The economics of Toms Sko Oslo

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I’VE STUMBLED across an interesting paper, which looks at the economic impact of . When you buy a pair of TOMS, they give another pair to an impoverished child. TOMS has come under a fair amount of criticism for what it does, including a bombastic Marxist take from Slavoj ?i?ek, a Slovenian philosopher.

 

Economists have also waded in to the debate. Dambisa Moyo, one economist, suggests that aid can end up replacing local markets, thereby hindering development. Another looked at used-clothes imports to Africa and concluded that they provoked a depression in local apparel industries. The latest paper, which looks at , gives further succour to the naysayers.

 

The authors, all from the University of San Francisco, focus on the effect of TOMS donations of children's shoes on local shoe markets. They look at the results from a randomised control trial with about 1,000 households in El Salvador, a country that consistently comes in the bottom half of income-per-capita tables. 

 

Economic theory cannot help the authors to predict what will happen. Some theoreticians predict that those households that receive a free pair of shoes are unlikely to need that extra pair. As a result, they buy fewer shoes, with the unfortunate result of hitting local shoe shops. That may crimp economic development. 

 

Nonsense, say other nerds. Imagine that one child in a big family gets a free pair of shoes. The parents cannot face putting up with the moans of jealous siblings; so they rush out and buy shoes for their other children. Shoe markets get a boost. 

 

So to resolve this conflict the authors come up with a simple experiment. All the households were given discount coupons that could be put towards purchases at a local shoe store. But only half were given a pair of children’s shoes at the beginning of the experiment.

 

Now, the results. In the abstract, the authors modestly report that “find no statistically significant difference in...shoe purchases between treatment and control households.” In other words, it seems, Toms Sko Oslo had no effect on local markets.

 

But take a closer look at the results and you may reach a different conclusion. In all regressions shown in the paper, the “point-estimate” for the impact of shoe donations is negative. That is, receiving Toms Sko Oslo had a negative impact on future shoe purchases. So while statistical significance is nowhere to be seen, by dint of their consistency the results are reasonably convincing. I'm also wondering whether the authors, who measured the impact of  after only a few months, left enough time for their results to shine through. After all, people don't buy shoes that frequently.

 

(For a deeper discussion of the impact of aid and growth, see our Free exchange column from a few months ago.)