How important is research to economic development? Q&A with J-PAL’s Alison Fahey

Orthodox thinking of how to help the most unfortunate in our societies tends to be the unconditional giving of charitable aid. This is how philanthropy has functioned for decades.

In recent years, however, as Business Forward previously addressed, approaches to tackling issues such as poverty, education and unemployment have been shifting towards a more pragmatic turn.

Terms such as venture philanthropy and impact investing have become more prevalent. While they still ultimately involve pouring money into schemes which help people, research and evidence-based interventions are central to their execution.

Discovering impactful interventions backed up by data is the core mission of the Abdul Latif Jameel Poverty Action Lab (J-PAL), a global research center founded in 2003 at the Massachusetts Institute of Technology.

A global network of more than 220 world leading development economists and political scientists contribute to J-PAL’s rich evidence base, with regional offices based at universities all around the world. The AUC School of Business is home to the lab’s Middle East and North Africa (MENA) office.

While J-PAL does not execute interventions themselves, they partner with a variety of organizations that implement projects on a small scale to evaluate their effectiveness of tackling a given problem. J-PAL will also help design interventions for these organizations to implement.

Organizations can include charities, government agencies, private sector companies and non-government organizations (NGOs).

Business Forward had a one-on-one with J-PAL MENA’s interim executive director, Alison Fahey, to talk about the importance of research in informing policies that intend to address some of the region’s most chronic social problems, and how such policies can enrich the business ecosystem and the economy overall.

“At the heart of J-PALS’s work is applying research to build [an] evidence base for understanding what works in social policy,” Fahey says. When an evaluation proves an intervention’s impact, its evidence is shared “so that [other] programs can use that evidence in their own design and ultimately be more effective at accomplishing their goals.”

Research is not the only thing J-PAL does though. “To compliment the work happening on the research side, we have a policy team that works on building relationships with decision makers, government, non-profit [organizations] and donors to help them use the insights from the evidence that’s been generated in their own program design. It’s not the case that every single organization needs to be conducting impact evaluations but there’s a really rich body of evidence that exists that we learn from to design more effective programs that accomplish development goals and to also ultimately help us spend resources more effectively.”

Over the last 18 years or so, J-PAL’s network of researchers has conducted more than a thousand evaluations in more than 80 countries around the world. However, the MENA region remains lagging behind.

Fahey states that less than 3 percent of their evaluations were conducted in the MENA region. One of the goals at J-PAL MENA is to work together with local policy partners is to generate region-rooted evidence that helps to address some of its unique challenges.

“To date, there are fewer than 30 impact evaluations in the MENA region and about half of them are in Egypt.”

How does J-PAL’s work contrast with charity and philanthropy?

It’s a wonderful human impulse that we want to do more to care for those who are less fortunate. That’s something that people feel intrinsically.

A question that we raise is how we make sure that every dollar we give is actually helping to accomplish the goals that it sets out to give. If I want to give because I really care about improving kids’ educational outcomes, I’m going to give to educational causes. The thing that we struggle with is when we look over time, we see that despite the giving, there are relatively modest improvements on [things such as] poverty reduction indicators or kids are in school but they’re not necessarily learning.

We’re not seeing huge gains in terms of outcomes and so the puzzle that we’re trying to crack is we’ve got all this money going into the system [but] can we help to improve the effectiveness of the things that the money is supporting.

What are some of the macroeconomic effects of high levels of poverty and unemployment?

Deep injustice and the existence of extreme poverty reflects a tremendous loss of potential. There are so many huge would-be entrepreneurs, writers and filmmakers who simply by virtue of the circumstances of their birth may not ever have that opportunity.
Fahey is motivated by a recognition that inequality is a combination of complex factors but that policy choices can potentially help to lessen some of the circumstances of inequality. That motivates her to care about policy issues, in particular issues related to poverty.

What are the macroeconomic effects of the reverse and why should governments and the private sector invest in poverty and unemployment reduction schemes?

If it’s good for individuals, it’s good for the economy overall. If your objective is long-term economic growth, then investing in human capital for everyone [particularly the most vulnerable] can help people [become] solidly middle-class who are able to provide better opportunities for their kids.

A bigger question for government is around the tax base that’s available for them to work with. Your revenue is going to inform what your budget situation looks like and therefore what kind of programs you can afford to deliver. There are areas of research that are focused on effective tax administration and trying to tie taxes back into responsive public services.

We know there are lots of firms in Egypt who have vacancies and [they] can’t find the right people and there are a lot of people who [have degrees] and can’t find the right jobs. There’s a mismatch in the labour market and there could be many different barriers that could explain why that mismatch exists. Which types of programs and interventions will help to make that matching happen so that firms have full employment and job seekers [find] jobs.

There’s a lot of research related to access to finance. For anyone who’s in business, access to capital is a key part of starting, sustaining and growing your own business. Access to capital tends to be quite restricted for those who are lower income even though they may have good ideas and see good business opportunities.

In Egypt, we’ve seen some really interesting and quite positive results around the effectiveness of access to finance, in particular women starting new businesses.
Even so, only a minority of Egypt’s population are formally banked and have access to commercial financial services. Fahey says that strengthening microfinancing and SME financing would help to “create a pipeline of people who will eventually [want] more formal financial services for their families and their business.”

“Helping to support the potential of human capital and entrepreneurial potential of more people makes sense from a business perspective. That segues into increased consumer demand for access to finance and increased contributions to the broader economy through creating businesses that help to generate more demand in turn.”

Fahey adds that where organizations are intervening on issues where there is no evidence for what is the most effective, J-PAL will work and learn with the organizations to test out innovative solutions to find out which intervention is the most effective. This has helped inform the philanthropic sector.

Some of the biggest supporting organizations are the Bill & Melina Gates Foundation, the Hewitt Foundation and the Omidyar Network. J-PAL has been especially eager to partner with organizations in the MENA region to fill in huge evidence gaps for several issues related to employment, gender, education, humanitarian issues and climate change.

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