Laterite web 20b

Challenge

Challenge
  • The literature on program/impact evaluation is rapidly evolving, with new methods and econometric solutions appearing every year. 
     
  • Developing counterfactuals at the level of region or country remains difficult; one of the few methods that has been used at the level of countries is synthetic controls.
     
  • More broadly speaking, econometric analysis at the country level has proven challenging, because of small sample sizes and the high levels of variation in macro - and socio - economic indicators. 

Innovation

Innovation
  • In "Export Similartiy Networks and Proximity Control Methods for Comparative Case Studies",  a paper published in the Journal of Globalization and Development, we explore just how similar the growth trajectory of countries with similar exports is, and exploit this similarity to conduct counterfactual analysis

 

  • We find that a synthetic combination of a country’s most similar exporters often perfectly matches economic growth in the reference country over a long period of time.

 

  • We call the imapact evaluation method we propose Proximity Controls and apply it to the case of Indonesia’s 1997 financial and political crisis - we also highlight applications to the cases of political instability in Ivory Coast, election violence in Kenya and Greece’s debt crisis.

 

  • The techniques presented in this paper are derived from a measure of the export similarity between countries, which we show is predictive of how similar countries are in terms of a whole range of other indicators, including GDP per capita, growth, imports, educational attainment, and institutional performance.

 

Outcome

Outcome
  • What we hope policy makers gain from this paper are: (i) a number of data-driven strategies with which they can identify optimal comparator countries for a country of interest; (ii) an innovative technique to carry out aggregate counter-factual analysis at the sector or country level, which we call proximity controls and which is largely inspired by the synthetic controls methodology of Abadie and Gardeazabal (2003); and (iii) new insights about economic growth, in particular the fact that countries with similar export structures tend to grow at similar rates and that countries that deviate from these shared growth rates tend to converge back towards them.