Archive for February 4th, 2015

Rise and Fall of Industrial Finance in India..need for another rise??

February 4, 2015

Partha Ray of IIM-Calcutta has this piece:

Examining the sources of finance for Indian industry, this paper traces the transition from a state-owned and state-dictated financial sector to a regime of financial liberalisation. There are still a number of rough edges to this transition. With the initiation of financial sector reforms and the demise of development banking, there are indications that the industrial sector faces a credit crunch. While newer sources of finance could have compensated for the paucity of bank financing, the exit of development banks before establishing a successful corporate debt market has turned out to be costly for long-term financing. In this context, the experience of the Brazilian Development Bank could serve as a useful model for India.

The earlier industrial finance companies have converted into banks. Who knows, we could end up creating more of such specialized financial institutions in future as well. Of course, we will dub them as new entities..

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How to translate research to policy and become a country economist…

February 4, 2015

Shantayanan Devarajan  of World Bank reviews this interesting looking book by his colleague Brian Pinto- How Does My Country Grow? Economic Advice through Storytelling.

So what is it about?

 

Reading Brian Pinto’s book, How Does My Country Grow? Economic Advice through Storytelling, is refreshing because it brings “middle-brow” economics back into policymaking. In a profession that is increasingly dominated either by randomised control trials of micro interventions or dynamic stochastic general-equilibrium models of macro phenomena (and I confess to having engaged in both), Pinto’s stories of Russia, Poland, Kenya, Nigeria and India remind us how simple economic models can help solve complex problems. To those who got their PhD more than 20 years ago, the book’s reassuring message is: The economics you learned in graduate school is still valid.

In addition, the book teaches three important lessons – for everybody.

(1) How to Go from Research to Policy: Most macroeconomic research involves some form of cross-country regressions. (If it is a single-country analysis, it is unlikely to be about a developing country, as Das and Do (2013) have shown.) As Pinto notes in the first part of the book, these cross-country regressions often give ambiguous, and even conflicting, results. For instance, growth regressions can yield very different implications depending on whether a neoclassical or endogenous-growth model is being estimated. Likewise, the large number of regressions linking debt and growth have not solved the problem of causality: does debt slow growth, or does growth slow debt? What the book teaches us, though, is that this ambiguity and conflict is a good thing. Since you never know which result applies to your country at a particular point in time, it is better to keep the ambiguity in your head as you approach the problem at hand – rather than come in with a preconceived notion of how the world works, based on a fragile cross-country regression.

(2) How to Give Policy Advice: Policy advice should be neither too bland nor too restrictive. An example of the former are the recommendations from international high-level panels such as the Growth Commission with which nobody would disagree; examples of the latter, sometimes labelled prior actions in World Bank loans, arethose that say “the country should adopt a new investment code by November 30th”. Pinto hits the sweet spot by offering three pieces of policy advice that are selective, prioritised and “edgy”. They are: (i) always have a hard inter-temporal budget constraint; (ii) promote competition, including competitive exchange rates; and (iii) manage volatility. Out of the litany of policies, Pinto has chosen these as the most important. Moreover, they are not innocent. Promoting competition in countries where certain industries were captured by the president’s family (as was the case in Tunisia under Ben Ali [Rijkers et al (2014)]) is tricky and possibly dangerous. Similarly, it is difficult to maintain a hard inter-temporal budget constraint when people are rioting in the streets. But that is precisely why this kind of advice is useful. It gives policymakers, who are often navigating in turbulent waters, a distilled set of guideposts that can keep their economy on an even keel, without excessively tying their hands.

(3) How To Be a Country Economist: Many people find themselves, at some point in their careers, looking over the economy of a country. Based on his long experience as a country economist at the World Bank, Pinto shows (by example) how to do the job well. First, make sure you cover both macro and micro aspects of the economy. As Pinto found in Poland, Leszek Balcerowicz’s “shock therapy” quickly produced good macroeconomic results but their sustainability depended completely on the micro: in particular, the large state-owned firms’ ability to adapt to the market. Most predicted catastrophe because the privatisation of these politically powerful firms had been held up. The surprise was that the directors nevertheless restructured their enterprises instead of stealing from them because of competitive pressure from imports and a clear signal from the government that there would be no bailout. Budgets were credibly hardened.

Second, if the underlying problem is firms’ behaviour and performance, listen to firms. The book is replete with stories of Pinto and his colleagues visiting factories, talking to the foremen, looking around – and realising the issue was different from what the macro data showed. This method of listening to firms complements and enriches the use of cross-country data such as the Doing Business indicators. I would add that, in addition to firms, country economists would benefit from speaking with workers, informal traders, farmers and households. The third lesson for country economists is to make sure you cover all sectors of the economy, even if your specialty is macroeconomics.

The last point, as well as the use of economic analysis to solve complex problems, is illustrated with a series of vignettes – “stories” – that make up the core of the book. I particularly liked two that led to counterintuitive, but ultimately convincing, results

Hmm..

For becoming a country economist, it is also critical that they are well versed with the country. They should be made to travel across the country and understand the issues. However, most of the time the idea is to grab a degree from selected universities and then just coolly slip in as a country economist whoever takes you. The idea should be to test how well an applicant understands the country rather than just degrees..

The dangerous slipping of Indian intellectuals..

February 4, 2015

Sumanta Banerjee has a piece on the topic.

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How did women claim their place in cities? (via pushing for providing alcohol and public toilets…)

February 4, 2015

A nice tale from urban history. Urban development isn’t just about fancy buildings and transport. It is infact about people and how cities impact their lives.

Women’s role in cities is even more interesting. The developed world faced similar problems developing world faces today. How to really make cities respond to women’s needs? As more and more women become independent either financially or otherwise, most cities struggle to provide basic amenities. In many ways cities unknowingly or knowingly are gender insensitive.

So here is a nice bit from history of American cities:

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