Archive for January 10th, 2019

Agricultural Loan Waiver: A Case Study of Tamil Nadu’s Scheme

January 10, 2019

Deepa S. Raj and Edwin Prabu of RBI have this interesting and timely paper:

This paper examines the impact and implications of Tamil Nadu’s agricultural loan waiver scheme of 2016, based on data collected through a field survey of seven districts of the state as well as farm loan transactions data obtained from select primary agricultural co-operative credit societies. The state government’s loan waiver scheme was applicable only to agricultural loans availed by small and marginal farmers, while other farmers with land holdings of above 5 acres were not eligible for the waiver benefit.

Empirical findings using Regression Discontinuity Design (RDD) suggest that in the immediate post-waiver period near the cut-off acreage of 5 acres, the probability of obtaining credit was higher for non-beneficiary farmers than for beneficiary farmers. However, the differentiation in post-waiver access to credit to the beneficiary farmer and the non-beneficiary farmer comes down as the supply of funds for agricultural loans normalises.

The paper also has a summary of the previous debt waiver schemes and their impact….

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Why Adam Smith favoured public education?

January 10, 2019

Prof Alex Thomas of APU in this piece says Smith was hardly a one idea or one phrase economist. His canvas was much wider than believed:

The authority of Adam Smith is frequently invoked by supporters of the free market, who argue for extending the market forces to all conceivable goods and services and eliminating any kind of government intervention in markets. However, Smith’s The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations make it clear that he was not a laissez faire or free market capitalism apologist.

Smith favoured liberal capitalism over the extant socio-economic arrangement (elements of feudalism and mercantilism). While feudalism was characterised by the rule of the nobility/landowners, mercantilism was characterised by state monopoly over trade. The East India Company was an example of the latter. It is in this historical context that Smith called for the state to withdraw its monopolistic interventions in both external and internal commerce.

Contrary to public opinion, Smith presupposed the government provision of legal infrastructure, defence, transport infrastructure and education for the proper functioning of liberal capitalism. For him, the responsibility of providing institutions “for promoting the instruction of the people” is one of the chief duties of the state. The state, he said, must undertake this responsibility just as it accepts responsibility “for protecting society from the violence and invasion of other independent societies”.

The appropriators of Smith also forget his telling commentary on the role of power in society. One aspect of this relates to the power employers have over workers. The second aspect relates to the inequality of power, expressed in the form of status and ranks.

Modern appropriators of Smith also make abundant use of the “invisible hand” metaphor. But Smith used this metaphor only once in Wealth of Nations, and twice in his other writings in different contexts.

His views on public education:

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Should policymakers create towns artificially?

January 10, 2019

Alexandra L. Cermeño and Kerstin Enflo in this piece look at evidence from Swedish towns:

Urban growth is crucial for modernisation, and the wave of new towns in China since the 1980s is one example of a strategy employed by policymakers to encourage the process. This column analyses the long-run success of a town foundation policy in Sweden between 1570 and 1810. While the ‘artificially’ created towns failed to grow in the short term, they eventually began to grow and thrive, and today are as resilient as their medieval counterparts. 

We stress that credible coordination efforts based on investments may substitute for agglomeration economies and natural advantages when creating a new town, as long as any natural constraints to population growth have been removed. However, by demonstrating the initial failure of the town foundation policy, we underline the importance of overcoming any natural constraints to urban growth. Finally, and in relation to the debate about the Chinese ‘ghost towns’, our paper shows that ‘artificially’ founded towns may take time to thrive.

In light of our findings, and the examples of the Swedish kings, policymakers should consider how to signal to potential migrants and investors that they’ve committed to improving an area. Simultaneously, they must identify the potential constraints for growth in a post-industrial world. Finally, policymakers should be aware that their choices may trap populations in ‘sub-optimal’ locations for centuries.

Nevertheless, we note that the founded towns have persisted until today and appear neither better nor worse than their medieval counterparts in terms of long-run resilience. Thus, while kings may not be able to create towns that thrive, path-dependency forces certainly can. 

Hmm..


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