News

The Rich Complexity of Village Life

2011-07-06T15:34:00Z

A Thai village study finds wide variation in risk attitudes, suggesting that policy to smooth economic volatility may need to be nuanced.

The Federal Reserve Bank of Minneapolis: The Region, June 2010

Douglas Clement, Editor

It may be a vestige of colonial history that leads people in industrialized nations to envision village life in developing countries as simple. Lacking the higher education, technology and financial sophistication of economically wealthy societies, goes the thinking, villagers in emerging nations live an uncomplicated, meager existence. Concepts like risk management, portfolio choice, insurance markets? Irrelevant, it would seem, to the life of a simple peasant.

In similar fashion, economists have long treated people in general as uncomplicated, undifferentiated units, neglecting the diversity of human existence that makes life interesting but math difficult. Researchers knew of this diversity, of course, but the absence of detailed data, combined with insufficient mathematical technique, long prevented them from plumbing the infinite variety of human traits and preferences. The “representative agent” has, until recently, been the stand-in for all of humanity.

Fortunately, both of these limited perspectives are changing. Recent research uses more powerful techniques and a singular database to provide a nuanced look at both village life in the developing world and the remarkable variety of human preferences.

In “Heterogeneity and Risk Sharing in Village Economies” (Minneapolis Fed Working Paper 683, January 2011, Pierre-André Chiappori, Krislert Samphantharak, Sam Schulhofer-Wohl, and Robert M. Townsend), the authors look at differences in risk aversion among people (or more accurately, households) in four rural provinces in Thailand. They discover a rich complexity of village economics and a wide range of preferences regarding risk: Some households have an extreme aversion to it; others welcome it.

The research further suggests that before policymakers seek to address poverty by mitigating fluctuations that impose hardships on some villagers, they need to consider this variability. A number of households, the researchers indicate, might actually benefit from volatility in village income. A government program such as crop insurance could therefore have an adverse impact on some. “If aggregate risk were eliminated,” write the researchers, “some relatively risktolerant households would suffer welfare losses.”

This sounds counterintuitive: How can risk reduction be a bad thing? But the finding is wholly consistent with analysis of risk in other settings. And it suggests that viewing risk as an unmitigated evil is as superficial as thinking that villagers in the developing world lead simple lives.

For a full-text copy of the article (including content beyond this introduction), please visit http://www.minneapolisfed.org/pubs/region/11-06/village_life.pdf.

Escaping Poverty: New research reveals how poor people get richer

2011-04-20T15:14:00Z

May/June 2011

Peter Dizikes

Economists have developed a wealth of tools in recent decades. But few scholars have applied those methods to an important social question: how do poor people manage their finances?

Economics professor Robert M. Townsend is shedding light on the issue through a unique long-term study of the poor in small villages in Thailand. Townsend's work shows that having a sound financial strategy emphasizing saving significantly helps families escape poverty, and education is also linked to advances in wealth.

A new working paper based on data from the survey shows that 43 percent of rural households realized lasting gains in net worth over a seven-year period, and that 81 percent of that accumulation was due to the saving of income, as opposed to gifts or money sent by family members working overseas.

"There is not a poverty trap in these Thai villages," says Townsend. "There are strategies people can pursue to increase their own wealth."

The paper, "Wealth Accumulation and Factors Accounting for Success," was written by Townsend and Anan Pawasutipaisit of Thammasat University in Thailand and published in the March issue of the Journal of Econometrics. The conclusions are based on a pioneering survey, which Townsend initiated in 1997, of household finances in 16 Thai villages; this paper covers monthly data for 531 households from 1999 through 2006.

The villagers in the survey tend to be farmers, fishermen, laborers, or small-business owners. The heads of successful households tend to be younger than those of the families that do not increase their worth, and gains in wealth correlate to the highest level of education achieved by a family member, as opposed to the family's median educational level. The crucial factor, says Townsend, is "the ability or talent of one individual" who can change a family's economic trajectory.

Moreover, the data show that financially successful households tend to remain successful. Among those people starting businesses, for instance, it is not the case that "successful entrepreneurs are those that simply get lucky," Townsend and Pawasutipaisit write.

Townsend's survey is now adding questions about financial literacy and entrepreneurial tendencies to create a more detailed profile of households that escape poverty.

For the original article, as published in MIT's Technology Review, please visit http://www.technologyreview.com/article/37301/.

How Do We Know if Financial Innovations in Developing Countries Help or Hurt in the Fight Against Poverty?

2011-03-23T15:21:00Z

New book by MIT Economist Robert M. Townsend establishes foundation for analyzing the impact of financial policies in developing countries.

CHICAGO, March 22, 2011

Ever since widespread defaults on microloans in India thrust the microfinance industry into crisis, a compelling and fundamental question has been renewed: How do we determine what impact financial innovations and financial policy changes will have on the economies of developing countries?

A new book by MIT economist Robert M. Townsend explains for the first time how economists and policymakers can merge rigorous economic models with extensive data to answer important questions like these.

"I think there is a need for a deeper, integrated understanding of the financial structure of emerging market economies," states Townsend. "Without a better framework, we risk greatly misunderstanding the effects of 'helpful' actions in developing countries. It takes both models and microeconomic data to judge whether policy is helpful or harmful."

Financial Systems in Developing Economies (Oxford University Press) outlines the theoretical and practical foundations for analyzing the impact of financial systems on growth, inequality and poverty. Townsend demonstrates how researchers can quantify potential gains and losses to individual households and firms, to regions, and to national economies under varying financial policies.

More importantly, Townsend argues that the impact of innovations, like microfinance programs, and financial repressions, such as holding down interest rates, are best understood as part of a systemic whole. Only then can policymakers and governments discern the true impact of their decisions on households and firms as well as on the overall economy. Townsend believes this framework is the most appropriate context for understanding what truly reduces poverty.

Significantly, the book is also the first of its kind to provide an in-depth evaluation of the financial system of a typical emerging market economy. Townsend draws on data from his long-term research project in Thailand, known as the Townsend Thai Project. His extensive data allow him to examine the effects of the Thai government's 1997 decision to pump an equivalent of 1.5% of the Thai GDP into a village-level savings and loan program. Townsend calls this effort "one of the world's largest microfinance interventions," and through his analysis, he demonstrates that the program increased consumption and overall lending, the frequency of investment, business profits, and local wages, while simultaneously raising interest rates and some defaults. This is just one example from the robust analysis of the Thai economy examined in the book. In another, he analyzes an episode in which the Thai government took over the banking system; a model establishes that this stalled growth for several years.

However, the potential impact of Financial Systems in Developing Economies extends far beyond these insights about Thailand. The analytical foundations in the book are immediately applicable to other countries. Townsend's work is expected to pave the way for researchers, policymakers and governments to answer with greater certainty whether they are helping or hurting their citizens and their economies.

Robert M. Townsend is the Elizabeth and James Killian Professor of Economics in the Department of Economics at the Massachusetts Institute of Technology. Financial Systems in Developing Economies: Growth, Inequality and Policy Evaluation in Thailand is published by Oxford University Press. ISBN 978-0199533237. $85. March 2011. 352 pages. This work was made possible, in part, by grants from the National Science Foundation, from the Bill & Melinda Gates Foundation to the University of Chicago for the Consortium on Financial Systems and Poverty, from the John Templeton Foundation for the Enterprise Initiative, and from the National Institute of Child Health and Human Development.

To learn more about this publication, please visit http://robertmtownsend.net/thaibook.

Townsend on Development, Poverty and Financial Institutions

2011-03-15T21:57:00Z

Robert M. Townsend of MIT talks with EconTalk host Russ Roberts about development and the role of financial institutions in growth. Drawing on his research, particularly his surveys of households in Thailand, Townsend argues that both informal networks and arrangements and formal financial institutions play important roles in dealing with risk. Along the way, he discusses the role of microfinance in poor countries and the potential for better financial arrangements to lead to higher growth and the accumulation of wealth.

For the full audio, please visit EconTalk.

Financial systems in developing countries: how poor people lift themselves out of poverty (Interview)

2011-01-11T18:50:00Z

Robert M. Townsend, Interviewed by Stephen Yeo

Robert M. Townsend of MIT talks about his research on how the lives of the world’s poor can be improved through more efficient financial systems. Drawing on data gathered from an extensive survey of Thai households, Townsend discusses risk-sharing and the importance of networks, the rate of saving and return on assets, and villages as small, open economies. The interview was recorded in London in November 2010. Link to interview and full transcript.

Households as Corporate Firms (Interview)

2011-01-11T18:47:00Z

Robert M. Townsend, Interviewed by Stephen Yeo

Robert M. Townsend talks about his recent book, co-authored with Krislert Samphantharak, that analyses household finance in developing countries using integrated household surveys. Townsend describes how to create new and more comprehensive household ‘accounts’, and use them to analyse productivity, capital structure and liquidity in households. The interview was recorded in London in November 2010. Link to interview.

Tracing families' escape from poverty

2011-01-11T18:38:00Z

Economist’s study shows how the poor in developing countries become wealthier.

Peter Dizikes, MIT News Office

January 10, 2011

For all the detailed tools developed to study finance in past decades, relatively few scholars have brought those methods to bear on a pressing social question: How do poor people manage their finances?

Now, a long-term study of the poor in small villages in Thailand is shedding light on the issue. Having a sound financial strategy, including a commitment to saving money has a large impact on lifting families out of poverty, the research reveals. Moreover, advances in wealth are linked to highest level of education obtained by a household member, as well as a willingness to try new ventures.

The study, based on a unique set of data collected under the direction of MIT economist Robert M. Townsend, shows that among rural households, 43 percent realized significant and lasting gains in net worth over a seven-year period, and that 81 percent of that wealth accumulation was due to savings of income, as opposed to gifts or remittances, that is, contributions the family did not earn.

“There is not a poverty trap in these Thai villages,” says Townsend, the Elizabeth and James Killian Professor of Economics at MIT. “There are strategies people can pursue to increase their relative wealth.”

The findings are summarized in a new working paper, “Wealth Accumulation and Factors Accounting for Success,” written by Townsend and Anan Pawasutipaisit of Thammasat University in Thailand, and slated to be published in the Journal of Econometrics. The conclusions are based on a pioneering survey of household finances in 16 Thai villages that Townsend initiated in 1997. This paper takes monthly data from 1999 through 2006, for 531 households, and represents a unique view into the month-by-month financial lives of rural villagers in a country that has demonstrated substantial economic growth in recent years, yet still has substantial pockets of poverty.

The Thai villagers in the survey tend to be farmers, fishermen, laborers or run small businesses. Households that do get ahead have some generally shared characteristics. The heads of households tend to be younger than in the families that do not increase their worth. Additionally, gains in wealth correlate specifically to the highest level of education obtained by a family member, and not the family’s median educational level, as Townsend notes.

“It’s not the average wisdom of household members pulled together,” says Townsend. Rather, he notes, “It’s suggestive that it is the ability or talent of one individual” that can change a family’s entire economic trajectory.

Moreover, the data show financial success to be a persistent feature of certain households, meaning it is not the case that “successful entrepreneurs are those that simply get lucky” due to one good crop or fish harvest, as Townsend and Pawasutipaisit write in the paper. But new ventures are sometimes behind the accrual of wealth. In one survey village, the household with the highest annual rate of return on assets (17 percent) was headed by a corn farmer whose wife insisted that they try raising dairy cows instead, sensing that owning livestock would be more profitable in their area; the idea came in part after a milk cooperative sent workers to educate villagers about cows.

“This work really lifts the veil on the lives of low-income people that had been hidden, largely because we don’t usually collect data with this frequency,” says Jonathan Morduch, a professor of public policy and finance at New York University. “Once you do that, you see that people are not passively accepting their fates. We see a lot of consumption smoothing — people’s incomes are going up and down, but they’re borrowing, saving, insuring with each other and reducing risk in an informal way. People are actively seizing opportunities. That’s exciting and important to know.”

Townsend has also summarized some of his research in a 2010 book, Households as Corporate Firms (Cambridge University Press), written with economist Krislert Samphantharak of the University of California, San Diego. Now, as the survey continues, Townsend and Christopher Woodruff, another economist at the University of California, San Diego, are trying to further define just what it is that makes some households more entrepreneurial-minded and able to generate a higher return on assets than others. Currently the survey is asking questions about financial literacy and risk-taking tendencies in an attempt to create a more detailed profile of the types of households that escape poverty as a result of trying new businesses.

How do small gains feed a large economy?

In turn, another area of ongoing research for Townsend and his colleagues is the attempt to take the microeconomic data from individual households and villages, and use it to flesh out the macroeconomic analysis of Thailand’s economy as a whole.

“It’s easy to think of Thailand and countries like it as producing GDP [gross domestic product] from the factories which line the highways as you enter Bangkok,” says Townsend, referring to firms like Ford and Nike with large operations in the area. But multinationals and incorporated businesses only account for 20 percent of Thailand’s national income. “We already know that households as firms are a big building block of the national economy,” he adds. “We want to understand the evolution of that as the economy itself gets bigger. Where did the bigger, domestically owned Thai firms come from? Did they grow from some interesting earlier existence?”

The financial activities of people in the more rural areas of Thailand are linked to the larger economic situation in the country in other ways as well. Households in many Thai villages run businesses that do not earn as great a rate of return as, for instance, savings accounts; some of the more financially savvy Thai households put their savings into banks.

“And then that money becomes somebody else’s loan,” says Townsend. “In the United States, people talk about Main Street and Wall Street as if they are separate. But we think it’s really important to understand how these financial institutions and markets are put together, and how that fabric is woven into the national-level economy. That’s a very big part of our ongoing research.”

Some funding for the research was provided by the John Templeton Foundation and by the Bill & Melinda Gates Foundation.

Economists May Bring into Focus the Financial Lives of Billions

2010-11-12T19:42:00Z

Economists Krislert Samphantharak of UC San Diego and Robert M. Townsend of MIT have defined a far-reaching framework that may contribute significantly to the meaningful assessment and analysis of the financial lives of the world’s poor.

The lack of a cohesive framework for gathering and organizing data about the finances of poor households often results in data that are inconsistent or analysis that does not make sense. This inhibits the ability of researchers and policymakers to make sound decisions that truly benefit the poor.

In their book Households as Corporate Firms, published by Cambridge University Press, Samphantharak and Townsend establish a framework that shows how researchers can create detailed accounts for households based on corporate financial accounting principles.

The implications of this work are significant. For the first time, researchers have a logical, precise tool for establishing accounts from household surveys and for collecting data in a systematic way. By basing the accounts and surveys on the already widely-accepted standards of corporate financial accounting, the data collected have greater accuracy and allow for unprecedented comparisons across households and regions. The household accounts are, by definition, reconcilable. That is, there are natural cross-checks across flows in the income statement and stocks in the balance sheet, for example, and for cash transactions as in double entry book-keeping.

Another significant aspect of this new approach is that corporate financial accounts also serve as the foundation of national income and product accounts. Such household financial accounts could be used to accurately estimate the contributions of small household businesses to a country's gross domestic product (GDP) in much the same way that larger incorporated businesses are.

"Small household enterprises can have a larger impact on overall economic growth than we may imagine. The creation of these accounts helps us understand how the household sector links to the macroeconomy more generally. The accounts can also guide the provision of financial services for the poor,” Townsend states.

The authors’ work recognizes the ironic similarity that poor households in developing countries often share with corporate firms as their family business (production), acquisition of productive assets (investment), and consumption (dividends), are largely inseparable.

In other words, small enterprises such as family farms often produce food that is grown in part for their own use. This can be seen as akin to the way firms pay dividends to shareholders. Households also may invest part of any profits they earn back in their businesses, just as firms invest retained earnings.

Jonathan Morduch, of New York University and the author of Portfolios of the Poor, recognized the potential impact of this approach, “The analytical structures will allow economists to collect better data, ask sharper questions, and bring into focus important parts of the economic lives of billions of people.”

This new framework unlocks the potential for researchers and other stakeholders to use modern financial models and to analyze households in developing countries with data based on standard accounting practices.

As John Y. Campbell of Harvard University states, “The authors blaze a trail that many others will follow.”

____________________

Households as Corporate Firms: An Analysis of Household Finance Using Integrated Household Surveys and Corporate Financial Accounting, by Krislert Samphantharak and Robert M. Townsend, is an Econometric Society monograph published by Cambridge University Press.

Economists Reveal Factors that Help Poor People Lift Themselves Out of Poverty

2010-11-03T16:13:00Z

What factors contribute to poor people in developing countries lifting themselves out of poverty?

A forthcoming paper by economists Anan Pawasutipaisit of Thammasat University and Robert M. Townsend of MIT provides important insights into what kinds of households might be most effective at moving themselves out of poverty and how they are able do it.

Their paper, which is due to be published in the peer-reviewed Journal of Econometrics, suggests that poor people who skillfully manage their assets are especially successful in improving their net worth. The authors discovered that the ability of poor families to increase their wealth was strongly related with their rate of saving and, even more so, with their ability to create a high return on assets.

This means that those households who used their existing assets most productively were more successful at pulling themselves out of poverty. Many of the successful households reinvested their money in their small businesses and farms, suggesting that they are well aware of the source of their success.

Pawasutipaisit and Townsend identified these trends through an extensive survey that was taken from more than 500 Thai households across four provinces every month between 1999 and 2005. From this data, the authors created detailed, financial accounts for each home. They discovered that, over the course of their 7-year study, poor households grew their net worth by an average of 22% per year while rich households grew by just 0.09%.

The data also allowed the authors to identify traits that the most successful households tended to share in common: more highly-educated household members, a younger age of the head of household, a higher ratio of debt to assets, and a preference for formal financial markets over informal ones. But the largest source of variation in the rate of return on assets was household-specific and uncorrelated with any of these variables. This suggests there is great persistence among the most successful households.

"The data seem to show pretty conclusively that successful households are not just lucky," observes author Robert M. Townsend. "They are doing something systematic, month after month, year after year. The next step, of course, is to figure out what the associated skills and attitudes really are."

The paper, which is titled "Wealth Accumulation and Factors Accounting for Success," has been approved for publication in a forthcoming issue of the Journal of Econometrics, which is published by Elsevier. The paper is currently available on the journal's website.

Anan Pawasutipaisit is a lecturer at Thammasat University in Thailand and Robert M. Townsend is the Elizabeth and James Killian Professor of Economics in the Department of Economics at the Massachusetts Institute of Technology. Their work was made possible, in part, by a grant from the John Templeton Foundation through the Enterprise Initiative at the University of Chicago where Townsend is a Research Associate and serves as the Principal Investigator.

At MFI Conference, New Approaches to Analyzing Economic Development

2010-08-23T18:50:00Z

Measurements of consumer behavior, firm productivity, and real standards of living across countries are all crucial to understanding economic growth and development as well as shaping policy - but what if the measurements are wrong?

At the Milton Friedman Institute for Research in Economics' (MFI) conference "Measuring and Analyzing Economic Development," researchers highlighted current problems with data and measurement techniques underlying poverty and growth estimates and proposed alternative and improved approaches of analysis.

In keeping with the MFI's mission of fostering collaborations and drawing together preeminent scholars from across the globe, the distinguished roster of speakers included Angus Deaton of Princeton University, Nicholas Bloom of Stanford University, Simon Johnson and Robert Townsend of MIT, and Alwyn Young of the London School of Economics. Erik Hurst and Steven Davis of the University of Chicago Booth School of Business organized the February 26 conference at the University of Chicago, which drew a broad audience from the campus community and local institutions.

Lars Peter Hansen, MFI Director and the Homer J. Livingston Distinguished Service Professor in Economics, said, "It is exciting to have the opportunity to draw together a group of researchers of this caliber, and to hear about the latest work in this field. Conferences of this type are crucial to supporting the dialogue necessary to push our research into productive and innovative new directions."

Data Challenges

Disparate and sometimes inadequate data on growth rates in developing countries undermine both academic research and policy prescriptions. Improved estimates on consumption, income and other measures of standard of living are instrumental to understanding economic growth and development, shaping how policy decisions are made, and guiding public discourse.

Deaton, Johnson, and Young highlighted issues with the existing data used to measure poverty. They examined the difficulties with making income comparisons across countries with different prices and economic structures, and particularly with the global poverty line calculations used by organizations such as the United Nations and the World Bank in their foreign aid strategies.

Deaton argued for skepticism when comparing countries with highly disparate consumption patterns and prices, finding that such comparisons "rest on weak theoretical foundations and are fragile in practice." Instead, improvements in micro-data, such as household surveys, and the upgrading of national accounts are urgently needed to estimate growth and poverty across countries more reliably.

To address the paucity and poor quality of the data underlying existing estimates, Young demonstrated how household survey data could be used to construct new estimates on consumption in 29 sub-Saharan and 27 other developing countries. Among his results, he finds that real household consumption in sub-Saharan Africa could be growing between 3.2 and 3.8 percent per year, instead of the 0.9 to 1.0 percent reported in the standard international data sources.

Other work at the conference examined how individual firms and households in developing countries make economic decisions. Better information on behavior at the microeconomic level is a crucial input for designing policies that target poverty and nurture economic growth.

Townsend collected survey data to examine financial decision making at the household level. Using data collected from households in 16 Thai villages, he studied the consumption, investment, and financing decisions made in these households. In particular, he considered the interaction between household production and consumption activities. Analyses of this type are central for assessing the need for policy interventions targeted at financing productive investment opportunities.

Bloom looked at decision making at the firm level to examine a broader question of why productivity differences, which account for a substantial portion of per capita income differences, exist across countries. Examining textile firms in India, he found that the lack of implementation of basic and widely accepted management practices was a root cause of low productivity and profits. He concluded that in developing countries, improved management training programs, coupled with government policy reducing barriers to entry and emphasizing quality, could measurable narrow the productivity gap across countries.

A Useful Discussion

The conference ended with a panel discussion that fielded questions from graduate students and faculty. Deaton concluded the conference by saying, "It was wonderful to be here and to talk about these measurement issues in a coherent way. Erik [Hurst] and Steve [Davis] have done a tremendous job in pulling these papers and these people together, and it's a wonderful service of the Milton Friedman Institute too."

Conference attendee Walt Stubbins, MBA'88, echoed the sentiment. "I'm in the investment business, and I need to understand the issues in developing countries. Attending events sponsored by the Milton Friedman Institute is a great way to stay on top of what's going on. I need to be learning all the time. That is why I keep in touch with the University of Chicago."

For the original text, please visit the MFI's website.

Conference highlights new data and provides insight into developing economy

2010-06-10T22:00:00Z

The University of Chicago – University of the Thai Chamber of Commerce (UC-UTCC) Research Center will host a conference focused on the importance of long-period panel data. In conjunction, new monthly data from the Townsend Thai Data will be released, adding to an already rich data source.

The conference, to be held in Bangkok, Thailand on June 11, will highlight research findings and theory related to panel data. Robert M. Townsend, the Elizabeth and James Killian Professor of Economics at MIT, will discuss lessons learned from his ten years of data collection in Thailand. Townsend is one of the world’s leading authorities on developing economies, and his work has demonstrated innovation in the combination of theory and data.

The Townsend Thai Data is one of the most detailed and longest running panel datasets in the developing world. Collected by the Thai Family Research Project, this detailed data source serves to inform researchers and policymakers in an effort to bridge the gap between academic research and policy creation.

Twenty four months of consecutive monthly data from 1998 to 2000 have been released on the Dataverse site and can be access at http://cier.uchicago.edu/data-archive/. These intensive monthly surveys have been conducted since August 1998 in 720 households. The surveys elicit detailed information on household finance and businesses, allowing researchers to study wealth accumulation, enterprise, and formal and informal networks.

The conference will also feature the Research Center’s tools for data acquisition and management. Panuchart Boonyakiat, Director of the UC-UTCC Research Center, will present features and capabilities of an online data visualization tool recently launched by the Center. For a full listing of topics to be discussed, please visit http://uc.utcc.ac.th/ts2010/.

Collection of the Townsend Thai Data is made possible by the generous support of that National Institute of Child Health and Human Development (NIHCD), the National Science Foundation (NSF), the National Opinion Research Center (NORC).

Análisis para mejorar la productividad y competitividad de la economía en Chile se da cita en el CMD

2009-12-22T19:57:00Z

La conferencia titulada “Acumulación de Riqueza y Factores que Explican el Éxito” dio inicio al encuentro que contó con la participación del destacado académico del MIT, Robert Townsend.

El encuentro profundizó sobre la importancia de la realización de la primera Encuesta Longitudinal de Empresas (ELE) y la Primera Encuesta de Micro-Emprendimiento (EME), así como también el análisis de sus resultados. En este sentido, quedo de manifiesto que sus conclusiones revisten gran importancia a la hora de planificar e impulsar políticas e instrumentos orientados a mejorar la productividad y competitividad de la economía en nuestro país. Tal es el caso, por ejemplo, de la encuesta de Micro-emprendimiento (EME), que señala la existencia de importantes diferencias de ingreso entre aquellos micro emprendedores que tienen acceso al sistema financiero y aquello que no. Al mismo tiempo se puede observar que la mayor parte del micro-emprendimiento se financia con ahorros y sólo un porcentaje pequeño obtiene un crédito bancario para comenzar el negocio. Otro factor importante que se detectó con la (EME) es el bajo porcentaje de micro-emprendedores que se capacita, y que dentro de éstos, la capacitación es financiada en su mayor parte por el Estado. Estos resultados revelan sólo algunos de los tópicos que pueden ser analizados con la (EME) y que pueden tener un efecto importante en el éxito del mismo.

En este sentido, la exposición del destacado economista y académico de MIT Department of Economics, Robert M. Townsend, profundizó sobre la importancia de los datos de panel y el rol de los ahorros en el éxito del micro-emprendimiento. Su investigación, por ejemplo, muestra que existe una gran heterogeneidad y persistencia en los hogares rurales de Tailandia y que tanto el ahorro como el acceso al crédito ayudan a los hogares a superar la pobreza.

Este encuentro contó además con la destacada exposición de Ximena Clark (jefa de división Empresas de Menor Tamaño del Ministerio de Economía) y Esteban Puentes (profesor e investigador del Centro de Microdatos), quien presento resultados preliminares de la primera encuesta longitudinal de empresas y micro-emprendimiento. Resultados que permitirán tener un seguimiento de la dinámica empresarial existente hoy en nuestro país.

Translation:

Research on improving productivity and competitiveness in the Chilean economy presented at Chilean Center for Micro-Data (CMD)

A presentation entitled “Wealth accumulation and factors accounting for success” by noted MIT academic Robert Townsend opened the conference.

The conference highlighted the importance of two new Chilean surveys: the Longitudinal Survey of Firms and the Survey of Micro-Entrepreneurship (ELE and EME by their Spanish acronyms, respectively), as well as the analysis of data from the surveys. It was established that results from these surveys are of great importance in planning and implementing policies and tools designed to improve productivity and competitiveness in the Chilean economy. The Survey of Micro-Entrepreneurship, for example, provides policy insight by bringing to light important differences in income between small business owners with access to the financial system and those without access. The EME also shows that most micro-entrepreneurs finance their businesses with personal savings, and that only a small percentage gets credit from banks to start their firms. Another important finding from the survey was that only a small proportion of entrepreneurs receive training, and that this training is financed chiefly by the government. These are just a few of the myriad factors accounting for small business success that can now be researched, thanks to the EME.

The presentation by Professor Townsend emphasized the importance of panel data and the role of personal savings in bringing about success for small businesses. His research, for example, shows that there is a great deal of heterogeneity among rural households in Thailand, and that savings help households exit poverty as much as does access to credit.

The meeting also featured research by Ximena Clark (head of the Small Business Division of the Ministry of the Economy) and Esteban Puentes (professor and researcher at CMD), who presented preliminary results from the two surveys mentioned above. These results will help bring about greater knowledge of the entrepreneurial dynamism present today in Chile.

Conference at World Bank will look at using survey data to study developing economies

2009-12-08T22:07:00Z

Leading experts will discuss ways to improve survey design and data collection in developing economies when they meet Dec. 10-11 at the World Bank in Washington, D.C. for “Survey Design and Measurement in Development Economics,” a conference presented by the University of Chicago, the World Bank and Yale University and supported in part by the John Templeton Foundation.

“Development economics has expanded in recent years, in part, because many researchers are collecting new data, driven by both policy questions and curiosity about human behavior,” said Robert M. Townsend, the Elizabeth & James Killian Professor of Economics at MIT and a Research Associate in Economics at the University of Chicago. Townsend is director of the Enterprise Initiative, a collaborative research program that supports rigorous study of the complex process of wealth creation and the role of enterprise in alleviating poverty.

Townsend explained that even with this wealth of field experience, scholars and policymakers have not yet been able to develop a systematic body of knowledge pertaining to measurement and survey design.

“This conference aims to fill this gap. We hope to bring greater sophistication to the science of measurement in economics, particularly as it relates to developing economies and enterprise,” he said.

During the two-day conference, leading researchers will explore improvements in data quality, the speed of data delivery and cost-effectiveness achieved through alternative survey methods. They hope to achieve a better understanding of the characteristics of successful enterprises, the dynamics of household consumption, corruption and other important topics in development economics.

In addition to Townsend, organizers include David McKenzie, a Senior Economist in the Development Research Group, Finance and Private Sector Development Unit at the World Bank; and Mark Rosenzweig, Frank Altschul Professor of International Economics at Yale University.

The conference will be held in Room MC2-800, World Bank, 1818 H St., NW, Washington, D.C. More information on the conference, including a full list of the papers to be presented, can be found at http://econ.worldbank.org/conferences/surveydesign. Selected, refereed papers will be published in a special issue of the Journal of Development Economics, which conference organizers will co-edit.

Computational Infrastructure for Economic Research

2009-08-12T14:37:00Z

The group of economics-focused scientists at the Computation Institute is dedicated to helping the economics community by building tools and providing computational resources that advance research in major areas such as Growth and Developmental Economics and Computational Economics.

Economics is one of the sciences where the researchers have a significant amount of work to do before they can publish their results. First of all it's an imprecise science meaning that it often approximates the functions describing the actor's behavior and also many times it needs to deal with incomplete and inexact input data sets. Second, it is hard to implement and study an economic model in isolation: its components and interactions spread into and are affected by many related social systems. Third, the choices that need to be considered in combination with the complex mathematical formulation of the outcomes often make the problem size unmanageable.

We are introducing in this column the most visible and publicly tangible product of our involvement with the economists: an integrated survey data exploration and visualization system which we have developed jointly with and dedicated to supporting research coming out of the Enterprise Initiative. This effort has been funded by the John Templeton Foundation and is led by Prof. Robert Townsend from the MIT Economics Department, with the collaboration being set up by Ian Foster, the Computation Institute director.

The main goal of the project was to create a tool that enables rapid intuition-building from the socioeconomic survey data available. We have developed a system that allows for a quick and intuitive web-based exploration of the survey data at hand. The system is used as follows. Once the variables of interest are identified, the researcher will use the set of visual tools that we have implemented to illustrate the data on the map, via the geospatial functionality of our system, and to look at significant statistical measures via plots and summaries. This new information enables the researcher to decide whether the data they are currently exploring is fit to be used in the specific economic models that they are interested in, and to extract and explore in further detail this data in more complex systems.

In order to manage large, heterogenous, multi-modal, and often messy data sets, we have chosen an architecture based on processing pipelines. We have defined and are currently improving and extending standard APIs to support future growth of the system, and we are optimizing the processing pipelines to make the research process more interactive. We are also leveraging our GIS expertise by bringing into the picture novel data exploration techniques via maps.

Our collaborations in the computational and modeling areas, as well as in applying current economic research in new settings, deserves a completely separate treatment, which we hope to provide in a future issue of this newsletter. You can get a preview of that by following The Applied General Equilibrium for Enterprise Economics reference below.

Our team, Tibi Stef-Praun, Victor Zhorin and Neil Best, is welcoming future collaborations with researchers interested in these (or related) fields, and hope to leverage the current infrastructure by encouraging other researchers to adopt and contribute to our current work.

The figure shows that spatial characteristics play a major role in estimation of entrepreneurship dynamics in poor northeastern provinces of Thailand compared to richer central provinces. Without the map visualization, it is very hard to determine whether massive model outputs tell a consistent story, which has significant policy-making consequences. For example, using the map, researchers can evaluate, from a model standpoint, the policy of building more roads and providing more transfers in the capital to those poor provinces.

Further references:

The Survey Data Explorer Application: http://age3.uchicago.edu:8080/thailand
The Enterprise Initiative: http://enterpriseinitiative.org
The Applied General Equilibrium for Enterprise Economics (AGE3) http://age3.ci.uchicago.edu

Computation News; Volume 2, Issue 3. Link to article: http://www.ci.uchicago.edu/newsletter/vol2issue3/compecon.php

Francisco Buera, Enterprise Initiative Collaborator, Awarded Kauffman Foundation Junior Faculty Fellowship

2009-06-01T15:08:00Z

KANSAS CITY, Mo., May 19 (AScribe Newswire) -- The Ewing Marion Kauffman Foundation announced today the recipients of the Kauffman Junior Faculty Fellowships in Entrepreneurship Research. Five fellowships in the amount of $50,000 each were awarded to tenured or tenure-track junior faculty members whose research has the potential to make significant contributions to the body of literature in entrepreneurship. Each Fellow's university will receive the grant over two years to support the research activities of the Fellow. The Fellowships will be presented at the Allied Social Science Associations' annual meeting in Atlanta in January 2010. "This program is designed to help advance leading scholars into an emerging and exciting field of research," said Robert J. Strom, Ph.D., director of Entrepreneurship Research & Policy at the Foundation. "The findings generated by this effort will be translated into knowledge with immediate application for policymakers, educators, service providers and entrepreneurs as well as high-quality academic research."

The 2010 fellowship recipients, along with their university affiliations, are:

Francisco Buera, University of California, Los Angeles

Brett Anitra Gilbert, Texas A&M University

Jeremy Greene, Harvard University

William Kerr, Harvard Business School

Ramana Nanda, Harvard Business School

The Kauffman Junior Faculty Fellowship program is one of three academic recognition programs established by the Kauffman Foundation to help build a body of quality entrepreneurship research. The annual Kauffman Dissertation Fellowship Program, established in 2002, awards up to 15 grants of $20,000 each to Ph.D., D.B.A. or other doctoral students for the support of dissertations in the area of entrepreneurship. The Kauffman Prize Medal, established in 2005, is awarded every two years to one scholar under the age of 40 whose research has made a significant contribution to entrepreneurship. The Medal includes a $50,000 prize.

About the Kauffman Foundation

The Ewing Marion Kauffman Foundation is a private nonpartisan foundation that works to harness the power of entrepreneurship and innovation to grow economies and improve human welfare. Through its research and other initiatives, the Kauffman Foundation aims to open young people's eyes to the possibility of entrepreneurship, promote entrepreneurship education, raise awareness of entrepreneurship-friendly policies, and find alternative pathways for the commercialization of new knowledge and technologies. It also works to prepare students to be innovators, entrepreneurs and skilled workers in the 21st century economy through initiatives designed to improve learning in math, engineering, science and technology. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo. and has approximately $2 billion in assets.

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CONTACTS: Barbara Pruitt, 816-932-1288, bpruitt@kauffman.org, Kauffman Foundation

Templeton Foundation Highlights Enterprise Initiative's Work

2009-02-04T20:58:00Z

"We actually are the ones being trained by the successful individuals who are out there -- we learn from them, from what they do, and how they overcome obstacles." That is the modest analysis offered by Professor Robert M. Townsend of the ambitious program over which he is presiding, funded by a $3.3 million Templeton grant, "Discovering the Power of Free Enterprise to Create Wealth and Alleviate Poverty Through a New Applied General Equilibrium Enterprise.

The shorthand name for the project is "The Enterprise Initiative" and it is a collaborative effort between senior researchers at three major institutions: the University of Chicago, the Poverty Action Lab at the Massachusetts Institute of Technology, and the Economic Growth Center at Yale University.

Robert Townsend, the principal investigator, is the Charles E. Merriam Distinguished Service Professor of Economics at the University of Chicago. His research on risk and insurance in village India won the Frisch Medal in 1998 and for the past ten years he has conducted extensive field research on enterprise in Thailand. He has played important roles in the Federal Reserve Banks and Board, World Bank, InterAmerican Development Bank, Millennium Challenge Corporation and the International Monetary Fund and has been a frequent collaborator with colleagues at MIT and Yale, so that he is well-qualified to act as a bridge builder for this complex project.

The senior research team includes four Nobel laureates from the University of Chicago: Gary Becker, James J. Heckman, Robert E. Lucas, Jr., and Roger Myerson who was awarded the Nobel Prize after the program had been launched. Townsend describes his team as "a loose network of scholars who are working to incorporate general themes and approaches into each of their specific areas of expertise. At the University of Chicago, he has been working with Fernando Alvarez on financial decisions, Gary Becker and Kevin Murphy on issues of inequality, Lars Hansen on modeling uncertainty, Jim Heckman on skills and returns, and Bob Lucas on growth and geography, among others.

The two collaborator institutions have also been carefully integrated into the overall program, contributing their specialist expertise. "At Yale, I have been working with Chris Udry and Mark Rosenzweig to design surveys that will allow us to look at a broader range of issues in Ghana and Tamil Nadu and understand more fully how enterprise in these countries affects overall economic growth and inequality. At MIT, Abhijit Banerjee and I have initiated a project on the size distribution of firms and how to test for credit constraints that may limit firm growth."

The project also incorporates an anthropological element to the economic inquiry. "It's a natural marriage because you're on the ground, in the village, asking questions of households. Then it comes down to how best to try to get the information you want. The researcher has to win the respondents' confidence by changing the topic when necessary, probing elliptically." Townsend's primary collaborator in Thailand, Khun Sombat Sakunthasathien is a seasoned practitioner of this art, merging it with the more formal and comprehensive survey instruments.

How does Townsend define Applied General Equilibrium Enterprise Economics (AGE3)? "It's basically to set the decisions of individuals, whether they be firms or households, in the context of the larger economy," he says. "It's a method more than an application. Once you think about a small cluster of individuals in a village as an economy and try to understand the village economy, which I have done in some earlier work in India and, historically, in England, the method would be to think about how the interaction of all the individuals in the village works to produce the overall equilibrium."

This approach is counter-cultural among most economists, who would instead take a sub-field such as price theory and then ask how consumer purchases respond to prices. AGE3 researchers, in contrast, would want to examine not only how prices in one market influence those in another, but also more generally how to allow for all possible feedbacks in the system. The program is developing a comprehensive, interactive database archive with Geographic Information System capability that allows researchers and policy makers to see the impact of individuals' decisions and policy alternatives in action according to rigorous, econometric models.

The program has impressive technical support, including the computational expertise of Argonne National Laboratory and the University of Chicago's Computation Institute. It is also drawing upon the intellectual capital of some 40 additional scholars through topic-specific Enterprise Working Groups. It will also utilize the exceptional data on the Thai economy that Townsend himself has accumulated over the past decade, both from his own surveys and that of government ministries.

The program is still in its early stages, the grant having begun in August 2007, and will run until 2010. Already, however, the research is progressing significantly. The first stage was one-on-one conversations between researchers to determine the pattern of collaboration. These individual collaborations, it is intended, will eventually fuse into multi-authored research on enterprise, wealth, and poverty reduction, involving mini-conferences and working groups.

Survey designs have already been revised to allow comparisons across populations, while additional questions have been developed and added to the Yale pre-test of surveys in Ghana and Tamil Nadu, enabling a benchmark for future surveys in those countries. It has been decided to add a new survey initiative in Cambodia, and Townsend is also pursuing survey research in Chile on both the household and firm aspects of the economy. He and Banerjee are also considering sampling frames for collecting new data on the birth and evolution of enterprise in India and Thailand.

By any standards this is a major initiative. With the research impetus well underway, the team has to prepare for stage two, the objective of which is to influence opinion leaders by disseminating insights gained and profferring practical advice through an extensive network of relationships with government agencies, international development organizations, and financial institutions worldwide.

Prospects for dissemination and outreach are good. The first resource is a comprehensive website for the program, which went online in the first part of 2008, facilitating research exchanges between current and potential researchers, and will include a wiki and a discussion area to encourage collaboration online. Postdoctoral, graduate students and faculty at Chicago, Yale, and MIT are now involved in an enterprise economics exchange. Robert Jordan, in collaboration with Khun Sombat Sakunthasathien and Townsend, is writing a preliminary book on the Townsend Thai Data's survey design and implementation which will be the launch pad for a public discussion of enterprise economics survey methodologies.

What is at stake in this initiative is not just new insights into wealth creation and poverty alleviation, but the challenge of potentially reconfiguring the orthodoxy of enterprise economics analysis. For AGE 3 is revolutionary in its concept. Townsend is well aware that the Department of Economics at the University of Chicago was the intellectual home of Friedrich von Hayek and Milton Friedman and so the cradle of modern free market economics. He sees the potential for AGE 3 to trigger a further revolutionary insight into the anatomy of economies.

"Overall, the Enterprise Initiative is an ambitious project," he says. "One of our ultimate goals that underlies nearly all of the project's objectives is to provide clear and sound information based on research to policy makers, government officials, and NGOs so that they can better evaluate policy options and make decisions with regard to poverty alleviation."

He emphasizes, however, that it is not part of his project's remit to undertake education of potential entrepreneurs: there are plenty of training programs available around the world. Indeed he contends, as quoted above, that it is his team that is being educated by the examples of entrepreneurs in developing countries, as it gains insight into their motivations and how they surmount difficulties.

So, what is the really big question in relation to Applied General Equilibrium economics and poverty alleviation? "What creates an entrepreneur? That is the big question," says Townsend. As regards an answer, he and his team are still working on that. "It does seem that education plays a role, that is to say formal education, the number of years of schooling of household members, but it's not a uniform effect. It depends on the occupation, the region of the country, and it doesn't explain a lot of the variation in the success rate."

One supposition his research has already enabled him definitely to discount after studying case histories over eight years, "It's not just luck. It can't be they just happened to get lucky year after year." What does he hope will be the eventual outcome, when the study is complete? "Really to understand how economies are put together."

But Townsend has a larger ambition than that, one which, as this extensive project takes shape, he is increasingly confident of fulfilling. It is for AGE 3 to become the accepted system for understanding the structure of economies. His prediction is bullish. "It will become the new standard. We may not be there yet, but I'm pretty confident. That's our goal."

Direct Link: http://www.templeton.org/capabilities_2008/FE/ei.html

Upcoming Lunch Series to Discuss Enterprise Research

2009-01-13T15:22:00Z

The Enterprise Initiative is pleased to announce an upcoming lunch series focusing on current research in the area of development economics. "Eats & Economics", to be held biweekly on Tuesdays throughout the winter and spring quarters, will highlight enterprise-focused research by both professors and students.

The lunches will be held from 12 - 1 pm in Rosenwald Hall Room 329 on the University of Chicago's campus. Lunch will be provided. Those planning to attend should RSVP to enterprise@uchicago.edu by noon on the Monday prior.

Details on the lunches can be found below.

January 20, 2009: John Felker & Kamilya Tazhibayeva, National Opinion Research Center and the University of Chicago, "Impact of Climate Change on Rice Production in Thailand"

February 3, 2009: Tiberiu Stef-Praun, Researcher at the Computation Institute, "Computational Tools for Economic Research"

February 24, 2009: Pierre Andre Chiappori, Professor at the University of Chicago, "Sharing Wage Risk"

March 3, 2009: Jorge O. Moreno, Economics Ph.D. Candidate, "Matching, Hedonic Equilibrium Contracts, and the Structure of the Credit Market: Evidence from the Mexican Banking System"

March 31, 2009: Benjamin Moll, Economics Ph.D. Candidate, "Wealth Inequality and Capital Misallocation in Developing Countries"

April 14, 2009: Victor Zhorin, Researcher at the Computation Institute, "Hierarchical Estimation of Structural Models with Endogenous Interactions"

April 28, 2009: Anna Paulson, Senior Financial Economist at the Federal Reserve Bank of Chicago, "Bank Crises and Investor Confidence"

May 12, 2009: Fernando Alvarez, Professor at the University of Chicago, "Technological Innovation and The Transactions Demand for Cash"

May 26, 2009: Anan Pawasutipaisit, Post-Doctoral Scholar at MIT, "Wealth Accumulation and Factors Accounting for Success"

Enterprising Spirit: Townsend Examines Thai Entrepreneurship

2008-11-19T17:40:00Z

Published: Jan / Feb 2008

Along a narrow gravel road in central Thailand’s Lopburi province stands a two-story house with a corrugated-steel roof. On a hot day last August a family of three sat cross-legged on the cobalt-tiled floor and talked about their life and work with interviewers from the Thai Family Research Project, a ten-year longitudinal study begun in 1997 by Robert M. Townsend, Chicago’s Charles E. Merriam professor in economics.

Thai Family Research Project investigators interview 2,280 households annually to track their borrowing, income, and family-structure changes.

With a group of Thai collaborators, Townsend has compiled a comprehensive database, documenting how rural people in the rapidly developing country are, for example, borrowing money to invest in new farm equipment or purchasing vehicles to begin trucking businesses. The aim—as the title of his forthcoming book, Financial Systems in Developing Economies; Growth, Inequality, and Policy Evaluation in Thailand (Oxford University Press), makes clear—is to help researchers and policy-makers guide emerging nations into the global economy.

The Thai Family Research Project has been a massive undertaking: local director Khun Sombat Sakuntasathhien oversees the small army of researchers—more than 60 surveyors and data-entry staff annually check in on 2,280 households to gather information about their borrowing, income, and changes in family structure. The farmers and villagers are dispersed among four different provinces that reflect the diversity of Thailand’s agricultural economy. Based on rice in some areas, and corn production and dairy cattle in others, both are now mixed with wage labor and industrialization.

As expanding access to credit has boosted both Thailand’s entrepreneurial activity and wealth, the country buzzes with activity, and the survey families, says Townsend, are at the leading edge of that prosperity, a fact with broad economic implications: “When properly unleashed, the entrepreneurial spirit has proven to be the greatest force for generating wealth that the world has ever known.”

This summer, with the help of a three-year, $3.3 million grant from the John Templeton Foundation, Townsend and his colleagues launched a project that they hope will provide a model for how developing countries can encourage entrepreneurship to overcome poverty. “Discovering the Power of Free Enterprise” brings together researchers from Chicago, MIT’s Poverty Action Lab, and Yale’s Economic Growth Center who share an interest in applying general equilibrium models to a relatively new field known as enterprise economics.

Townsend has been influential in enterprise economics: his 1993 book, The Medieval Village Economy: A Study of the Pareto Mapping in General Equilibrium Models (Princeton University Press), set up economic models to study rental contracts, sharecropping, and land fragmentation in medieval England. His 1994 Econometrica paper, “Risk and Insurance in Village India,” applied similar equilibrium models to study how farmers in an area with inconsistent rainfall buffer the risks brought on by such bad years and how well households in the community, some of which may get hit harder than others, manage to pool these risks. Townsend’s Thai study stemmed from a desire to test whether the model worked in other villages and other countries.

Now the Free Enterprise project is taking the next step, studying poor and middle-income countries such as Cambodia, Ghana, and Mexico, as well as more advanced countries such as Spain, which underwent dramatic economic development as it entered the European Union. Four Chicago Nobelists who share Townsend’s interest in the free market and its role in developing countries—Gary Becker, AM’53, PhD’55; James Heckman; Robert Lucas, AB’59, PhD’64; and Roger Myerson—will take part, building on their own work and comparing and contrasting it to Townsend’s research.

Coupled with secondary data, including government reports on employment and income, the project’s aim is to chart the causes and effects of entrepreneurialism. Townsend’s work in Thailand, for example, has found a decided taste for entrepreneurial activity: since 1997 the number of Thais in business for themselves nearly doubled to 40 percent.

Those statistics get a human face in the interviews. In the survey’s early days Townsend spent much of his time in the field; now he returns several times throughout the year, cross-checking trends in the data with the participants’ individual experiences.

Thai farmers gather rice plants that they will plant in paddies, one element of Thailand’s rural economy that Chicago economist Robert Townsend’s research examines.

On his August visit to the family in Lopburi, he talks with the family about how their life has changed throughout the past decade. Nearby fields of sugar cane and corn have increased their yields as the farmer and his neighbors have adopted modern farming methods. Tractors, pesticides, and other items are purchased with loans, like those available from the Bank for Agriculture and Agricultural Cooperatives in Thailand or through village cooperatives, such as the one for which the farmer is vice president. “We make small loans, mostly 7,000 to 15,000 baht [about $230 to $500],” he says. The banks and cooperatives help: “They reduce our dependence on borrowing from money lenders and also help us hire labor.”

For this farmer, the benefits of credit and improved information about farming techniques can be seen in the computer and television that rest on the long desk in his house’s main room. And although his parents, like most of their generation, had only a basic education, his teenage daughter takes a bus to a secondary school. Such progress is not without problems: “We have allergies to the chemicals” used in the fields, the farmer’s wife says.

Yet the family’s experience seems to underscore Townsend’s entrepreneurial thesis. “We have learned ways to make our fields more profitable,” the father says, and we are happy that has helped us send our daughter to high school and maybe in the future on to more education.”

Link:http://magazine.uchicago.edu/0812/chicago_journal/enterprising_spirit.shtml

Templeton Foundation Funds Major Study of Entrepreneurship in Developing World

2008-11-19T17:38:00Z

Published: March 20, 2008

The John Templeton Foundation has provided a $3.3 million grant for a new project to focus on wealth creation and poverty reduction in developing countries by bringing together some of the nation’s leading economists and scholars to form The Enterprise Initiative, based at the University of Chicago.

University scholars will join researchers at the Massachusetts Institute of Technology’s Poverty Action Lab and Yale’s Economic Growth Center.

The researchers will assemble data and develop high-quality models that will focus on the role of enterprise and simulate the impact of various alternative polices, according to project director Robert M. Townsend, the Charles E. Merriam Professor of Economics and the College at the University of Chicago. With the help of researchers at the Computation Institute at the University of Chicago, the Enterprise Initiative integrates advanced computation and seeks to develop an innovative and complex web-based program that will be able to provide visual simulations of different policies. The new models created will evaluate the choice of occupation, education and access to credit and insurance at the household levels, and simulate the impact on growth, inequality and poverty reduction at the regional and national levels.

“This project will help us explain the story behind successful enterprise and its impact,” Townsend said. “Traditionally, economic research has been divided in its approaches and fields. We will seek to integrate subfields and promote a more holistic approach to looking at development.” He termed the approach “applied general equilibrium enterprise economics.”

Townsend’s work in Thailand, in which he examined individual decisions in the home and determined the relationship of those choices to economic changes on a national level, spurred the Enterprise Initiative. Thailand is a prototypical developing Asian economy with a strong culture and history of entrepreneurial activity.

Townsend’s research integrates survey and geographic data from government ministries with his own longitudinal survey data. The Townsend Thai data comes from the Thai Family Research Project, which Townsend helped establish and has co-directed for more than 10 years. That project is an ongoing longitudinal study of nearly 3,000 households in Thailand. Townsend’s upcoming book, Financial Systems in Developing Economies: Growth, Inequality, and Policy Evaluation in Thailand, features important new findings on the relationship between individuals’ choices and entrepreneurial behavior and overall economic growth, including:

•   Poverty has decreased by more than 60% in the past 35 years, with dramatic regional patterns of growth, first concentrating around urban centers, and later in more remote areas. However, inequality persists.
•   Households have made persistent transitions from rice farming to other occupations, including business. Since profits from business are high relative to wage labor, and early on there were few households in business, this transition is associated with an increase in per-capita income and a growth in inequality. However, this income differential has decreased as demand from industrialization eventually increased the wages of unskilled labor.
•    Occupation shifts, education and enhanced intermediation account for 39% of income and inequality change.
•    Approximately 80% of the growth in productivity at the national level is due to entrepreneurial activity, along with an expanding formal financial sector.
•    After Thailand faced an economic crisis in 1997 and wages dropped, the share of households in business for themselves nearly doubled to 40%, though these businesses were not as profitable as those established before the crisis.
•    The availability of credit from government loan programs and community-based cooperative loan arrangements has had a notable impact on consumption, profits and wages.

Building from Townsend’s research, The Enterprise Initiative will use the precise data from Thailand to construct the monthly income, balance sheets and cash-flow statements of scientifically sampled households, to evaluate the effects of entrepreneurship on macro-economic growth. Additionally, the Initiative will seek to collect new data from other emerging economies, such as Ghana, Mexico and India, to test economic theories and evaluate enterprise on a wider scale.

Housed at the University’s distinguished Economics Department, the Enterprise Initiative will tackle questions developed by economists as they incorporate their expertise to evaluate the range of choices and consequences that arise as an economy grows, or fails to grow.

The researchers’ high-quality data will assist policy-makers in modeling different policy options. Researchers will be able to suggest, for instance, how constructing a road in a particular area could boost business and what financial products and services could be most effective in encouraging development. The project will also shed new light on the circumstances that lead to the growth of entrepreneurialism, a critical asset in emerging economies.

The project intends to examine how people in ordinary circumstances become involved in the creation of wealth for their own benefit, and ultimately the benefit of many others. It will examine factors, such as mindsets, aspirations and talent, which enable people to overcome obstacles and become accomplished entrepreneurs.

By gathering data, sharing the stories of successful individuals who have made transformations from poverty to relative abundance, modeling choices and modeling their impact on the larger economy, the project hopes to provide guidance to policy-makers and others who are looking to alleviate world poverty.

Link: http://news.uchicago.edu/news.php?asset_id=1303

Mexican Social Development Secretariat Teams with National Opinion Research Center

2008-11-19T17:37:00Z

Published: April 24, 2008

Mexico’s social and economic development could get a boost through an agreement signed Thursday between the National Opinion Research Center (NORC) at the University of Chicago and Mexican Secretariat of Social Development (SEDESOL).

The agreement will facilitate research to improve social programs for the poor and provide critical data for economic analysis of the country as a whole. Combining the expertise of policy makers on the ground and the researchers at the University of Chicago, the agreement aims to make new strides in evaluating current programs and devising new approaches to spur economic growth.

Researchers and policy makers from both organizations in Mexico and the United States will come together to form a technical committee that will determine the research priorities.

“Once the committee determines the research agenda, SEDESOL will help provide access to the information and the NORC will carry out the research project, with the participation of SEDESOL,” said Javier Suárez Morales, Director General, SEDESOL, who came Thursday to Chicago to sign the agreement, which had also been previously signed by Felix Velez, Undersecretary for SEDESOL.

For the project, the Mexican government will provide researchers at the University of Chicago with access to comprehensive data including, census information, survey information, geographic information, and data on the characteristics of beneficiaries of social programs. Researchers from both institutions will work together to evaluate the impact of different socioeconomic programs implemented by SEDESOL and model policy alternatives.

SEDESOL will work closely with researchers at NORC to determine research topics of mutual interest that will not only benefit SEDESOL’s programming efforts, but will also strengthen academic understandings of poverty, development and growth in Mexico. “The agreement will strengthen the cooperation between the NORC and SEDESOL and promote the integration and development of databases that will collect the kinds of information researchers need to develop computer simulations that suggest how the Mexican government can make infrastructure changes, educational investments, and other improvements that would lead to economic expansion,” said Robert M. Townsend, the Charles Merriam Professor in Economics at the University.

“NORC is very pleased to enter into this agreement with SEDESOL. Combining the rich data from SEDESOL with Professor Townsend's ground-breaking analytic approaches is certain to produce results that will both advance our understanding of the Mexican economy and provide insights that can inform decisions by Mexican policymakers,” said Jeffrey Telgarsky, Sr. Vice-President and Director, International Projects, NORC.

Townsend will spearhead the research initiative on behalf of NORC. His work on entrepreneurship and wealth creation in Thailand, supported by the National Institute of Child Health and Human Development, the National Science Foundation and the John Templeton Foundation, will provide the blueprint for analysis on Mexico.

Townsend’s most recent project, the Enterprise Initiative funded by the Templeton Foundation, collaborates with the Computation Institute at the University of Chicago to develop an innovative new web-based program to look at policy implications. The Computation Institute's new program uses models, maps and graphs to simulate and visualize policy changes. The approach has already been applied to Thailand and through the NORC-SEDESOL agreement, Townsend hopes to be able to better apply it to an emerging economy like Mexico.

SEDESOL functions as a ministry of the Mexican federal government and is responsible for furthering social and economic development. It provides important social programs for children, families, the elderly, agricultural workers and the unemployed.

Link: http://news.uchicago.edu/news.php?asset_id=1341

Database on Developing Economies To Change Economics

2008-11-19T16:01:00Z

Published: October 9, 2008
The most comprehensive set of data gathered on Thailand's developing economy is now available free online.

The Townsend Thai Data, which economist Robert M. Townsend and his colleagues gathered, is available at http://dvn.iq.harvard.edu/dvn/dv/rtownsend.

The site includes 10 years of consecutive data, which will be updated with new information as it becomes available. The resource gives users not only a snapshot of economic life at a particular time, but a constantly evolving portrait of Thailand's economy at different levels.

"Here we have rich data from which academics and policy-makers alike could better understand household activities and behavior, as well as their relationship to the broader regional and national economy," said Townsend, a research professor at the University of Chicago and the Elizabeth and James Killian Professor at MIT.

The Townsend Thai data not only includes the traditional socioeconomic information on households, but it also features data on lending, borrowing, migration and family networks. The Thai Project has used state-of-the-art technology to measure environmental conditions for crop land, such as soil analysis, plot photos, daily rainfall, soil moisture, water chemistry and other bi-weekly water measurements.

Combining the Thai data with a broad range of data from national surveys and macroeconomic indicators, Townsend and his collaborators have come to better understand the role of individuals in creating national-level growth.

Combining the Thai data with a broad range of data from national surveys and macroeconomic Researchers have found that poverty in Thailand has decreased by more than 60 percent in the past 35 years and that households play a key role in changing economic conditions. The data shows that 80 percent of the growth in productivity at the national level is due to entrepreneurial activity at the household level, along with an expanding formal financial sector.

Lessons from the Thai data go beyond simply understanding the Thai context to provide broader lessons for developing economies across the globe, Townsend said. Economic models used on the data have provided important insights on global issues like rural development, microfinance, poverty, inequality, entrepreneurship, risk, financial systems, economic theory and policy evaluation.

The research needed to develop the information began when Townsend set out to determine a way to gather precise data on villages in Thailand. His journey not only led him to the field, where he visited families and talked with village leaders, but it also connected introduced him to Khun Sombat Sakuntasathhien, now local director of the project.

Together, they designed and implemented a survey in 1997 of nearly 3,000 households in four different provinces. Townsend has since led the Townsend Thai Project, an initiative that has been collecting monthly and annual data for more than a decade from thousands of farm and non-farm households in Thailand.

The Townsend Thai Project and Database Archive had the support of NORC, the National Science Foundation, the National Institute for Child Health and Human Development, and the John Templeton Foundation.

Link: http://news.uchicago.edu/news.php?asset_id=1455