Do Poverty Reduction Strategy Papers reduce poverty and improve well-being?

1. Do Poverty Reduction Strategy Papers reduce poverty and improve well-being? Meg Elkins Simon Feeny David Prentice EADI Conference June 2014

2. Outline • Background and motivation • Research questions • Data • Methodology – 3 stages • Results • Conclusion

3. Background and Motivation • Poverty Reduction Strategy Papers: (PRSPs): strategic frameworks for low-income countries to create economic and social policy to reduce multi-dimensional poverty • PRSP guiding principles: • Country-driven and owned; results orientated; comprehensive in scope; partnership orientated; medium and long-term in focus. • Collectively, Millennium Development Goals and PRSPs demonstrate the importance of tackling poverty in its many forms. • Due to lack of consensus regarding the practicalities of how the MDG targets would be achieved MDGs were integrated into PRSPs in March 2001. • Opportunity to reflect on the relative successes of this generation’s policy tools to inform the next generation of MDGs. • Provide feedback to the open policy space beyond 2015.

4. Background • Motivation • The paper was motivated by a paper by Sumner (2006) questioning the next plausible contemporary paradigms to emerge in the PRSPs. • This study extends the literature in the PRSP effectiveness in two ways • 1) Adopts a multi-dimensional concept of well-being to include MDG indicators • 2) Uses heterogeneous and homogeneous PRSP treatment effects – measures how alignment to the development paradigms further impacts on MDG indicators

5. Research Questions

6. Data • Panel of 118 countries from 1999-2008 (52 developing countries undertaking PRSP and 62 control countries) provide the period of treatment • 7 MDG indicators (WDI): headcount poverty, primary school enrolment, ratio of girls to boys in the classroom, infant mortality, maternal mortality, HIV prevalence and access to sanitation • Control Variables - World bank Governance, GDP per capita (2005), real GDP, Health expenditure (for the health indicators).

7. Three stage methodology

8. Stage 1: Paradigm Alignment Indices • Scorecards – to assess the degree of alignment to the development paradigms. For construction see Elkins, 2013; and Elkins and Feeny, 2014 • Washington Consensus: Williamson’s (1990) • Post-Washington – Rodrik’s interpretation (2005) • New York Consensus – Millennium Development Project (2005) • Social Protection Agenda – ADB and Baulch & Wood (2008) • Index values fall between 0-1

9. Development Paradigms: Washington Consensus – Williamson (1990) • Fiscal discipline • Re-orientation of fiscal expenditures • Tax reform • Financial liberalisation/interest rate liberalisation • Unified and competitive exchange rate • Trade liberalisation • Openness to foreign direct investment • Privatisation • Deregulation • Secure property rights 

10. Post-Washington Consensus Rodrik (2006) • Corporate governance • Anti-corruption measures • Flexible labour markets • WTO agreements • Financial codes and standards • Prudent capital account opening • Non-intermediate exchange rate • Independent central banks • Social safety nets • Targeted poverty reduction

11. New York Consensus: UNDPs Millennium Development Project (2005) • Infrastructure capacity – capital expenditure • Rural development- agricultural productivity and management • Education – provisions • Health – child and maternal mortality, control for diseases • Governance – rule of law and anti-corruption measures • Employment – public works, decent work programmes • Water and sanitation – infrastructure and management • Gender equality and empowerment – representation and land entitlement Environment – biodiversity, urban dwellings, resource protection • Science and Technology – research and development, higher education

12. Social Protection Agenda

13. Stage 2: Propensity Score Matching • To construct an appropriate control group the study uses propensity score matching techniques • Matches on the probability of PRSP treatment based on similar country characteristics • Matched on the infant mortality – large sample size and consistency across all MDG variables • Matched on cross section data averaged between 1996-1999 – ie pre-treatment characteristics to determine the likelihood of treatment. • The following variables related to infant mortality: External debt to GNI, GDP per capita, Governance, % health expenditure to GDP, and Ethnicity • 52 PRSP treatment countries matched with 62 control countries

14. Stage 3: Difference-in-difference estimation • D-I-D used in combination with PSM is a relatively new programme evaluation technique • Regressions estimations D-I-D controls for any pre-existing constant difference in the outcomes • Countries adopt PRSPs in different years –therefore the indicator is only switched on when ‘treatment’ is in effect • Use PRSP dummies to capture country and fixed effects – prior and post policy changes.

15. Model Specification 1) Base regression specification Evaluates MDG progress from the PRSP treatment Uses PRSP treatment dummy to determine treatment effect 2) Alternate specification with alignment indices Yit= 0 +1PRSPit+2PRSP*PAISit+ 3Xit+ i +t +it (2) Uses interaction term between the treatment dummy and alignment scores

16. Average Treatment effect • Average treatment effect estimates the potential unobserved outcome

17. Results

18. Results continued

19. Discussion • Results find that PRSP adopters did achieve statistically significant improvements in all categories but maternal mortality – although data was weakest for this indicator • Heterogeneous effects as estimated by average treatment effects reported marginally smaller results for headcount poverty, primary school enrolment, ratio of girls to boys in the classroom, infant mortality, maternal mortality and HIV prevalence. The ATE for sanitation was larger. • New York Consensus found statistically significant improvements for primary school enrolment, ratio of girls to boys in the classroom, infant mortality, and HIV prevalence • Alignment to the SPI was significant for headcount poverty and for access to sanitation.

20. Conclusion • Evidence from this study suggest that PRSP recipients more effective at achieving MDG outcomes than the comparison group of countries • Inclusion of the paradigm alignment indices tries to address the issue of causation by including policy choices made within each PRSP. • Results are encouraging for the international community with PRSP treatment and alignment to the NYC achieve even higher results for all MDG indicators except maternal mortality and access to sanitation. • These results evidence how the ambitious targets of the MDGs used in combination with the practicalities of the PRSR are able to deliver the intended objective of multi-dimensional poverty reduction. • Augurs well for setting and embedding ambitious targets in the next generation of MDGs

21. Conclusion

22. Thank you! • Meg Elkins • RMIT University – Melbourne Australia • Meg.elkins@rmit.edu.au

23. MDG progress indicator and PRSP treatment – OLS