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					                               Sector Density and
                               Organizational Demise:
                               A Population Ecology of
                               International NGOs




 Presentation to the Faculty               Jesse Lecy
of the Andrew Young School,      PhD Candidate in Social Science
        Georgia State          Maxwell School of Syracuse University
     February 9th, 2010


                                                                       1
  Motivating the Research:                                                                                                                         2

  Nonprofit Sector Density

                                                           Tests of Nonprofit Theories                                        Control Variables
      Nonprofit Sector
                                                              Religious     Philanthropic      Govmnt         Gov Public
      Density Studies          Community       Social                                                                      Community   Community
                                                               Activity        Culture          Size          Spending
                               Diversity (+) Capital (+)                                                                     Need        Wealth
                                                                 (+)             (+)             (-)             (+)
McClellen (1998)                                                                                                  Y            Y
Corbin (1999)                        Y'                           Y               N                                            Y            Y
Gronbjerg & Paarlberg (2000)         N†                           N               N                                            Y
Salamon & Anheier (2000)             N                                            N†                               Y
Matsunaga & Yamauchi (2004)          N                                             ?               Y               ?          Y            N†
Saxton & Benson (2005)                               Y                                                             Y          Y'            Y
Paalberg & Gen (2008)                Y'                                                            Y'                         Y            N
Luksetich (2008)                                                                                                   Y                        Y
                                                Social                         Cultural                 Institutional
                               ' indicates marginal significance, † indicates significance in the opposite direction
                                                                  3

Research Question:


How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits



2) More resources leads to higher entry rates of new nonprofits



3) Higher density will intensify sector competition
                                                                  4

Hypotheses

How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits



2) More resources leads to higher entry rates of new nonprofits



3) Higher density will intensify sector competition
                                                                  5

Hypotheses

How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits



2) More resources leads to higher entry rates of new nonprofits



3) Higher density will intensify sector competition
                                                                  6

Hypotheses

How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits



2) More resources leads to higher entry rates of new nonprofits



3) Higher density will intensify sector competition
                                                                             7

Hypotheses

How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits
                                                                  Descriptive
                                                                   Analysis
2) More resources leads to higher entry rates of new nonprofits



                                                                  Survival
3) Higher density will intensify sector competition
                                                                  Analysis
                                                           8

The Data


 Primary Data

   NCCS Core Trend 990 Data Files: 1989-2007
     International Classification in the NTEE


 Secondary Data

   IRS Statistics of Income (SOI) Survey
   NCCS Digitized 990 Data: 1998-2003
   The Policy Agenda’s Project (Baumgartner and Jones).
      Growth of the
       International
    Non-Profit Sector

9
                                                                       10

Sector Expansion

4x                                   Environmental    The international sector
       Number of                                        quadrupled in the
                                     International

3x
       Organizations                                         number of
                                                           organizations
2x
                                     Human Services
                                     Mental Health

1x

     1990     1995     2000   2005          2010
                                                                                      11

  Sector Expansion

  4x                                          Environmental          The international sector
         Number of                                                     quadrupled in the
                                              International

  3x
         Organizations                                                      number of
                                                                          organizations
  2x
                                              Human Services
                                              Mental Health

  1x

       1990     1995      2000      2005             2010

600%                                               International

        Total Resources
                                                                     It also grew 600%,
400%                                                                   much more than
                                                   Environmental
                                                   Human Services     domestic sectors
                                                   Mental Health

200%




         1990     1995       2000      2005                   2010
There are two distinct                                       12

periods of sector expansion


                 Total International NGO Revenues
        35

        30

        25

Billions 20
   of
Dollars 15

        10

         5

         0
          1985       1990     1995    2000     2005   2010
                                            13

         The Nature of Growth


 $1.5
billion            Random Sample      Some
                   of Organizations   Thrive!
  Annual Revenue




                                       Most
                                      Survive
                                                         14

Resource Capture


             Share of Resources
1.0


0.8


0.6


0.4


0.2



                                         Each band
      1990   1995          2000   2005   represents
                                         1% of the
                                         organizations
                                                                   15

Resource Capture


             Share of Resources
1.0


0.8                                        1% of NGOs
                                           receive 60%
0.6
                                         of the resources
0.4


0.2



                                                   Each band
      1990   1995          2000   2005             represents
                                                   1% of the
                                                   organizations
                                                              16

                 Resource Capture


                                 Median Size of NGOs
                 190000
                 180000
Annual Revenue

                 170000
                 160000




                          1990    1995          2000   2005
                                                                    17

Hypotheses
How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits

    Resource Capture:        Big organizations absorb resources
                              Small organizations stay steady

2) More resources leads to higher entry rates of new nonprofits



3) Higher density will intensify sector competition
                                                                                                   18

 Entry and Exit Trends

                  Number of International NGOs
7000
                                                                              6,500 NGOs in 2007
6000

5000

4000                                                                          7,068 born in study period
3000

2000

1000
                                                                              1,812 NGOs in 1989
   0

-1000

-2000
                                                                              2,380 die in study period
-3000
        1989   1991   1993   1995   1997   1999   2001   2003   2005   2007
                                                                                     19

  Entry and Exit Trends
                500
                300




 Average of
209 net new
                100




organizations
                0




                      1989   1991   1993   1995   1997   1999   2001   2003   2005




                                Period 1                         Period 2
                                                                                    20

Entry and Exit Trends
        500




                                                                              Average of
                                                                             276 net new
        300




~ 209                                                                        organizations
        100
        0




              1989   1991   1993   1995   1997   1999   2001   2003   2005




                        Period 1                         Period 2
                                                                  21

Hypotheses
How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits



2) More resources leads to higher entry rates of new nonprofits

    Yes, more organizations enter the sector


3) Higher density will intensify sector competition
                                                                  22

Hypotheses
How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits



2) More resources leads to higher entry rates of new nonprofits




3) Higher density will intensify sector competition ???
                                                              23

Modeling Method
 Discrete-Time Survival Analysis (Willet and Singer, 1993)

 Estimation of hazard rates using a discrete-time logit


 Operationalization of “failure” in the data

        XXXX 1990 1991 1992 1993 XXXX XXXX

        XXXX 1990 1991 XXXX 1993 XXXX XXXX

        XXXX XXXX XXXX XXXX 1993 1994 1995

         1989 1990 1991 1992 XXXX XXXX XXXX
                                                                         24

Modeling Method
 Discrete-Time Survival Analysis (Willet and Singer, 1993)

 Estimation of hazard rates using a discrete-time logit


 Operationalization of “failure” in the data

        XXXX 1990 1991 1992 1993 XXXX XXXX

        XXXX 1990 1991 XXXX 1993 XXXX XXXX
                                                           8880 – 1812 = 7068
        XXXX XXXX XXXX XXXX 1993 1994 1995

         1989 1990 1991 1992 XXXX XXXX XXXX

 Cannot distinguish failure from mergers
                                                                                                                                                                            25

                           Survival Analysis

                                                    Hazard Rate                                                                           Survival Curve
                         0.08                                                                                            1

                         0.07                                                                                           0.9
                                                                                                                        0.8
                         0.06
Pr( Failure at age=j )




                                                                                                 Survival Probability
                                                                                                                        0.7
                         0.05                                                                                           0.6
                         0.04                                                                                           0.5

                         0.03                                                                                           0.4
                                                                                                                        0.3
                         0.02
                                                                                                                        0.2
                         0.01                                                                                           0.1
                           0                                                                                             0
                                0   1   2   3   4    5   6   7   8   9 10 11 12 13 14 15 16 17                                0   2   4   6   8    10   12   14   16   18    20   22
                                                    Organizational Age (years)                                                            Organizational Age (years)
                                                                                                              26
                             Model Results

Variable                    Estimate      Std. Error       z-value      Pr(>|z|)       Effect
(Intercept)                  -2.5830        0.3129        -8.2540        0.0000 ***   0.0702
Fail at T=1                  -1.4720        0.2618        -5.6210        0.0000 ***   -0.0532
Fail at T=2                  -0.4886        0.1985        -2.4620        0.0138 *     -0.0259   Control
Fail at T=3                   0.3959        0.1462         2.7070        0.0068 **     0.0307
Fail at T=4                   0.1031        0.1163         0.8870        0.3752        0.0070
Fail at T=18                -11.9000      104.7000        -0.1140        0.9095       -0.0702
Duration                     -0.1791         0.0707       -2.5330        0.0113 *               Age Effect
                                                                                      -0.0030
Duration ^ 2                  0.0056         0.0035        1.5850        0.1130
Annual Revenue                0.0000         0.0000       -7.3590        0.0000 ***   -0.0041   Size Effect
Epoch Dummy                   0.6012         0.0798        7.5360        0.0000 ***    0.0509
Formed in 2nd Epoch?         -0.3515         0.0698       -5.0340        0.0000 ***   -0.0198
Significance codes:   ‘***’ 0.001     ‘**’ 0.01    ‘*’ 0.05   ‘.’ 0.1
Null deviance: 15378 on 48253 degrees of freedom
Residual deviance: 14924 on 48228 degrees of freedom
AIC: 14877
                                                                                                      27
                                       Model Results


                                      Effect of Organizational Size on Probability of Survival
                       1.0




                                                                   Revenues of $3,500,000
                       0.9
Survival Probability

                       0.8
                       0.7




                                 Revenues of $50,000
                       0.6




                                 Revenues of $120,000
                                 Revenues of $365,000
                       0.5




                             0    5              10           15            20          25       30

                                                             Age in Years
                                                                                                             28
                             Model Results

Variable                    Estimate      Std. Error       z-value      Pr(>|z|)       Effect
(Intercept)                  -2.5830        0.3129        -8.2540        0.0000 ***   0.0702
Fail at T=1                  -1.4720        0.2618        -5.6210        0.0000 ***   -0.0532
Fail at T=2                  -0.4886        0.1985        -2.4620        0.0138 *     -0.0259   Control
Fail at T=3                   0.3959        0.1462         2.7070        0.0068 **     0.0307
Fail at T=4                   0.1031        0.1163         0.8870        0.3752        0.0070
Fail at T=18                -11.9000      104.7000        -0.1140        0.9095       -0.0702
Duration                     -0.1791         0.0707       -2.5330        0.0113 *
                                                                                      -0.0030
Duration ^ 2                  0.0056         0.0035        1.5850        0.1130
Annual Revenue                0.0000         0.0000       -7.3590        0.0000 ***   -0.0041
Epoch Dummy                   0.6012         0.0798        7.5360        0.0000 ***    0.0509
Formed in 2nd Epoch?         -0.3515         0.0698       -5.0340        0.0000 ***   -0.0198   Competition Effects

Significance codes:   ‘***’ 0.001     ‘**’ 0.01    ‘*’ 0.05   ‘.’ 0.1
Null deviance: 15378 on 48253 degrees of freedom
Residual deviance: 14924 on 48228 degrees of freedom
AIC: 14877
                                                                                               29
                                     Model Results


                                      Median Survival Time Across Eras
                       1.0




                                                                     Born in Period 1
                                                                     Born in Period 2
                                                                     Born in 1, Enter 2
                       0.8
Survival Probability

                       0.6
                       0.4




                             0   5      10        15            20            25          30

                                                 Age in Years
                                30

A Top-Heavy Sector



  NGO Size




  Period 1           Period 2
                                                                   31

Results
How does an increase in sector resources affect the
  growth and survival of non-profits in the sector?


1) More resources leads to growth of existing nonprofits


2) More resources leads to higher entry rates of new nonprofits


3) Higher density will intensify sector competition:   Yes, but…

     Competition is moderated by organizational characteristics

           Size
           Period of formation
                                              32

Discussion:

1) Is more competition better ?


2) Is inequality bad ?


3) What policies support nonprofit density?


4) Generalizability to other sectors?
                                                  33

Future Work:


Incorporate Organizational Variables:

     Larger organizations compete better
     New organizations compete better

     Type of Services ?
     Governance Structure ?
     Membership in Networks / Collaborations ?
     Geographic Stratification ?
     Financial vulnerability Measures ?
                                                                                                                                                  34

Future Work:


  Test Government Failure and Inter-Dependence Theories Jointly


                                                           Tests of Nonprofit Theories                                        Control Variables
      Nonprofit Sector
                                                              Religious     Philanthropic      Govmnt         Gov Public
      Density Studies          Community       Social                                                                      Community   Community
                                                               Activity        Culture          Size          Spending
                               Diversity (+) Capital (+)                                                                     Need        Wealth
                                                                 (+)             (+)             (-)             (+)
McClellen (1998)                                                                                                  Y            Y
Corbin (1999)                        Y'                           Y               N                                            Y            Y
Gronbjerg & Paarlberg (2000)         N†                           N               N                                            Y
Salamon & Anheier (2000)
Matsunaga & Yamauchi (2004)       ?  N
                                     N                          ?                ?N†
                                                                                   ?               Y            ?  Y
                                                                                                                   ?          Y          ? N†
Saxton & Benson (2005)                               Y                                                             Y          Y'            Y
Paalberg & Gen (2008)                Y'                                                            Y'                         Y            N
Luksetich (2008)                                                                                                   Y                        Y
                                                Social                         Cultural                 Institutional
                               ' indicates marginal significance, † indicates significance in the opposite direction
     Questions?

35
Auxiliary Slides

                   36
  Surge in Government                                                                                                           37

  Funding
                                             Total NGO Revenues
                        35

                        30

                        25

   Billions 20
      of
   Dollars 15

                        10

                         5

                         0
                  $35 1985                 1990           1995           2000           2005           2010

                  $30               Federal Spending on
                  $25               International Development
Billions of USD




                                                                                                                     Source:
                  $20                                                                                             Policy Agenda
                                                                                                              Project (Baumgartner
                  $15
                                                                                                                    & Jones)
                  $10

                       $5

                  $-
                             1989   1991    1993   1995    1997   1999    2001   2003    2005   2007
Government Funding Only                                                                                 38

Benefits Large NGOs

  International Sector
                                                                     Barriers to Government Grants




                                                                     1.0
                                   Gov Grants as Prop of Total Rev

                                                                     0.8
                                                                     0.6
                                                                     0.4
                                                                     0.2
Human Services Sector



                                                                     0.0
                                                                           10   12    14    16    18   20

                                                                                     Log of Revenues

                         The fate of new AIDS organizations was highly dependent on their acquisition
                         of stable funding sources, particularly public funds. Internal organizational
                         problems had a limited impact on the deaths of organizations, especially those
                         with public funds. (Chambre & Fatt, 2002)
                                                                                         39
Size at Birth and Death
                  800
                  600                   Size of Organizations at Birth
    Frequency

                  400
                  200
                  0




                        0e+00   1e+05         2e+05         3e+05        4e+05   5e+05

                                               Total Revenue USD


                                        Size of Organizations at Death
                  400
                  300
      Frequency

                  200
                  100
                  0




                        0e+00   1e+05         2e+05         3e+05        4e+05   5e+05

                                               Total Revenue USD
                                                                                             40

                              Changes in Revenue Mix


                                     Two Revenue Streams as a Proportion of Total Revenue
                              1.0
                              0.8
Proportion of Total Revenue




                                              Policy Shift?
                                                                            Private
                              0.6
                              0.4
                              0.2




                                                                           Government
                              0.0




                                    1990              1995          2000              2005
Behavioral Models of                                                        41

Environmental Adaptation


        End of conflict

                                                         End of conflict




                                 The Life-Cycle of Aid


 Behavioral Model: NGO utility = project spending + endowment
                                                         
                          max( utility )    projects t   endowment t
                                            t            
                          endowment t   grantst 1  projects t 1 
                                          t 1
                                                                                                                                                     42
Open Research Question: How
Does Volatility Affect Survival?


                                           International                                                            Human Services




                                                                                                     0.5
                           0.5
 Negative Growth Periods




                                                                           Negative Growth Periods

                                                                                                     0.4
                           0.4
                           0.3




                                                                                                     0.3
                           0.2




                                                                                                     0.2
                           0.1




                                                                                                     0.1
                           0.0




                                                                                                     0.0




                                 0   20     40         60       80   100                                   0   20     40         60       80   100

                                          Organizational Size                                                       Organizational Size
Important Features of                                                                             43

Growth Rates

             International Sector (n = 8,880)                  Human Services (n = 58,290)
  800




                                                    800
  600




                                                    600
  400




                                                    400
  200




                                                    200
  0




                                                    0
        -4       -2          0          2       4         -4       -2           0         2   4

                         Growth Rates                                      Growth Rates




                       Mean: 0.37                                       Mean: 0.47
                      Median: 0.000                                 Median: 0.023
                       St. Dev: 6.8                                     St. Dev: 162
               Pr( growth > 1 ) = 0.035                         Pr( growth > 1 ) = 0.023
               Pr( growth < 0 ) = 0.140                         Pr( growth < 0 ) = 0.160
Growth of the “Average”                                  44

Organization: Gibrat’s Law

 The rate of firm growth is independent of firm size.

 The distribution of growth of all firms is centered
  at zero and follows a log-normal distribution.
                                                                                                 45

Which Rate do we Use?
                    1.0
                    0.8
 Mean Growth Rate

                    0.6




                                                                                      Mean: Reject
                    0.4




                                                                                      Gibrat’s Law
                    0.2
                    0.0




                          0   20     40                       60       80      100
                                                                                      Median: Accept
                                   Organizational Size (100 Cohorts)
                                                                                      Gibrat’s Law


 Harrison & Laincz (2008), “Does Gibrat’s Law Apply to Non-Profits?”, Working Paper

 Lotti et al (2003), “Does Gibrat’s Law Hold Among Young, Small Firms?”, Journal of
 Evolutionary Economics

  These studies conclude that small firms grow faster than large firms
                                                                                                              46

Does Sector Matter?

                        International Sector                           Human Services Sector
                 0.4




                                                                0.4
                                                                                                   Human Services



                                                 Growth Rates
  Growth Rates




                                                                                                   Sector Behaves
                 0.2




                                                                0.2
                                                                                                   Opposite !?!


                                                                0.0
                 0.0




                                                                -0.2
                 -0.2




                           Organization Size                               Organization Size




Audretsch et al (2004), “Gibrat’s Law: Are the Services Different?”, Review of Industrial Organization

Piergiovanni et al (2002), “Gibrat’s Law and Firm Size in Italian Services.” Working Paper

 Claim that size and growth are independent in the service sector because of absent entry barriers
Cohort Evidence:                                                                                                                         47

Small Firms Grow Faster
                                                                                   Total Revenue Over Time: 5 Income Cohorts




                                                                   8e+07
3000




                          x
           y 200 1.03


                                                      Revenue

                                                                   4e+07
2000




                          x
           y 100 1.03
1000




                                                                   0e+00
0




       0      20     40           60   80       100                         1990              1995             2000              2005



                                                                                   Log of Total Revenue Over Time: 5 Income Cohorts
8




                              x
                                                                    1e+08




           y log 200 1.03
7




                                                         Revenue
6




                                                                    1e+06
5




                                            x
                          y log 100 1.03
4




                                                                    1e+04
3




       0      20     40           60   80       100                         1990              1995              2000              2005
                              Is Selection Driving the                                                                                                                                                                   48

                              Conclusions?




                                                                                                                                 Mean Growth Rate
                                                                                                                           0.0 0.2 0.4 0.6 0.8 1.0
                                                  Death Rate by Income Cohort
0.0 0.1 0.2 0.3 0.4 0.5 0.6




                                                                                                                                                     0             20          40              60            80          100
                                                                                                                                                                              Organizational Size (100 Cohorts)




                                                                                                                                                                Log of Total Revenue Over Time: 5 Income Cohorts

                                                                                             $178.982m
                              $0.006m $0.028m $0.074m $0.264m $0.952m $3.531m $12.99m $45.949m       $736.144m

                                                             Millions of USD                                                  1e+08
                                                                                                                 Revenue

                                                                                                                              1e+06
                                                                                                                              1e+04




                                                                                                                                                         1990              1995                2000               2005
                                                                         49

Or Simpson’s Paradox ?

     Discrete Case                               Continuous Case




                                10



                                   8



                                   6




                               y
                                   4



                                   2



                                   0




                                         0   2     4   6   8   10   12
                                                       x




                     Source: Wikipedia

				
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