A greater understanding and use of econometrics and economic theory as part of economics is key to resolving many of Africa’s longstanding problems like drought and corruption, say economics experts attending the 2018 Africa Meeting of the Econometric Society (AFES) in Cotonou, Benin.
“We want to bring people together that have common research interests. Face-to-face interaction is essential to raising questions about research,” says Sir Tim Besley, President of the Econometric Society. “This meeting is about trying to get people with common purposes and interests talking to each other, listening to research ideas and commenting and so forth”.
One of the goals of AFES 2018 is to promote the use of economic theory and econometrics to better understand economic problems, and to craft better economic policy in Africa. The three-day conference has over 35 panels about more than 100 papers, on topics including agricultural economics, education, finance, trade and mathematical economics.
Data and democracy
Sir Tim will give a keynote address at the meeting on what creates effective states, based on a large research project which he has been working on for a while. It tries to understand why at one end of the spectrum are supremely effective governments that can raise taxes, deliver decent public services and have low levels of corruption, making them a paragon of democracy. The Nordics are one such example. At the other end, are states that struggle to deliver even the most basic services for their citizens.
He says, “This research project looks at why good government develops in some parts of the world, and not in other parts. The presidential address is based on a very specific piece of research I’ve been doing on essentially why people pay their taxes. In particular, do they pay more when they think use of public money is less likely to be squandered by government?
“I look at attitudinal data on the interplay between citizens and states. A sense of citizen obligation can emerge, but there are pre-conditions for that to happen. I show using a theoretical approach that these bonds are more likely to form where governments are relatively constrained.”
One of the most difficult things about making democracy a success is ensuring democratic institutions work, says Leonard Wantchekon, founder of the African School of Economics, the host of this year’s Africa Meeting of the Econometric Society.
“The push for democracy and elections is just the first step. We need to design institutions that will make democracy effective – that requires analytical thinking and data analysis. One of the most promising avenues for research in economics is to think about mathematical models of democracy that can be tested effectively.”
Data and drought
Wantchekon returned to his hometown of Dovi in Benin a few years ago, for the first time since his school years. In the mid-1970s, it was one of the most affluent parts of Central Benin with the second largest market and an excellent primary school. Wantchekon returned to find it one of the poorest villages in the region, despite the fact that the land is highly fertile.
He set about trying to find out why, using data on soil quality, poverty, transportation costs, and other potential determinants of poverty from 46 African countries. Policymakers have recently focused on using fertilizer and improved seeds as a solution for rural poverty, but Wantchekon’s own data analysis suggests this could be misguided.
He found that regions where the land is most fertile in Africa are on average more likely to be impoverished than regions where the soil is poorer. Transportation costs or isolation are the real drivers of rural poverty, not soil fertility. Roads tend to be bad in places with good soil, such as in hills and valleys, and good where the soil is of worse quality, such as in flat terrain close the coast.
When infrastructure is poorly maintained or non-existent, households are poorer, even in areas where the soil is quite fertile versus areas where the land is barren. This was the case in Dovi, where the bridge linking it to neighbouring villages had collapsed in 1992. The once-bustling market fell into dilapidation and now lies in ruins.
Wantchekon says, “Empirical research can help change minds, and get people to understand initial policy decisions we made were wrong. Intuition might drive you in a direction that is very different to what the data says. Serious data analysis can completely change our mind on what needs to be done to improve lives.”
AFES is an opportunity for attendees to apply rigorous thinking to Africa’s problems, and find solutions. Africa’s economic performance is a mixed bag. It has made the most progress in telecoms and IT, particularly in East Africa, which has had a positive knock-on effect on other areas of the economy such as banking, agriculture and education. However, it has made the least progress in manufacturing, particularly in food processing and the automobile industry. The application of economic theory and econometrics can help leaders make smart policy decisions that influence the broader health of Africa.
Wantchekon says, “There needs to be a culture of using evidence to make decisions. At some point, we need to ask ourselves is the policy approach we’re using having a positive or negative impact. We can’t do that without econometrics.”