Open Skies agreements

Over the past couple of weeks, Armenia signed two agreements related to air transportation with the EU and the US that could set the stage for a revolution in this mode of transportation. In particular, the agreement with the US (see here for official text), has the potential for improving the logistics of shipping and travel between Yerevan and Los Angeles, the city with the largest population of Armenians second to Yerevan. In all likelihood this will connect to New York on the east coast of the US, facilitating travel from cities such as Boston, Philadelphia, and Washington among others.

In the week of September 3-9, there were 62 Yerevan-Moscow flights, and another 34 flights to cities in Europe (see here for earlier and much more detailed flights patterns, and here for an earlier post). It should be clear that many of these flights do not carry their passengers to their ultimate destinations, but such statistics do not exist. Obviously, many of the travelers from the US, Canada, and Latin America, connect through these cities on their way to Yerevan. This also applies to much of the cargo, both trade and humanitarian aid related.

These agreements may go a long way in improving transport logistics to and from Yerevan. Much credit should go to the young minister of the economy who has contributed considerably during his short tenure of slightly over a year. But the nagging question remains of why it has taken so long to get the country to this point.

Do we know of any relevant research in the area of transportation?

The return to education

Education is often what separates the rich from the poor. But a question of interest is how this road to prosperity varies with the level of education. To be more specific, how would an individual's income change if she earns an additional degree or simply spends an additional year in school.

Within the Armenian context, as in many countries, it is not always clear that the most educated are always the most compensated; the return to educationn is an open empirical question.

I am working on a project that examines how wages vary by educational attainment using survey data for 5 years. Below I report summary statistics from one of the cross sections. As we can see the average monthly salary generally rises with education. But given the size of the standard deviations, the differences in mean salaries are not always statistically significant.

2003 Monthly Salary by Education Level (in Drams)
.......Education ... Obs. Mean StdDev
---------------------------------------
............. primary 17 26471 15322
.incomplete secondary 94 23796 20580
.. general secondary 729 29898 24669
...secondary special 892 26183 24119
... incomplete higher 25 37953 28577
..... high education 869 35374 92064
---------------------------------------
Note: limited to ages 25-60 and to those who report monthly compensation only; excludes one outlier with general secondary education.

Next I report OLS estimates and control for age, in quadratic form, and gender. Again, there is little statistical difference in the compensation of individuals with different education levels. Other than the finding that women get paid much less than men, by some 22,000 drams, there is nothing remarkable in the estimates reported below.

OLS Estimates of Monthly Salary
...... Variable .... Coefficient Std. Err.
------------------------------------------
incomplete secondary -2747.38 14631.88
.. general secondary 3624.517 13629.23
...secondary special 3284.955 13604.52
.. incomplete higher 14444.31 17463.65
..... high education 12284.46 13610.02
................ age 2604.828 1144.01
............ age sq. -30.4604 13.67846
............. female -21897.6 2192.599
........... constant -18805.9 26665.94

The above findings, of course, require some serious work to correct for occupational choice (eg, construction workers make more than teachers), private/public sector employment, among others. But for now it would be good to know if any one else is doing work in this area.

Defense Spending

Armenia (population 3 million) faces tremendous pressure to increase its military budget. However, given the size of its economy, it is not in a position to engage in an arms race with its neighbors. Turkey's (population 71 million) military budget exceeds the country's entire GDP. As for Azerbaijan (population 8 million), the other Turkic state, its defense expenditures are as large as the government's entire budget.

The country maintains close ties with both Russia and the US. A small contingent of Russian troops guards its border with Turkey and Iran, and Armenian troops serve with NATO in Kosovo, and until recently in Iraq under Polish command before Poland withdrew its troops. In addition, the US has provided some $1.5 billion in economic aid over the past 15 years or so; the US is the only foreign donor to the Armenian enclave of Karabakh. Relying on others for its security and economic well being may not be a source of pride. But the government's role is to provide for the wellbeing of the people, and one hopes that the officials swallow their pride. Rather than expanding the defense budget, a more effective approach would be to spend more on education and health care. In the long run, it is likely that an expansion in investment in human capital could be far more effective in contributing to Armenia's security and prosperity than anything else the government can do.

State Budget, 2007 (in USD millions)
Defense ............................... 280.0 15.1%
Education and Science ................. 278.0 15.0%
Social Insurance and Social Security .. 184.4 9.9%
Public Services ....................... 181.8 9.8%
Public Order and Security ............. 152.0 8.2%
Transport and Communication ........... 140.3 7.6%
Public Health ......................... 137.1 7.4%
Fuel and Energy ....................... 85.9 4.6%
Agriculture, Forestry, Fishing ........ 80.7 4.3%
Housing ............................... 64.0 3.5%
Culture, Sport ........................ 48.8 2.6%
Industry, Construction, Nature ........ 22.8 1.2%
Other Expenditures ................... 199.4 10.7%
Total Expenditures .................. 1855.3 100.0%

Turkey: military spending was $11,066 million in 2007 (www.turkishdailynews.com, Jun 11, 2008)
Azerbaijan: military spending was $1.3 billion in 2007 and expected to rise to $2 billion in 2008.

Added Jan 18, 2009: Azerbaijan announces rise in military spending for 2009 to $2.3 billion (Yeni Azarbaycan, Azerbaijan, Jan 17 2009).

US Elections and the Bradley Effect

The Bradley effect is a proposition advanced to explain the "discrepancy" between opinion polls and the outcome of California's gubernatorial elections in 1982. Tom Bradley, an African-American, lost the race to George Deukmejian, an Armenian American, despite being ahead in some polls. The story here is that some voters may have told pollsters that they will vote for the black candidate, but on election day, in the privacy of the voting booth, voted for his "white" opponent.

With Barak Obama (African father, white mother) being ahead in the polls in the US, there are repeated references to the Bradley effect in the media. Because those polled may have lied, the argument made is that Obama may not be ahead, or at least not ahead enough to overcome the Bradley effect.

As Armenians we may see things a bit differently, and that the Bradlee effect may take on a totally different meaning. Indeed, the 1982 race was between a non-white man and a white man who belonged to an ethnic group that once was legally considered non-white in the US. It was not until Halladjian vs. the United States on December 24, 1909, that Armenians were classified as white and eligible for citizenship. However, varying judicial interpretations remained an obstacle for many would be citizens. Indeed, the United States government challenged the citizenship of one Tatos Cartozian in 1924. The government's prosecuting attorney argued that “It is the contention of the government that it makes no difference whether a man is a Caucasian or not or what the racial and language history of his people may be if the man on the street does not recognize him as white.” The case was dismissed in favor of Cartozian.

In many ways the legal environment, with its racial overtones, may explain the very low immigration of Armenians to the US pre and post the genocide of 1915 and during the earlier massacres and pogroms. In any event, I usually like to stick to economics, but I couldn't resist the relevance of the news to the historical formation of the Diaspora and its spreading across the globe.

Right time for tight monetray policy?

The central bank just raised the refinancing (repo) interest rate by another 0.25 points to 7.75. This follows a series of rate hikes all designed to keep inflation in check; 0.25 points in each of August, July, June, May, and April. At the same time, CBA has also intervened in the exchange market to support the value of the Dram in March and to a lesser extent in April, thereby restricting the supply of money.

The major fear is that higher import prices, and reflecting on the supply shock that recent events in neighboring Georgia had brought about, would give rise to higher inflation rates. I wonder whether this is the time for a tight monetary policy. Can the CBA really keep prices in check? and at what cost to economic activity, if successful at all?

Foreign exchange intervention ($millions)

Transit fee for Russian gas

Local media has reported up to 30 percent reduction in the volume of Russian natural gas piped through Georgia beginning on August 7th (ArmInfo, 2008-08-11 15:37:00), with full service seeming to have been restored by August 13th. Regardless of the reasons why Georgia reduced the volume of gas transmitted, what I learned from the recent news is that Armenia pays 10 percent of the gas it receives as a transit fee; Georgia is not an importer of Russian gas.

This transit fee paid by Armenia, particularly given the relatively short length of the pipeline, is likely to be the highest price paid by any country. For a direct local comparison, Azerbaijan pays only 5 percent of the gas it transmits through Georgia to Turkey as a transit fee.

It is obvious why Armenia pays this high price. The country would otherwise freeze and much of the economic activity would come to a screeching halt; 30 percent of the cars run on natural gas.

Armenia is surrounded by big and little bullies. That it cannot help. But nevertheless, it should work hard to diversify its energy sources.

Georgia and Russia at war

I wrote back in October of 2006 on the potential economic implications of the tension between Georgia and Russia. But not in my wildest dream I expected the tension to escalate to this degree. This is nothing short of insane!

While landlocked Armenia imports little from Georgia, about 95 of its trade transit through it, making it effectively the country's most important trading partner; it is blockaded to the west by Turkey and to the east by Azerbaijan, and carries little trade with Iran. See imports and exports.

Much of the country's exports are destined west, and much of its imports, other than Russian natural gas which is piped through Georgia, are also from the west. The infrastructure that makes these transactions possible is Georgia's, which by extension is Armenia's. Unfortunately, this infrastructure is getting degraded with the escalation in hostilities.



From an economic perspective, there will be no winners, and Armenia will be a casualty of this war. There is nothing that the government can do to alter the status quo. But there are a number of steps that it should take immediately. These include (1) maintain contacts with its main benefactor, the United States, to ensure the continuous flow of aid, (2) review the adequacy and the appropriateness of the funded programs given the changing environment, (3) accelerate reforms in the custom's agency, liberalise air transport, and remove any obstacles to trade and commerce. The country is de facto blockaded on all sides, by (1) instability to the north, (2) Azerbaijan to the east, Iran (the terrain and distance) to the south, and (4) Turkey to the west. Unless wisdom prevails, this winter can be very cold!

August 17. ARKA news agency (2008-08-16) reported that the destruction of the bridge linking Gori to Tbilisi by rail has interrupted the shipment of goods to Armenia.

September 4. I should have accounted for the imports/exports of diamonds which don't need to be shipped over Georgian territory. Rough diamonds are imported to the country, polished, and then exported.

Government funding of faculty housing

The government recently announced that it is building flats to house university faculty. Scheduled for completion in 2009, these units will likely convey a subsidy of about 17 million Drams, or slightly over $50,000, per 100 sqm to each recipient.

One can only applaud this action by the government, as education and educators have long been overlooked by policymakers. But one wonders whether this is the best approach to rectifying the past and enhancing the role of educators in the society. How does one decide how to equitably allocate these housing units? Should these reflect seniority of faculty members, publication records, excellence in teaching, among other factors? Equally important, who gets to evaluate the merits of recipients? I just can't see a good way of spreading the benefit from this gesture by the government.

As an alternative why not auction off the building under construction, and with the proceeds simply increase faculty pay across the board. Obviously, one would hope that some merit pay mechanism is instituted to govern future pay raises as well.

Funding graduate studies

The prime minister recently announced that the government will fund the education of a number of students in foreign countries. Undoubtedly this is a confirmation of the country’s dramatic need for capacity building, as well as a reflection of the slow progress in advancing the state of graduate education in the country.

In a world of unlimited resources, one would applaud the visionary outlook of the PM. But given the funding constraints that are undoubtedly at play, and the urgency of catching up with the rest of the world, one wonders if this is the best strategy for the government to pursue. Consider the following:

1. The strategy would provide training for a limited number of students, as dictated by funding limits. It may cost anywhere from $30,000 per year to cover the tuition and living expenses.
2. It takes a number of years to complete graduate degrees; 2 years for masters and an average of 5-6 years for the doctoral degrees.
3. Add to the above the time it takes to gain experience and develop the professional maturity for independent work.
4. Considerable effort is needed to build conditions (and institutions) on the ground to make it attractive for prospective grantees to return to the home country.

I would very much hope the government reconsiders its options. The limited resources should instead be employed in attracting educators to the country. Here, a much larger pool of students would get training. More importantly, current faculty would also get training, and upgrade their academic skills. Add to this the prospect of having private/public sector personnel also attending these courses, and this alternative strategy could be a win-win all around. Of course, familiarizing these professionals with local conditions may have positive spillovers in terms of shaping curricula, research and study focus, among others.

For the doctoral program in economics, Yerevan State University, for instance, could host visiting economists to provide training in advanced economic theory, and econometrics, among others. [Note that YSU training in economic theory is superior to that received by Muskie students studying in the US, where the latter government spends some $40,000 annually on their training.] This is important as advanced training, say the equivalent to that of at least second year graduate PhD programs in the US, does not exist in the country. Similarly, the American University may host visiting professors in finance. Other institutions of higher learning could play similar roles.

At the end of the day, it is the academic institutions in the country that need to be shored up. Otherwise, capacity building will continue to be a long slow process.

Armenia-Iran trade relations

The US State Department recently released its 2007 Country Reports on Terrorism. The Armenia section states that:

Armenia’s warming relations with neighboring Iran continued, with Armenia hosting official visits by Iranian President ... In addition to fostering closer diplomatic ties, these visits served to solidify previous bilateral commitments to develop joint energy and transportation projects ...

This is odd. Armenia imported only $133 million in goods from its large southern neighbor Iran in 2006, or 6 percent of its total imports. Combined with exports of $29 million, Iran accounts for 5 percent of Armenia's total trade. Obviously the country has weak economic relations with Iran, and the latter accounts for little of its imports and trade relations.

Even if trade relations were to increase as the report suggests, these would be small and most likely would be energy related and displace imports from Russia. In any event, the country not only imports little but there has been little growth over the past 10 years where they grew from $89 million in 1997 to $133 million in 2006. Interestingly, Turkey imported $4.5 billion of goods from Iran, up from $600 million in 1997. I wonder where State gets its data. I would very much hope that they do not rely on the incompetent reporters at rfe/rl. I have written on the subject last year (see here)!

Why so little foreign investment?

In 2006, foreigners invested about $1 billion in Georgia, $3.7 billion in Azerbaijan, and $20 billion in Turkey. In contrast only $450 million was invested in Armenia. Obviously this represents a tremendous growth, about 100 percent, when compared to the invetsments in 2004 and 2005. But it is low in comparison to the neighboring countries, and very low relative to the country's needs.

For 2007 the final figure may be well over $500 million (350 over the first three quarters). Nevertheless, this is still very low. Obviously, we have come a long way, but don't seem to have gone far enough.



Quarterly FDI figures for 1993-2006 are posted on aea .am







April 1, 2008: Armstat reports FDI of $670 million for 2007.

Interest rate hikes and prices

Last week, the central bank raised interest rates by 25 basis points to 6.25 percent. The CBA stated that continued growth in private consumption and an expansionary fiscal policy will exert upward pressure on prices. It further stated that to the extent that inflationary pressures eminate from external factors, it is impossible to offset them through monetary instruments. The tightening of the monetary policy is intended to moderate the impact of domestic growth in consumption and government spending.

The higher interest rates will boost or at least shore up the value of the Dram. But other than that I am not sure how effective this monetary policy will be.

It is true that government spending is slated to increase, but is it
deficit financed?

As the CBA stated, much of the pressure is from external sources (energy and food I presume). These will have a large impact on prices, and there is nothing that the CBA can do. Rather, the government, by implementing policies that reduce transaction costs and improve competition, and international donors have a much stronger role to play. First and foremost, the government should reform the customs agency and improve governance. Sacking its senior officals would be a good start. Second, there is little if any logistics expertise in the country. Clearly training and education should be a high priority, and funding is an issue. Third, diluting market concentration and monopolistic practices should be a priority for the government. Again training is also critical here; there are no visible IO economists in the country. Obviouly, these changes may not be large enough to offset the increases in import prices, but are nevertheless necessary for the efficient functioning of a market economy.

It is true that the economy has been growing at double digit rates for the past five years, and this may have led to further expectations of growth. But the post presidential election events will very likely result in slower growth. The country may face both higher prices (import driven) and increasing unemployment. I am not sure if there is anything that the CBA can do here.

The economic fallout

The mass violence, the destruction, and the looting that we witnessed on March 1, 2008, in Yerevan, may have serious repercussions for Armenia's once vibrant yet fragile economy. In general it is difficult to gauge the impact of such shocks, and extrapolating from the experience of other countries can be tricky. Fortunately as economists, and unfortunately as Armenians, all that we need is to go to the distant past, some 11 years ago, to be able to speculate on what may lay ahead.

Dram share in bank deposits (see data page of aea .am)

On September 22, 1996, President Ter-Petrosyan sent the tanks to suppress protests by the opposition against the rigged presidential elections, which was followed by arrests and major restrictions on civil liberties. Almost immediately, one could notice a steady drift away from the Dram. Indeed, its share of the residents' deposits in banks sank from about 50 percent in September of 1996, to the mid 30s within a year (dollarization). This slide continued in favor of holding foreign exchange, and the trend only began to reverse itself in early 2002. It was not until the year 2007 that the share reverted to its 1996 level, well almost.

Drams per USD (see data page of aea .am)

Soon after, the next shoe dropped. The flight from the Dram, and the lack of trust in the country's institutions, reflected negatively on the exchange rate. It dropped from about 415 Drams per USD in September of 1996, and peaked at about 590 in mid 2003. It was not until the second half of 2006 that the 1996 levels were revisited.

The impact of the 2008 debacle is likely to be much more pronounced as the financial sector is more developed and the country's economy is more integrated with that of the rest of the world.

Indeed, the Dram already seems to have depreciated by some 5 percent relative to the Euro; it stood at 476 on March 10 compared t0 455 on February 18, and to 450 before February 12). Of course we would have to wait a bit longer to confirm any permanent realignment as was the case in 1996. Further depreciation of the Dram, which is inevitable, may lead to higher prices of imported food and commodities. For those interested in studying future trends in the Dram, the archive page of the central bank is a good source of daily exchanges rates as far back as 1999, and I have placed the daily rates for the years 1995 through 2006 on the data page of the aea .am.

If there is a flight from the Dram, then this can have serious implications for the economy if it turns into a run on the banks, extremely unlikely for the time being. But it will very likely impact the balance sheets of the banking sector in particular if the economy is severely impacted. In 1996, few loans were provided by banks. In contrast, 239 billion Drams were issued in loans by banks in 2006 which jumped to 423 billion in 2007.

Tourism and agriculture are two examples of the economic havoc this political instability may create. Tourism is one of the major sources of revenues to the economy. In 2007, some half a million visited the country, up from 32000 in 1998 and much fewer in 1996. There has been some cancellations already which does not bode well for the upcoming tourist season.

The economy has been growing at double digit rates and the construction sector is the primary source of this growth. But this trend cannot continue with the country's political stability in doubt. An apartment in downtown Yerevan costs about USD 150000. In 1996, it would have cost much less than 10000. Within the Armenian context this is a sizable sum of money. I can't see how these investors, locals or from the Diaspora, will undertake such investments in this risky environment.

It took much effort to get Armenia out of the economic abyss of the 1990s. Of course progress on the economic front without matching progress in governance is not very satisfying. But it is incredibly difficult to be poor and not be corrupt. With this as background, it is amazing that Ter-Petrosyan and his supporters continued with their demonstrations despite the warnings and being keenly aware of the outcome; he once ruled over the same security forces and is responsible for the tenure of the president and the president-elect. In addition he lacks the support of international human rights organizations and the West. So what was his vision for this entire affair, and what did he plan to realistically achieve?

One would hope that reason and common sense will prevail and that the authorities and the opposition will find common ground before the economy takes a major hit.

Income mobility in Armenia, 1989-2006

The contrast of the society's well being today to that of the country's pre-independence is a recurring theme. Were people better off during the pre-independence years? Did the transition years make their lot worse? Have successive governments addressed the transition pains adequately? Equally relevant, at least during this political season, is how the evolving well being of the electorate translates into votes for incumbents and competing candidates.

To address this question, I took a look at the EBRD 2006 Life in Transition Survey to study perceptions of well being now and that enjoyed in 1989. The survey asks participants to rank themselves on where they fall in the income distribution in 1989 and 2006, from the poorest 10 percent of the population to the richest 10 percent. I converted these deciles into quintiles (20 percent) and reported the resulting mobility table below (observations with missing values are dropped -- about 4 percent).

Subjective ranking: income mobility between 1989 and 2006
..1989........... 2006 Quintiles .......
Quintiles ....1.. ..2.. ..3.. ..4.. ..5. All. Households
poorest 20% 26,7% 53,0% 16,9% .1,3% 2,1% 100% 267362
next ...20% .8,8% 27,7% 58,1% .5,4% 0,0% 100% 320140
next ...20% 10,5% 34,0% 44,0% 10,3% 1,2% 100% 506791
next ...20% 11,5% 42,3% 41,0% .5,2% 0,0% 100% 720929
richest 20% 18,5% 30,0% 36,6% 10,6% 4,3% 100% 229474
.... All... 13,6% 38,0% 40,8% .6,6% 1,1% 100% 2044696
Computed from the 2006 LiTS household survey (see data page of aea.am to download)

A striking finding is that the majority of the poorest 20 percent in 1989, the first quintile, consider themselves to be much better off in 2006. Of these 267362 households, 53 percent moved to the next quintile; 2.1 percent moved all the way up to the top quintile, the richest 20 percent. At the other extreme, of those who considered themselves the richest 20 percent in 1989, 229474 households, 95.7 percent of them became poorer by 2006; 13.6 percent moved to the bottom quintile, the poorest 20 percent.

In short, the mobility picture that emerges from above is that those who considered themselves to be the richest in 1989 are now poor, while the lot of the poor has improved considerably. I have studied income mobility using panel data for countries other than Armenia (panel data don't exist for Armenia), but I have never witnessed such (1) "rank" reversal between the poor and the rich in the income distribution and (2) mobility (only 21 percent, the sum of the diagonal, did not change rank). Of course we don't observe income, and survey participants may not correctly rank themselves (otherwise we would have about 400000 households or 20 percent in each row, for a total of 2044696 households in the last column). But nevertheless, perceptions of well being are important and should not be overlooked.

Armenia Exit Polls 2008

The press reports that the British pollster Populus exit polls showed that 57.1 percent of the Armenian voters chose Serzh Sargsian, followed by Levon Ter-Petrosian (17.4 percent), Arthur Baghdasarian (14.6 percent), and Vahan Hovhannissian (5.98 percent); the remaining candidates received 1.6 percent. The interviews were conducted in 126 polling stations (clusters) in Armenia. These are fairly close, and within the poll's margin of error, to the official results where Sargsyan was declared the winner with 52.86% (863,000 votes).

It has been some time since I taught statistics and designed samples (not for polling), but the process of polling and extrapolating to the voting population is conceptually straight forward. First you design/select a sample with some criteria in mind to minimize sampling errors, and next apply appropriate weights to scale up the choice of those interviewed after they have voted to the size and demographics of precincts.

There are a number of problems with exit polls. For instance, the active partisan supporters of one candidate may be more likely than the supporters of other candidates to participate in exit poll interviews (selection bias). In addition, the young are more likely to participate in interviews. Furthermore, the age of the interviewers may matter as younger interviewers do not get high response rates from older voters. Of course, some of those interviewed may lie about the choice they have made (response bias).

Once the interview process is over, the next step is to weigh the sample to the size of the precincts and adjust for the non-responses say based on age and sex. One may rely here on the demographics of voters from previous elections in each precinct. While the size and demographics of the population are pretty well known (with few year lags), that of the voters is more problematic.

Exit polls are powerful indicators of corrupted elections. But without adjustments for sample selection and demographics, the results can be biased and at best meaningless. Consider the hypothetical case where most of those interviewed are old in precincts where the majority are young!

With the above in mind I was surprised to read the exit poll results from what ArmInfo reports as that conducted by the Alliance civil initiative, which I believe is organized by a large number of NGOs. Here is the full article:

Exit poll by Alliance civil initiative gives victory to Levon Ter-Petrossyan
2008-02-19 20:54:00
ArmInfo. Alliance civil initiative has conducted an exit poll at 100 polling stations. They have questioned 4,406 people. 3,550 of them (66%) agreed to answer.

The vice chairman of Alliance Gevork Melikyan says that ...
474 people (15.5%) voted for Artur Bagdassaryan,
40 (1.3%) for Artashes Gegamyan,
38 (1.2%) for Tigran Karapetyan,
8 (0.2%) for Aram Haroutyunyan,
195 (6.4%) for Vahan Hovhannissyan,
90 (2.9%) for Vazgen Manukyan,
9 (0.2%) for Arman Melikyan,
1084 (35.4%) for Serzh Sargsyan,
1152 (37.7%) for Levon Ter-Petrossyan.

Melikyan says that it was an independent survey. They planned to question 0.2% of all voters - 2,300 people.

This is strange. The sample design and selection seem odd. And what are we to make of the sample sizes of 2300, 4400, 3550, and the 3090 (sum of the people voting for individual candidates). Why are the sample estimates (1152, 1084, ...) reported without any adjustment for the size of the voting population (precincts), and seemingly not any of the demographics? What do the above figures tell us about the likely winner of the elections? Clearly, and unless ArmInfo got it wrong somehow, at best this is sloppy work. None of the foreign news services, except for Radio Free Europe (RFE/RL), reported its findings. Instead, they reported those of the reputable Populus.

Remittances and education

Sometime in October of 2007 I read the job market paper of a PhD student from UC Santa Cruz, Migrants' Remittances and Investments in Children's Human Capital: The Role of Asymmetric Preferences in Mexico, which addresses how remittances affects spending on education by the recipients. Using household survey data for Mexico, matched to migrants in the US, the paper finds that the impact of remittances depends largely on the gender of the household head, and they are most likely invested in education particularly if they are sent by migrant fathers to mothers.

Last month the IMF released a new working paper entitled "Microeconomic Implications of Remittances in an Overlapping Generations Model with Altruism and Self-Interest" which addresses the impact of remittances on education expenditures, as well as on labor supply, saving, and borrowing from banks in Armenia. It is authored by two US trained PhDs originally from Armenia but residing in the US. Using the 2004 Integrated Living Standards Measurement Survey conducted by the National Statistical Service of Armenia (Armstat), and in contrast to the study using Mexican data, the authors report that in Armenia "remittance-receiving households ... spend less on the education of their children."

Unlike the Mexican migration data (download from here), the Armenian household survey data is not publicly available. And unfortunately, the IMF authors do not provide any summary statistics on the separate attributes of households with and without remittances. Other than the reported econometric estimates, there is no way to verify or question the validity of the findings. Indeed, it is very difficult to evaluate the intertemporal effects of remittances using cross sectional data, add to this the endogeneity of much that is observed in the data (e.g. housing quality which authors use as proxy for wealth). Also on practical grounds, and in the Armenian context, what does it mean to say that remittance recipients spend less on educating their children? Primary and secondary education is compulsory, private elementary and secondary schools don't exist for the most part, and ... So how are they reducing spending on education (never mind the cross sectional nature of the data and the econometric problems this creates).

As an alternative, I resort to the EBRD Transition in Life Survey (LiTS) 2006 survey data which contains some 1000 Armenian households (check www.aea.am data page to download). Unlike the 2004 household survey, the LiTS 2006 survey identifies the recipients of remittances but not the size of the transfers. Below are sample statistics on each group, restricted to households with children age 6 through 21 -- variable names age3-age12 in the data.

Households with remittances seem to spend more on education; an average of USD 200 per year more than the households not receiving remittances (389 vs 184). They are more likely to be headed by a woman (45 vs 39 percent), more likely to have a college degree, less likely to receive social benefits from the government, and more likely to receive gifts and transfers from others in the country.

I also estimated an OLS regression of the determinants of education expenditures. Consistent with the basic statistics above, households receiving remittances (dummy), spend USD 243 more on education. However, when remittances are the most important source of income, households spend only an additional USD 88 (i.e. 243 - 155). The qualitative results don't change when the observations are weighted, estimated for those reporting education expenditures only, and/or for the entire sample of 1000 observations without age restrictions. Of course this analysis is very simplistic in that it does not control for the endogeneity of remittances or migration, and is plagued with LiTS data limitations. Nevertheless, it would be useful for the IMF study, when revised in the future, to report basic statistics on the households in the 2004 sample and inform the rest of us on the various attributes of households in Armenia.

If you are interested in studying the attributes and behavior of Armenian households, whether you are an economist, a social scientist, and/or a political junkie, you will find the LiT survey very interesting -- in one example it allows you to compare 2006 to 1989. It also allows you to compare households in Armenia to others in all transition economies. Best of all, it is free. But please do keep the pressure on governmental agencies and NGOs to make their survey data available. CRRC is a good role model here.

Is this the best way to provide technical assistance?

I have been concerned for some time about the lasting effects of technical assistance. USAID, EBRD, among many others provide funding for training in many aspects of governance as well as the transition of the country to a market economy. These agencies, and the donor countries in general, have been quite generous. However, a common feature of most of these programs is that universities are by-passed in this process, both in terms of training faculty as well as funding that is devoted to set up new bureaucracies where the training is to take place.

Take the recent announcement for actuarial training to commence in April. There are no actuaries to speak of in the country. And so it is difficult to imagine how the insurance industry will take off without the skilled labor. As such the country is truly lucky to have USAID fund a new program to train actuaries in the country. Granted that this will be the first time such training is made available, but this begs the question of why this is not taking place in the mathematics, statistics, or even the business schools at the various universities in Yerevan who are desperate for training and funding? What happens when the funding is over? Who trains the next generation? Who undertakes research on future developments in the various underlying markets? Who will write the future textbooks?

Faculty salaries are low by any measure, and textbooks in various subjects of actuarial and management sciences, finance, and economics, among many others, do not exist for the most part. Donors have been very generous, but one would hope that they would take steps to more aggressively engage academia, that is if they wish to leave a lasting legacy.

The Armenian Railway Deal -- more is needed

Recently a Russian firm acquired the rights to manage the Armenian railroad system. The Railway Gazette provides a good summary of the background leading to this transaction, with more detail on the Armenia Rail Concession web site. The system has experienced serious reduction in service and is in desperate need of funding.

Cargo and passenger travel, in millions

In general, and for a variety of reasons, the government and the public seem uncomfortable with privatizing publicly owned assets. At the same time, the public enterprises seem unable to raise capital. The public-private partnership model, where ownership remains with the government but management is delegated to a second party, is perhaps a good compromise. In addition to the railways, other examples include Zvartnots airport (Argentina) and the water system (France), among others.

It is wonderful to see the government go through the railways deal. But this raises the question of why it is taking so long for the government to embark on such transactions. The slow privatization process since 1991 has run many productive assets to the ground, and landed others in the hand of oligarchs. Add to this the fact that foreign investments in the form of FDI are small relative to the country's needs as well as to that taking place in the neighboring countries. And so let's hope more such transactions take place.

Where are the survey data?

Almost every study which explores the behavior or attributes of households and businesses in Armenia employs survey data. Virtually all have been funded by international donors. These surveys may provide a window into the preferences of those surveyed with detailed information on the sources of income, expenditures, and demographics in case of households or employment and business activities in case of firms. And if undertaken repeatedly, they may provide a glimpse into how behavior changes over time or how it responds to changes in the economic environment and incentives.

It is important to replicate every study, and challenge every finding, particularly those that may influence policy. Yet researchers, be it in academia or otherwise, with few exceptions, do not have access to such data as most of these surveys are not made available to the public. Armstat has repeatedly refused to release the annual household survey data, and I have yet to see any of the surveys funded by USAID, UNDP, and others in the public domain. In contrast, the annual CPS household survey in the US has its own web page and anyone may download it free of charge. Similarly, household longitudinal panel data such as the PSID are also available. I am not sure that household panel data exist in Armenia!

I have provided a brief description and created links to the various surveys on Armenia on the data page of the Armenian Economic Association. Most are available in STATA format as well as CSV (easy to import into Excel). These include the Word Bank/EBRD survey of the business environment (BEEPS -- some 200 firms in Armenia), and the newly released EBRD household survey (Life in Transition survey for 2006 with 1000 Armenian households).

It is very important that researchers, academics, and the media among many others, be vocal in demanding access to the raw data behind many of the studies. It would be good to know whether anyone has compiled a list of the various surveys, and begin an effort to have them made available to the public.

Web domains registered through 2007

Updating my post over a year ago, the number of domains registered in Armenia (amnic.net) increased almost by 45 percent in 2007. Granted the numbers are small, but one is hopeful that this healthy growth will continue and even accelerate. The issues and concerns I had raised previously may still apply.

Number of Domains
1999 650
2000 1600
2001 2500
2002 2800
2003 2900
2004 3400
2005 4200
2006 6094
2007 8776

I am not sure who or for what purpose these new domains are put to use. It would be good if any of you can shed light on this.