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Certified B Signature Redacted January Essays on Financial, Transportation and Savings Investment Technologies MASSACHUETT WNTUE by IOI CHNO Tite Yokossi MAROFT 212017 Submitted to the Department of Economics in partial fulfillment of the requirements for the degree of LIBRARIES Doctor of Philosophy in Economics ARCNES at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY February 2017 @ Tite Yokossi, MMXVII. All rights reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereafter created. Author.... Signature redacted................. Department of Economics January '192017 CertifiedtfeCy. e . ......b....... Signature redacted Esther Duflo Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics Supervisor Certified by...Certiied Signature y ....... redacted Thesis. .......... Benjamin Olken Professor of Economics Thesis Supervisor Accepted by... Signature redacted ................... Ricardo Caballero _ .......------. F..rd International Professor of Economics Chairman, Departmental Committee on Graduate Studies 77 Massachusetts Avenue Cambridge, MA 02139 M IT Libraries http://Iibraries.mit.edu/ask DISCLAIMER NOTICE Due to the condition of the original material, there are unavoidable flaws in this reproduction. We have made every effort possible to provide you with the best copy available. Thank you. The images contained in this document are of the best quality available. 2 Essays on Financial, Transportation and Savings Investment Technologies by Tite Yokossi Submitted to the Department of Economics on January 19, 2017, in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics Abstract This thesis investigates the impact and adoption of three types of technologies mobile money, a leading financial technology in Kenya, the colonial railway, an im- portant transportation technology in Nigeria, and two prevalent savings investment technologies for the provision of retirement income: inter-generational transfers (pay- as-you-go systems) and capital markets investments. Access to mobile money services is shown to have a significant impact on economic activity. Areas with access to mo- bile money services grow faster, especially when they are initially richer, urban, and connected to roads and to banks. The heterogeneity of the the short- and long-run effects of railroads on individual and local development in Nigeria is found to be substantial. Unlike in areas further away from the coast, the railway had no impact in areas that had access to ports of export and those areas barely adopted the rail- way as it did not reduce their shipping costs. The cross-country heterogeneity in the adoption of savings investment technologies is shown to be accounted for by rational, welfare maximizing decisions based on distinct underlying economic characteristics. Thesis Supervisor: Esther Duflo Title: Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics Thesis Supervisor: Benjamin Olken Title: Professor of Economics 3 4 Acknowledgments I am deeply grateful to Esther Duflo, Benjamin Olken and Tavneet Suri for their guidance, patience and insightful advice during the course of this doctoral program. Chapter 2 has greatly benefited from insightful comments of and discussions with Abhijit Banerjee, Stacy Carlson, Esther Duflo, John Firth, Gabriel Kreindler, Ernest Liu, Matthew Lowe, Benjamin Marx, Benjamin Olken, Tavneet Suri, and participants of the MIT Development Lunch. Special thanks go to the Financial Sector Deepening Kenya and its partners for generously sharing the Mobile Money network expansion data and to Tavneet Suri for helping me access it. Chapter 3 was written jointly with Dozie Okoyel and Roland Pongou.2 I am grateful to them for their energy, insights and contributions which made this project possible. My co-authors and I would like to acknowledge insightful remarks and suggestions from David Atkin, Abhijit Banerjee, Esther Duflo, Jason Garred, Talan Iscan, Benjamin Olken, Lars Osberg, and Frank Schilbach, that greatly improved the chapter. We are also grateful for valuable comments from participants at the Development Economics Lunch at MIT, SIER conference at the African School of Economics, the 2016 Canadian Development Study Group Meetings, the Macro and Development Group Lunch at Dalhousie University, University of Western Ontario's 50th Anniversary conference, and St. Francis Xavier University Economics Seminar. We are grateful to Remi Jedwab and Alexander Moradi for making their dataset on city growth in Africa publicly available and accessible. The text in Chapter 4, published in October 2016 in the European Economic Review under the title A rational, economic model of paygo tax rates,3 was written 'Dalhousie University 2University of Ottawa 3 DOI : http: //dx.doi. org/10.1016/j.euroecorev.2016.06.002 5 with Georges de Menil4 , Fabrice Murtin5 and Eytan Sheshinski.' I am deeply in- debted to them for their insights, initiatives and contributions without which this project would not have been completed. I would like to give heartfelt thanks to Georges de Menil for his intellectual and moral support throughout this doctoral program. My co-authors and I are grateful for the suggestions of Roel Beetsma, Gabrielle Demange, Peter Diamond, Richard Disney, Fritz Kubler, participants in the Netspar 1 0 th International Workshop of Pension, Insurance and Saving and the members of research seminars at the Paris School of Economics and the Stern School, New York University. The chapter has also benefited from the extensive comments of an anonymous referee and the Editor of the European Economic Review. The opinions expressed in this final chapter do not necessarily reflect the official views of the OECD. My doctoral program has been funded in great part thanks to research assistance for Simon Johnson. I would like to thank Professor Johnson not only for the funding but also for the pleasant and intellectually rewarding experience I had working with him. I would like to acknowledge my colleagues at MIT, from whom I learned a lot during my years in the program. Discussions with them have provided me with insights, clarifications, ideas and solutions that have been essential to the completion of this dissertation. Special thanks to Stacy Carlson, John Firth, Gabriel Kreindler, Matthew Lowe, Yuhei Miyauchi and Benjamin Roth with whom I interacted most. I am indebted to my parents Esther and Tcharo Yokossi and to my partner Anne Mai Wassermann who supported me, encouraged me and bore with me through the 4Paris School of Economics (EHESS) 50ECD. 6 Hebrew University of Jerusalem and Brown University. 6 ups and downs of this doctoral program. I am also grateful to my brother Gaius, sister Kyria, and to my extended family and friends for their support. Thank you, everyone. 7 Contents 1 Introduction 17 1.1 Mobile Money and Economic Activity: the Impact of a Financial Tech- nology .... ........ ........ ........ ....... 18 1.2 Colonial Railroads in Nigeria: the Heterogeneous Impact of a Trans- portation Technology ... ............ ........... 19 1.3 Pay-As-You-Go vs. Capital Markets: A Rational Model of the Adop- tion of Savings Investment Technologies ..... ........ .... 19 2 Mobile Money and Economic Activity: the Impact of a Financial Technology 21 2.1 Introduction .. ...... ...... ...... ...... ...... 22 2.2 Background on Mobile Money in Kenya . ............ .... 29 2.3 D ata ... ...... ....... ...... ...... ...... .. 31 2.3.1 Lights ... ...... ...... ..... ...... .... 31 2.3.2 The M-PESA Agent Network Expansion .... ..... .. 35 2.3.3 Other factors ..... ...... ..... ...... .... 36 2.4 Empirical Strategy .... ...... ...... ...... ...... 37 2.4.1 Basic Specification .. ....... ........ ...... 37 2.4.2 Identification .. ...... ...... ...... ...... 38 8 2.5 Results ......... .......... 43 2.5.1 Main Results . ...... ... 43 2.5.2 Extensive and Intensive Margins . 45 2.5.3 Robustness Checks ... ... 46 2.6 Heterogeneity and Mechanisms ... .. 47 2.6.1 Heterogeneity . ...... ... 47 2.6.2 Channels ............. 51 2.7 Conclusion ....... .......... 52 Appendices 55 2.A Figures and Tables ........ ...... .......... .. 55 2.B Additional Tables ......... ..... ..... ..... ... 71 3 Colonial Railroads in Nigeria : the Heterogeneous Impact of a Transportation Technology 77 3.1 Introduction . ..... .... ..... .... .. 78 3.2 Historical Background ...... ....... ... 86 3.2.1 Alternative Transportation Modes .... 87 3.2.2 Railway Construction ........ .... 88 3.2.3 Growth of Export Agriculture Following the Railway Con- struction. ................... 89 3.3 Data and Empirical Strategy ...... ...... 91 3.3.1 D ata ..... ..... ...... ..... 91 3.3.2 Identification Strategies .... ............ .... 9 2 3.4 Average Effect of the Railway: Countrywide Estimates 100 3.4.1 State Fixed Effects Results .... ..... 100 9 3.4.2 Instrumental Variable Estimates . .... ..... .... .. 101 3.4.3 Identification Checks Results .... ........ ...... 102 3.4.4 Additional Identification Checks Results .. ....... .. 104 3.4.5 Urbanization Outcomes Results .. ...... ..... ... 105 3.5 North-South Differences in the Impact of the Rail Line ..... ... 106 3.5.1 Estimated Impact of the Railway in the North and in the South ...... .. .............................. 107 3.5.2 Differential Impact in the North and South: Robustness Checks .. ....... ....... ...... ....... 108 3.6 Dynamics and Persistence ..... .....
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