We estimate the impact on pilgrims of performing the Hajj pilgrimage to Mecca. Our
method compares successful and unsuccessful applicants in a lottery used by
Pakistan to allocate Hajj visas. Pilgrim accounts stress that the Hajj leads to a feeling
of unity with fellow Muslims, but outsiders have sometimes feared that this could be
accompanied by antipathy toward non-Muslims. We find that participation in the
Hajj increases observance of global Islamic practices such as prayer and fasting while
decreasing participation in localized practices and beliefs such as the use of amulets
and dowry. It increases belief in equality and harmony among ethnic groups and
Islamic sects and leads to more favorable attitudes toward women, including greater
acceptance of female education and employment. Increased unity within the Islamic
world is not accompanied by antipathy toward non-Muslims. Instead, Hajjis show
increased belief in peace, and in equality and harmony among adherents of different
religions. The evidence suggests that these changes are more a result of exposure to
and interaction with Hajjis from around the world, rather than religious instruction
or a changed social role of pilgrims upon return.
The lack of "social capital" is increasingly forwarded as an explanation for why communities
perform poorly. Yet, to what extent can these community-specific constraints be compensated? I
address this question by examining determinants of collective success in a costly problem in
developing economies—the upkeep of local public goods. One difficulty is obtaining reliable
outcome measures for comparable collective tasks across well-defined communities. In order to
resolve this I conduct detailed surveys of community-maintained infrastructure projects in Northern
Pakistan. The findings show that while community-specific constraints do matter, they can be
compensated by better project design. Inequality, social fragmentation, and lack of leadership in the
community do have adverse consequences but these can be overcome by changes in project
complexity, community participation and return distribution. Moreover, the evidence suggests that
better design matters even more for communities with poorer attributes. Using community fixed
effects and instrumental variables offers a significant improvement in empirical identification over
previous studies. These results offer evidence that appropriate design can enable projects to succeed
even in “bad” communities.
The inability of developing countries to absorb and retain capital has long puzzled observers.
The unanticipated events of 9/11 simultaneously led to a surge in capital flow into
Pakistan, and an increase in aggregate demand. Yet despite rising deposit to loan ratios and
precipitous fall in cost of capital, banks showed remarkable hesitancy to expand firm credit.
We use quarterly firm-level data on debt capacity limits on all actively borrowing firms
in Pakistan to show that debt capacity constraints led to the limited absorptive capacity
of financial sector. Consistent with debt capacity hypothesis, “financial slack” positively
predicts credit growth, and this predictability shoots up immediately following 9/11. This
financial slack effect is stronger within industries receiving larger demand shocks, stronger
within smaller firms, and completely absent for firms that do not face debt capacity constraints
due to ex-ante lax regulation. A number of tests show that our results are unlikely
to be driven by unobserved firm quality or expected changes in loan demand. Tentative
estimates put the economy wide costs of these debt capacity constraints at 2.3% of GDP.
With an estimated one hundred and fifteen million children not attending primary school in the
developing world, increasing access to education is critical. Resource constraints limit the extent to
which demand based subsidies can do so. This paper focuses on a supply-side factor—the availability
of low cost teachers—and the resulting ability of the market to offer affordable education. We use data
from Pakistan together with official public school construction guidelines to present an Instrumental
Variables estimate of the effect of government school construction on private school formation. We
find that private schools are three times more likely to emerge in villages with government girls’
secondary schools. In contrast, there is little or no relationship between the presence of a private
school and pre-existing girls’ primary, or boys’ primary and secondary schools. Moreover, there are
twice as many educated women and private school teachers’ wages are 18 percent lower in villages
that received a government girls’ secondary school. In an environment with poor female education
and low mobility, government girls’ secondary schools substantially increase the local supply of
skilled women. This lowers wages for women in the local labor market and allows the market to offer
affordable education. These findings highlight the prominent role of women as teachers in facilitating
educational access and resonates with similar historical evidence from developed economies—the
students of today are the teachers of tomorrow.
Developing countries are marked by the prevalence of informal business networks. Many believe that these networks facilitate information sharing, trade, and contractual enforcement in weak institutional environments. However estimating network benefi ts remains difficult due to data
limitations, and identi fication concerns. This paper uses ownership data on all (but the very small)private firms in Pakistan to construct business networks involving 100,000 firms. We link two firms together if they have a director in common, and document the presence of a super-network in the
economy. It comprises 5% of all firms, is over a 100 times larger than the next largest network and obtains more than half of all bank credit. We then investigate the economic value that membership to the super-network brings by exploiting entry (exit) of firms over time into the network. We identify the causal effect of network membership through a number of tests, including instrumenting network membership with incidental entry/exit of firms. Network membership increases total external fi nancing by 16.5%, reduces propensity to enter financial distress by 9.7%, and better insures fi rms against industry and location shocks. When forming new banking relationships, entering firms are also more likely to select banks that already have existing relationships with adjoining firms. We also find that consistent with theories of strategic network development, benefi ts of memberships are stronger when firms connect through more powerful network nodes.
This paper provides a detailed description of the shape and financial importance networks amongst the universe of firms in an emerging economy where a network link is defined as board interlocks i.e. two firms share a common director. We do so by making use of a novel dataset from Pakistan that includes information on all the 140,000 firms borrowing from formal financial markets over a four year period. We find that a significant fraction of firms, upto one-third, have board interlocks with other firms. More interestingly, while firm networks typically range from networks of 2 to 100 firms, there exists a single very large network—the "super-network"—that comprises of almost 10,000 firms and is more than a hundred times the size of the second largest network. This super-network plays a disproportionately important role in financial markets: Although comprising 7% of firms, over 55% of all formal lending goes to firms in this super-network. Moreover, super-network firms have access to a greater number of lenders, default less and appear to be insured against adverse shocks in the economy. The super-network is robust to different definitions of firm linkages and over time. Moreover, a closer examination reveals that there are no important nodes (directors or firms) in the super-network and that is a very robust and diffuse network—eliminating important nodes (either singly or in clusters) does little to disrupt the network. This suggests that in addition to what one normally thinks of as business groups—a closely coordinated group of firms—more loosely yet very stably knit firm networks may also play an important role in emerging economies.