Theme 1: A Territorial Approach to Prioritizing Public Investments
Project: Using Stochastic Frontier Analysis to Construct Typologies of Rural Micro-Regions

Poverty maps and the applications of cluster analysis are the main contributions that development economists have made to the first three stages of the policy process: problem definition, policy formulation and selection of a preferred policy option. These tools have proven to be extremely useful thanks to their simplicity and directness in identifying populations with urgent needs and common traits; but they are somewhat limited because of their one-dimensionality and lack of grounding on a more rational, rigorous and systematic approach.

The stochastic frontier approach provides an ideal framework to build a typology of rural micro-regions. It is developed from a theory of producer behavior in which motivation is a standard optimization criteria — minimize costs or maximize profits — but in which success is not guaranteed. The associated estimation procedures takes into account failures in efforts to optimize and different degrees of success between producers, while allowing to analyze the determinants of variation in the efficiency with which producers pursue their objectives.

  • Maruyama, Eduardo; Torero, Maximo; Scollard, Phoebe; Elias, Maribel; Mulangu, Francis; and Seck, Abdoulaye, 2018. “Frontier Analysis and Agricultural Typologies.” ZEF-Discussion Papers on Development Policy No. 251. Bonn, Germany: Center for Development Research (ZEF).
  • Torero, Maximo; Maruyama, Eduardo; and Elias, Maribel, 2009. “Tipología de micro-regiones de las áreas rurales de Ecuador: Aplicaciones de fronteras estocásticas de utilidades agrícolas.” Finanzas Públicas, Volumen 1, No. 2, Segundo Semestre del 2009.
Countries: Peru, Central America, Burkina Faso, Ethiopia, Ghana, Kenya, Malawi, Togo, Zambia

Theme 2: Poverty Prioritization
Project: Poverty-Sensitive Scorecards to Prioritize Lending and Grant Allocation in Central America

The importance of credit access to improve economic opportunities in developing countries is well established in the literature and generally recognized by policymakers. However, in lending and extending grants for development projects, the optimal use of funds may be subject to a potential trade-off between sustainability and poverty reduction in the sense that projects with a higher poverty reducing potential could also be riskier.

The scorecard approach goes beyond the standard poverty-targeting approach by helping donors choose from loan or grant applications based on both the chances of project survival and their poverty reduction potential. The scorecard system has been piloted and tested in four Central American countries through a competitive fund to select demand-driven projects, which link smallholders to markets.

This project aims to promote methodological innovations for matching grants to foster market opportunities for smallholders across the value chain while helping donors and policymakers ensure both the effectiveness and the sustainability of their investments. We have formally evaluated the effectiveness of the scorecard system over a period of three years. We have further operationalized the system through an open source platform such that it can be easily applied in other programs and contexts. The system has been adopted by the Ministry of Finance in Peru to select public development projects elaborated by regional and local governments across the country (total annual budget of US$1 billion).

Region: Central America
Funding: IADB - Multilateral Investment Fund (FOMIN)

Theme 3: Assets of the Poor
Project: Possession and Access to Assets of the Poor in Peru

This research analyzes the poor’s possession and access to assets in Peru. During the last ten years, the average level of access to education increased, and unequal access to this asset decreased. Access to other public services has also increased, though the inequality levels are still very high. This pattern is the the same with access to credit and other assets that can serve as collateral. The econometric analysis shows a positive effect of the access to public assets on the profitability of key private assets like education and land.

This is evidence of the important role of public services and infrastructure as a mechanism for boosting the profitability of private assets. Changes in assets tenure are not sufficient to explain transitions into or out of poverty; however, they are crucial in explaining the permanence in or out of poverty.

  • Escobal, Javier; Saavedra, Jaime; and Torero, Máximo, 2000. “Los activos de los pobres en el Perú,” Documentos de Investigación dt26, Grupo de Análisis para el Desarrollo (GRADE).
  • Escobal, Javier; Saavedra, Jaime; and Torero, Máximo, 1999. “Los activos de los pobres en el Perú,” El Trimestre Económico, Fondo de Cultura Económica, vol. 0 (263), pages 619-659, Julio-sep.
  • Escobal, Javier; Saavedra, Jaime & Torero, Máximo, 1999. “Los activos de los pobres en el Perú,” Research Department Publications 3059, Inter-American Development Bank, Research Department.
Country: Peru
Funding: GDN Award