Keys to Human Development Bertil Tungodden, Norwegian School of Economics 3th National Conference «Unleashing growth potential in Tanzania: Economic Transformation for Human Development» Dar es Salaam, September 11, 2014

Behavioral economics and experimental methods

Key messages from my talk! Keys to human development: A trusting society An entreprenurial society Keys to learning about the way forward: Lab experiments Randomized control trial field experiments 3

Why is Norway doing so well in human development? 4

How is Norway different? 5

Trust is much more important than oil! Fornavn Etternavn,

Why is trust so important? Let us do a small lab experiment (to illustrate the mechanism)! A trust game: –Suppose that you and someone else in the audience are paired together anonymously in an experiment. –Suppose you are given 1 million Tsh and are to decide how much of this to send anonymously to the other participant. –Whatever you send will triple in value! –But it is all up to the other participant to decide how much to return to you! –What do you do? Reflects many real life situations where we can’t write a contract, but have to put our faith in others to create value. 7

But even if we can write a contract, it would be much more efficient if we could rather trust our partner 8

Key message 1: Trust is crucial for Human Development However: Trust levels are not necessarily stable in a society! – Norway was not a trusting country one hundred years ago. Million dollar question: How do we create a trusting society? – Public schools may be important – establish social norms of trustworthness and of trusting others. – More research is needed to understand the mechanisms of trust – and the importance of trust should be given more focus in the public debate. 9

Key message 2: How to build an entrepreneurial society? Young people in developing countries typically have to create their own jobs. –65% of Tanzanias are below 25 years old, very few get a formal job. –Self-employment promoted in the development plans of many poor countries (including Tanzania). –Opportunities for all! Entrepreneurship can play a role in ensuring development with a human face! Three research projects in Tanzania: –What does it take to succed as an entrepreneur: Financial vs Human capital? –How can we reach out with entrepreneurship training: Ruka Juu! –Can enterpreneurship be a way to female empowerment? Girl Power 10

Key message 3: How to learn about development? Randomized control field experiments: The road to understanding the impact of a policy intervention! Social scientists are basically copying the approach used in medicine and the natural sciences for a long time! 11

12 Human and financial capital for microenterprise development: Evidence from a field and lab experiment –”…most simply duplicate what their neighbours are doing and do not appreciate the importance of innovation, quality, credibility and customer care.” Donath Olomi, University of Dar es Salaam

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Main findings A combination of financial capital and human capital is needed for small scale entrepreneurs to grow. Find very strong evidence of increased sales and profits among male entrepreneurs. More comprehensive measures needed for the female entrepreneurs. They learn as much as the male entrepreneurs from the training, but no signficant effects on business performance. Our findings suggest that this is largely due to external constraints (like family obligations). 14

Teaching entrepreneurship through television: Ruka Juu! 15

Short term findings The edutainment show had a strong effect on their ambitions – made them much more interested in business and entrepreneurship (particularly females). The edutainment show also made them more risk willing and patient. What about long-term effects? 16

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Girl power 18 Decisive time: Adulthood Why? Lack of knowledge/empowerment? Lack of economic opportunities?

Time line Baseline survey: April-May schools in Dodoma, Singida, Morogoro and Tabora 3485 girls Randomization: Right after baseline 4 groups, 20 schools in each: Health, Entrepreneurship, Both, Control “Build your life”, “Protect your life” Training of teachers: May 2013 Based on newly developed booklets from Femina Training of the girls: July – September 2013 Follow-up survey I: September-October 2013 Training camp for surveyors started on September 16 Separate in-depth qualitative follow-up Follow-up survey II: Second half of 2014 Initial pilot in April 2014 Training camp for surveyors starts on September 8 Separate in-depth qualitative follow-up later in the fall 19

METHOD Pre-analysis plan: Pre-specify what we would like to study and how we would like to test it (to avoid data mining) Follow-up surveys: to study the impact of the training on: –Follow-up I: Knowledge, Behavior (plans), Gender-equality, and Empowerment. –Follow-up II: Behavior, Welfare, Persistence of Gender-equality and Empowerment. 20

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Follow-up II: The important next step Promising short-term treatment effects –They know more –They feel empowered –They do have plans We would like to study whether these initial positive findings have translated into changes in actual behavior and increased welfare (and also the persistence of gender-equality attitudes and empowerment feelings). Basic idea: Girls need both to be empowered and to be given economic opportunities!! 23

Key messages from my talk! Keys to human development: A trusting society An entreprenurial society Keys to learning about the way forward: Lab experiments Randomized control trial field experiments ASSANTE SANA! 24