The link between financial inclusion and human development is examined here. Using cross-country data, the behavior of variables that try to capture these concepts is examined and preliminary evidence of a positive association is offered. However, because establishing a causal relationship with macro-data is difficult, a thorough review of the literature on the impact of financial inclusion, focusing on micro-studies that can better address identification is conducted. The literature generally distinguishes between different dimensions of financial inclusion: access to credit, access to bank branches, and access to saving instruments (i.e., accounts). Despite promising results from a first wave of studies, the impact of expanding access to credit seems limited at best, with little evidence of transformative effects on human development outcomes. While there is more promising evidence on the impact of expanding access to bank branches and formal saving instruments, studies show that some interventions such as one-time account opening subsidies are unlikely to have a sizable impact on social and economic outcomes. Instead well-designed interventions catering to individuals’ specific needs in different contexts seem to be required to realize the full potential of formal financial services to enrich human lives.
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Financial Inclusion and Human Development
Maria Soledad Martinez Peria and Mu Yang Shin
Article
Making Institutions Work From the Bottom Up in Africa
Moussa P. Blimpo, Admasu Asfaw Maruta, and Josephine Ofori Adofo
Well-functioning institutions are essential for stable and prosperous societies. Despite significant improvement during the past three decades, the consolidation of coherent and stable institutions remains a challenge in many African countries. There is a persistent wedge between the de jure rules, the observance of the rules, and practices at many levels. The wedge largely stems from the fact that the analysis and design of institutions have focused mainly on a top-down approach, which gives more prominence to written laws. During the past two decades, however, a new strand of literature has emerged, focusing on accountability from the bottom up and making institutions more responsive to citizens’ needs. It designs and evaluates a mix of interventions, including information provision to local communities, training, or outright decentralization of decision-making at the local level. In theory, accountability from the bottom up may pave the way in shaping the institutions’ nature at the top—driven by superior localized knowledge. The empirical findings, however, have yielded a limited positive impact or remained mixed at best. Some of the early emerging regularities showed that information and transparency alone are not enough to generate accountability. The reasons include the lack of local ownership and the power asymmetry between the local elites and the people. Some of the studies have addressed many of these constraints at varying degrees without much improvement in the outcomes. A simple theoretical framework with multiple equilibria helps better understand this literature. In this framework, the literature consists of attempts to mobilize, gradually or at once, a critical mass to shift from existing norms and practices (inferior equilibrium) into another set of norms and practices (superior equilibrium). Shifting an equilibrium requires large and/or sustained shocks, whereas most interventions tend to be smaller in scope and short-lived. In addition, accountability at the bottom is often neglected relative to rights. If norms and practices within families and communities carry similar features as those observed at the top (e.g., abuse of one’s power), then the core of the problem is beyond just a wedge between the ruling elite and the citizens.
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Religiosity and Development
Jeanet Sinding Bentzen
Economics of religion is the application of economic methods to the study of causes and consequences of religion. Ever since Max Weber set forth his theory of the Protestant ethic, social scientists have compared socioeconomic differences across Protestants and Catholics, Muslims, and Christians, and more recently across different intensities of religiosity. Religiosity refers to an individual’s degree of religious attendance and strength of beliefs. Religiosity rises with a growing demand for religion resulting from adversity and insecurity or a surging supply of religion stemming from increasing numbers of religious organizations, for instance. Religiosity has fallen in some Western countries since the mid-20th century, but has strengthened in several other societies around the world. Religion is a multidimensional concept, and religiosity has multiple impacts on socioeconomic outcomes, depending on the dimension observed. Religion covers public religious activities such as church attendance, which involves exposure to religious doctrines and to fellow believers, potentially strengthening social capital and trust among believers. Religious doctrines teach belief in supernatural beings, but also social views on hard work, refraining from deviant activities, and adherence to traditional norms. These norms and social views are sometimes orthogonal to the general tendency of modernization, and religion may contribute to the rising polarization on social issues regarding abortion, LGBT rights, women, and immigration. These norms and social views are again potentially in conflict with science and innovation, incentivizing some religious authorities to curb scientific progress. Further, religion encompasses private religious activities such as prayer and the particular religious beliefs, which may provide comfort and buffering against stressful events. At the same time, rulers may exploit the existence of belief in higher powers for political purposes. Empirical research supports these predictions. Consequences of higher religiosity include more emphasis on traditional values such as traditional gender norms and attitudes against homosexuality, lower rates of technical education, restrictions on science and democracy, rising polarization and conflict, and lower average incomes. Positive consequences of religiosity include improved health and depression rates, crime reduction, increased happiness, higher prosociality among believers, and consumption and well-being levels that are less sensitive to shocks.
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The Behavioral Consequences of Conflict Exposure on Risk Preferences
Enrique Fatas, Nathaly Jiménez, Lina Restrepo-Plaza, and Gustavo Rincón
Violent conflict is a polyhedric phenomenon. Beyond the destruction of physical and human capital and the economic, political, and social costs war generates, there is an additional burden carried by victims: persistent changes in the way they make decisions. Exposure to violence generates changes in how individuals perceive other individuals from their group and other groups, how they discount the future, and how they assess and tolerate risk. The behavioral consequences of violence exposure can be documented using experiments in which participants make decisions in a controlled, incentive-compatible scenario. The external validity of experiments is reinforced when the studies are run in postconflict scenarios, for example, in Colombia, with real victims of conflict. The experimental tasks, therefore, may map risk attitudes among victims and nonvictims of the conflict who share a common background, and distinguish between different types of exposure (direct versus indirect) and different sources of violence (conflict-related versus criminal violence). The experimental evidence collected in Colombia is consistent with a long-lasting and substantial effect of conflict exposure on risk attitudes. Victims are more likely to take risks and less likely to make safe choices than nonvictims, controlling for demographic, socioeconomic, and attitudinal factors. The effect is significant only when the source of violence is conflict (exerted by guerrilla or paramilitary militias) and when violence is experienced directly by individuals. Indirect conflict exposure (suffered by close relatives) and criminal violence leave no significant mark on participants’ risk attitudes in the study.
