1. Albert Park, University of Michigan Sangui Wang, Chinese Academy of Agricultural Sciences Community-based Development and Poverty Alleviation An Evaluation of Chinas Poor Village Investment Program PRELIMINARY FINDINGS FOR DISCUSSION ONLY PLEASE DO NOT CITE OR CIRCULATE

2. Community-based development Motivation Definition: an umbrella term for projects that actively include beneficiaries in their design and management (Mansuri and Rao, 2004) Increasing popular model for development assistance: World Bank lending to community-based development projects increased from $325 million ($2 billion) in 1996 to $3 billion ($7 billion) in 2003 (Mansuri and Rao, 2004). By 2001, the WB had financed more than 98 social fund projects in 58 countries (Rawlings and Schady, 2002). But, relatively few cases of local government-led efforts (Chile SF).

3. Community-based development Issues Increasing popularity of CBD reflects growing belief that sound governance and local accountability are keys to project success (e.g., World Bank, 1999; Easterly 2002) Many have assumed that decentralization/participatory decision-making improves targeting and impact, although empirical evidence remains limited and mixed Key issue is whether local elites capture such processes and whether they favor rich or poor, but lack of empirical evidence (Bardhan and Mookherjee, 2005 and 2000) Growing body of research finds that local governance, and inequality/heterogeneity affects projects chosen, and the amount and quality of public goods (Araujo et al., 2005; Foster and Rosenzweig, 2003; Khwaja, 2004; Besley, Pande, and Rao, 2005)

4. Community-based development Previous evaluations of community-based development programs Some studies find community-based schemes effectively target the poor: Galasso and Ravallion (2005): community targeting of Bangladesh education subsidies were pro-poor but worse with greater land inequality or remoteness Alderman (2002): communities in Albania targeted better than the center could do using proxy means targeting Pradhan and Rawlings (2002): Nicaragua social fund was well- targeted to poor But others find the opposite: Rao and Ibanez (2005): Jamaica social fund did not pick projects favored by the poor but poor were relatively satisfied with project results Chase (2002) and Paxson and Schady (2002) find that targeting withing communities in Armenia and Peru were not well- targeted toward the poor World Bank (2002): review of social fund projects concluded that within-community targeting of poor not very effective No studies use panel household data or examine the effect of public investments on measurable welfare outcomes (e.g., income and consumption)

5. Evaluating Chinas poor village investment program Contributions First quantitative evaluation of the largest community- based development program and largest targeted poverty investment program in the developing world First evaluation of the effect of community-based development programs on household welfare using panel data First empirical evidence on relationship between participatory programs and targeting of income and consumption benefits of public investment projects New evidence on the relationship between governance factors and the benefits of participatory schemes

6. Research questions 1. To what extent did the program increase public investments in targeted villages? 2. What were the impacts of the program on household income and consumption growth and poverty? 3. How did the investment program affect the propensity of rural laborers to out-migrate? 4. To what extent did governance factors (elite capture, quality of village government, household heterogeneity) mediate program impacts?

7. Data 2005 World Bank-National Bureau of Statistics village- level survey Sample includes 3036 villages in all poor counties (199) and one third of non-poor counties (187) in the NBS national rural household survey sample 2004 and 2001 NBS rural household survey data in the same villages 10 households per village Nearly all of the households (97 percent) are the same in 2001 and 2004, enabling construction of a panel dataset Sample of designated poor villages includes 666 villages and 5500 households (w/panel data)

8. Chinas Poor Village Integrated Development Program Key program features Shift from county targeting to village targeting in 2001, 148,000 villages (21% of all villages) designated as poor Each village designs integrated investment plan (with participatory component) to coordinate targeted poverty investments from different sub-programs managed by different agencies: Subsidized Loans by the Agricultural Bank of China Food for Work by National Development Reform Commission Budgetary Grants by Ministry of Finance Village selection and plan development were coordinated by of Offices of the inter-ministerial Leading Groups for Poor Area Development at different government levels. A key goal of the new strategy was to improve targeting and concentrate resources for poverty alleviation in an integrated fashion

9. Spending on government poverty alleviation programs: 2001-2004 … A large amount of resources are committed to the official poverty reduction programs, accounting for 5-6% of the central government budget

10. What was the process of designation of poor villages? … A Formula-based Approach A Weighted Poverty Index (WPI) was used to rank villages based on eight indicators In practice, the local governments were allowed to change some of the indicators and weights on indicators based on local circumstances (decided through participatory approach) Substantial mistargeting when evaluated solely using income and consumption data Grain production/person/year Cash income/person/year % of poor quality houses % of households with difficulty of access to potable water % of natural villages with access to reliable electricity supply % of natural villages with an all- weather road access to county town % of women with long-term health problems % of eligible children not attending school

11. Regional distribution of poor villages … A Formula-based Approach

12. The village planning process, in principle From official guidelines provided to local governments Principles Projects helping the poor should be favored Participation of households and different groups (e.g. women) should be emphasized Plans should integrate resources from different sources to maximize efficiency Plans should be for 3-5 year time horizon and reflect local conditions and causes of poverty Plans should follow standardized procedure set by county government for easier management and integration

13. The village planning process, in principle From official guidelines provided to local governments Procedures Analyze causes of poverty and project solutions, based on analysis of village-level data and participatory workshops with 10-20 villagers With support of technicians, conduct SWOT (Strength, Weakness, Opportunity and Threat) and feasibility analysis to help villagers and leaders gain a better understanding of the potential gap between demand and supply as well as potential impacts More detailed assessment of project beneficiaries, project requirements, including technical and other support, and project implementation (annual schedule, including budget and labor allocations, monitoring and evaluation) Selection of projects by a vote of entire village

16. The village planning process, in practice From field visits and interviews with staff of Poor Area Development Offices Most official guidelines not followed, especially with regard to participatory methods Plans often designed by village committees, small group (hamlet) leaders, party representatives, and representatives of households, with help of a township government official (trained by county Poor Area Development Office staff) County poor area development offices could not treat all villages at once because of staff and budget constraints Plan amounts often far exceeded actual financing, because funds from some programs were not coordinated with plans. Field research found that subsidized loans rarely went toward village plans and Food-for-Work projects sometimes did

17. By the end of 2004, 55% of poor villages had completed village plans and 37% of poor villages had begun investments based on the plans LGOPAD reports that a higher percentage (83%) of poor villages completed village plans, but a lower percentage (32%) of poor villages began plan investment Has village planning been fully implemented? Percent of poor villages completing plan and starting investments based on the plans Source: World Bank-NBS Special Purpose Survey

18. Matching methodology Estimate average treatment effect on the treated, matching control observation to the treated sample Matching method: weighted nearest neighbors (3 matches per treated observation), with enforcement of exact matching by province (nearly 100 percent) Propensity scores from logit estimation are used to determine common support, trimming rules Matching variables: time-invariant or measured prior to start of program.

19. Common support? Distribution of propensity scores (logit model) for designated poor villages that began program investments and matched poor villages that did not begin investments

20. To what extent did the program increase public investments in targeted villages? Sources of investment finance: Government finance Village funds Village corvee labor Other Factors affecting village investments Matching requirements Complementary investment opportunities Substitution Questions: How much did the program increase government investment in projects in light of coordination problems and potential substitution? Were government poverty investments complements or substitutes for villages own investments?

21. Impact of program on change in log(investment per capita) Village matching estimates Financing sourceAll ChinaWestNon-west Total investment***2.23 (0.539) ***1.54 (0.345) ***3.70 (1.23) Total monetary investment***1.38 (0.285) ***1.46 (0.331) ***1.37 (0.548) Govt monetary investment***0.99 (0.204) ***1.13 (0.313) ***0.85 (0.284) Village monetary investment***0.64 (0.232) 0.07 (0.179) ***1.43 (0.510) Corvee labor days-0.19 (0.164) **-0.66 (0.320) **0.38 (0.172) N588373215

22. Impacts on household income and consumption growth and poverty Main goal of the poor village investment is to reduce poverty However, evaluation of impacts on income and consumption is likely to understate program benefits Most treatment villages have not completed plans There may be lag in program benefits Health and education benefits not captured Identification of effects on rich and poor: Within-village estimators of effects on rich and poor (defined by 2001 median income per capita) Comparison of restricted (villages with both rich and poor households) and unrestricted samples

23. Impacts on share of labor that migrates Motivating concerns Concern that poor are not being included in the benefits of Chinas rapid structural change Concern about congestion effects of high migration rates Tension between strategies to raise local productivity or facilitate out-migration? Ambiguity over predicted effects of different infrastructure investments

24. Impact on household income, consumption, and migration Village matching estimates ln(inc. pc)ln(cons. pc)migration-share All villages All0.030 (0.031) 588 0.010 (0.029) 588 -0.025 (0.017) 588 Poor-0.039 (0.062) 552 0.001 (0.042) 552 -0.005 (0.018) 552 Rich*0.066 (0.035) 484 **0.088 (0.036) 484 ***-0.052 (0.018) 484 Villages with both poor and rich households: All0.029 (0.037) 448 0.054 (0.039) 448 -0.031 (0.019) 448 Poor-0.061 (0.067) 448 0.006 (0.045) 448 0.000 (0.020) 448 Rich***0.096 (0.039) 448 ***0.114 (0.038) 448 **-0.047 (0.019) 448

25. Discussion: why didnt the poor benefit? Possible explanations Lack of capacity to take advantage of public investments Lack of participation in village planning activities Exclusion by elites

26. Governance and program impacts Relationships of interest Did the program affect governance? Did governance influence the magnitude or distribution of program benefits? Governance variables (from principle components analysis) Education of village leaders village secretary years of education village mayor years of education share of village committee members with middle school education or above Quality of the village committee Number of members Frequency of meetings Heterogeneity in years of education of household heads

27. Impact of investment program on village governance in 2004 Village matching estimates Governance outcomeAll ChinaWestNon-west Education of leaders***0.606 (0.122) ***0.821 (0.204) ***0.754 (0.128) Quality of village committee 0.069 (0.099) 0.143 (0.105) -0.057 (0.165) N583371212

28. Governance and program impacts on the rich and poor within villages Village matching estimates Education of village leadersQuality of village committee LowHighDiff.LowHighDiff. mean ln(inc. pc)Poor0.073 (0.059) 0.031 (0.059) -0.042**-0.195 (0.082) 0.130 (0.096) ***0.325 Rich-0.048 (0.072) 0.032 (058) 0.0800.052 (0.053) ***0.409 (0.070) ***0.357 Diff.-0.1210.0010.122***0.247***0.2790.032 Mean ln(con. pc)Poor0.032 (0.089) ***-0.121 (0.047) ***-0.153***-0.159 (0.058) 0.047 (0.075) ***0.206 Rich-0.057 (0.069) 0.023 (0.038) 0.0800.057 (0.044) ***0.300 (0.059) ***0.243 Diff.-0.089***0.144***0.233***0.216***0.2530.037

29. Village heterogeneity and program impacts on the rich and poor within villages Village matching estimates Village heterogeneity in years of education of household heads (Theil index) LowHighDiff. mean ln(inc. pc)Poor-0.018 (0.096) **-0.126 (0.054) -0.108 Rich0.037 (0.049) 0.033 (0.033) -0.004 Diff.0.0550.1590.104 Mean ln(con. pc)Poor***0.143 (0.049) **-0.081 (0.040) -0.224 Rich***0.199 (0.048) *0.079 (0.047) -0.120 Diff.0.0560.1600.124

30. Conclusions There is no evidence that participatory village plans have helped the poor to benefit more from targeted investments or reduced rural poverty in China Governance factors affect the amount and distribution of benefits under decentralized/participatory decision- making The relative benefits accruing to the rich increase with the education of village leaders Greater benefits for both rich and poor increase are associated with high quality village committees The poor are particularly disadvantaged in more heterogeneous communities (w.r.t. educational attainment) Priority to improve the design and implementation of the program