education received is in question. The use of technology in teaching has said to be a top qualifier in fixing this problem, but past studies have shown in mixed results. The experiment conducted in “Disrupting Education? Experimental Evidence on Technology-Aided Instruction in India” by Karthik Muralidharan, Abhijeet Singh, and Alejandro J. Ganimian, aimed to see the impact of a technology-led instructional programs that focused on attention to design detail to accommodate individual student development. To address this, the experiment only looked at the results of student’s math and Hindi skills, even though English was also subject.


The experiment was conducted in 2015 in low income neighborhoods in Delhi, where children would enroll in an after-school program held in Mindspark centers, an established Indian education firm. There the children would use the centers’ computers and software to complete activities on math, Hindi, and English for a fee of INR 200 (USD 3) per month. With the use of their Mindspark CAL software, the program would determine a student’s learning level and then customize the learning material to match it, while adjusting to their rate of progress. Students were expected to sign up for 90 minute sessions at the center for 6 days a week where half that time was just computer based instructions and the other 45 minutes were supervised instructor-led-group based. Out of the 6 days enrolled, the material was split so that two days were dedicated to math, two days were dedicated to Hindi, one day was dedicated to English, and one day where the student could decide which subject to choose.


Out of the students enrolled in the five public schools surrounding the centers, 619 students in grades 6-9 took a baseline test for the experiment. Each student was then randomly placed into either a treatment or control group through a random lottery system for free sessions, splitting them into groups of 314 and 305 students respectively. Unfortunately, out of the 619 students that were selected for the experiment, only 533 completed the full duration of at least 50 days of attendance where an endline test was to be given. This resulted in a smaller sample of 270 control and 263 treatment students.


With the use of the Mindspark Cal system that tracks and monitors each student’s activity and progress, data was easily available to observe and determine the experiments results. In the beginning of the experiment, every student is first given an assessment through the program that showed the actual grade level each student’s learning level before any treatment. The results showed that the, “average student academic achievement is progressing at a lower rate than envisaged by the curriculum” (Muralidharan et al, 10). For example, students in the 9th grade perform on average at 4.5 (e.g. at a 4th grade level) grades below in math and 2.5 grades (e.g. at a 6th grade level) below in Hindi. Clearly the children are just being passed along the educational system without fully grasping the material taught in each grade. Looking at Figure 3, the impact that the program had on students was found to be very beneficial for the treatment group compared to the control. The lottery winners were found to have increased their mean test scores from the baseline and endline tests given to them in math and Hindi. With the results of Table 2 over 4.5 months, the lottery winner’s scores have increased 0.36σ higher in math and 0.22σ higher in their Hindi test scores compared to the control group. Overall, it seemed to show that the use of technology in teaching seemed to have a great impact on the comprehension of math and Hindi by adjusting to the learning level of the student.


After the experiment was complete and the data collected, the researchers concluded some interesting findings on how to properly integrate technology with teaching. First off, they found that the program was effective at teaching students from all levels of education, bringing up both math and language test scores. They also found the program to be cost and time effective for the short time the students were enrolled in the program. Now clearly, here the use of technology in teaching has helped develop the education of this students but not so much when it comes to public school tests. Since many students were found to be a few grades below in their math and Hindi compared to their current grade, the Mindspark program only helped them increased their own individual knowledge of the subjects. If they were to take the school tests their grades would show a great improvement, but might not be enough to pass the test. The paper also concluded that with the use of this blended learning in schools, teachers would be better informed on their students’ performance to be able to plan accordingly. In the end of the experiment the Mindspark program seemed to show great promise for all students and if schools started to take notice of details on students like the program, India’s human capital could skyrocket.

Works Cited

Muralidharan, Karthik, Abhijeet Singh, and Alejandro J. Ganimian. Disrupting Education? Experimental Evidence on Technology-Aided Instruction in India. No. w22923. National Bureau of Economic Research, 2016.


Charts & Table

Figure 3: Mean difference in test scores between lottery winners and losers

ECON Figure 2

Figure 1

Remittances in South Asia and Development Economics

Using a recent report on remittances to motivate a discussion on how remittances play into Developmental Economics

Nafee H. Ahmed


Migrant Workers from South Asia working in Qatar (picture by European Pressphoto Agency)

On April 21 2017, The Times of India published an article which summarized the findings of a recent World Bank Report on remittances. The article referenced a few interesting facts which can motivate a discussion on how remittances relate to development economics. After discussing remittances in depth one can revisit the article to see how well developmental economic theory reflects real world events.

The article highlights that India received more money in remittances than any other country in 2016; Indian workers sent home 62.7 billion American dollars in total. The article also notes that the total amount of money in remittances to India fell by 8.9 percent in 2016 and contextualizes that drop by explaining that the total amount of money in remittances sent to all developing countries fell by 2.4 percent in 2016. The article later reveals that money in remittances sent to South Asia fell by 6.4 percent.

This article claims that the primary cause of migrant workers sending less money home is related to lower oil prices and lower economic growth among countries in the Arabian peninsula; many Indian migrant workers work in these countries lower economic growth in these countries can decrease the amount of money migrants can send home.

The article provides a useful list of the countries which received the most money in remittances. In terms of absolute dollars those countries are India, The Philippines, China, Mexico and Pakistan; however, the countries which take the most money in remittances as a percentage of that country’s GDP are Kyrgyz Republic, Nepal, Liberia, Haiti, and Tonga.

The Importance of Remittances

Remittances are an important topic for two main reasons. Firstly, remittances are major component of the economy in many developing countries. The Times of India article referenced above divulged that remittances account for 6.0 percent of Bangladesh’s GDP, 6.9 percent of Pakistan’s GDP and 2.9 percent of India’s GDP.


Secondly, there is evidence that remittances decrease poverty in developing countries. In 2005, an article in the journal, World Development, by Richard Adams and John Page found a relationship between remittances and poverty. Adams and Page claimed, “both international migration and remittances have a strong, statistically significant impact on reducing poverty in the developing world … After instrumenting for the possible endogeneity of international remittances, a similar 10 percent increase in per capita official international remittances will lead, on average, to a 3.5 percent decline in the share of people living in poverty.” (Adams and Page  1660).


Remittances and Growth


Katushi Imai et al.’s article, “Remittances, Growth and Poverty: New Evidence from Asian Countries,” provides a strong claim that that remittances have a positive relationship with GDP growth. The authors’ model found that, on average, a 10 percent increase in a country’s remittance payments as a share of that country’s GDP increased that country’s rate of growth in GDP per capita. The authors also provide an intuitive explanation for why higher levels of remittances are related to higher economic growth, stating “The existing literature (for example, Barajas et al., 2009) identifies various channels through which remittances enhance growth, including the boosting of capital accumulation, labour force growth, and total factor productivity …” (Imai et al. 530-531).


A link to the article “Remittances, Growth and Poverty: New Evidence from Asian Countries” can be found here:


Applying Remittances to a Growth Model in Development Economics


If one accepts that remittances positively influence GDP growth in developing countries, then one can also look at traditional growth models in Development Economics and apply the value of remittances as an additional variable. Many models in Developmental Economics relate economic growth to other variables. If economic growth has a positive relationship with one variable, then the value of remittances a country receives should also have a positive relationship with that same variable.


Consider two examples with a common model in Development Economics, The Solow Model:
The Solow Model is a common model of economic growth which relates several variables to economic growth. In summary, The Solow model describes economic output as an equation determined by physical capital, labor, the depreciation of physical capital, and the savings rate of a population. More Modern versions of the model add even more variables into this equation including the education level of a workforce and the level of population growth.

An intuitive video series by explaining the Solow Model can be found here:


One can use the Solow model to find how remittances are related to other economic variables. I created the following two examples trying to fit remittances into the logic of the Solow Model



The Solow model implies that the levels of economic growth in a country decreases with respect to time when holding all other variables constant. Assuming positive relationship between remittances and economic growth then allows the Solow model to imply that the value of remittances a country receives will also decrease with respect to time holding all other variables constant.



The Solow model implies that smaller economies experience higher levels of economic growth than large economies when holding all other variables constant. Assuming the same positive relationship between remittances and growth then allows the Solow model to imply that smaller economies will receive more in remittances than large economies holding all other variables constant.

Back to the Original Article


Looking back to the original Times of India article, we can check if our ideas about remittances derived from growth models match data from the real world. When applying remittances to the Solow model one can predict that over time, countries will receive less money in remittances as a share of that country’s GDP. While the original article does note a decrease in remittances compared to previous years, this is because of factors not related to the countries receiving remittances but rather problems in the countries from which migrant workers send remittances. The original Times of India article also claims that World Bank projections show that South Asian countries will not see significant growth in remittances in the near future. This projection is not necessarily proof that applying remittances to the Solow growth model is correct, especially since the projection was based on factors outside of South Asia, but the World Bank’s projection does not contradict the idea that a developing country might receive less money in remittances over time.


Applying remittances to the Solow model also allows one to predict that the countries which receive the most remittances as a share of the country’s GDP should also be very small economies. The Times of India article confirms this prediction; data from the World Bank database reveals that none of the countries which receive the most money in remittances as a share of the country’s GDP have a GDP per capita higher than 5,000 dollars.


The original Times of India article predicts a decreased level of remittances in South Asia for next year. Given the evidence examined in this blog post, this may have a potential negative impact on economic growth, something which businesses, policy makers, economists, and other observers should note in the coming years.

Works Cited


Academic Articles and Textbooks:

Adams, Jeffrey and John Page. “Do international migration and remittances reduce poverty in developing countries?” World Development, vol. 33, no. 10, Oct. 2005, pp. 1645-1669. Science Direct.


Imai, Katsushi et al. “Remittances Growth and Poverty: New Evidence from Asian Countries.” Journal of Policy Modeling, vol 36, no. 3, June 2014, pp. 524-528. Science Direct.


Mankiw, Gregory. Macroeconomics. 8th ed., Worth Publishers. 2012.


Photographs/ Videos:

Construction workers queue for buses back to their accommodation camp in Doha, Qatar. 19 Nov. 2013. European Pressphoto Agency, Frankfurt.


“The Solow Model of Economic Growth.” Youtube Playlist, uploaded by Marginal Revolution University. 28 March 2016.


“India tops global remittances at $62.7 billion in 2016: World Bank.” Times of India, 21 April 2017.


“DataBank World Development Indicators.” The World Bank, 1 May 2017,