Archive for October, 2019

How Asia transformed from the poorest continent in the world into a global economic powerhouse

October 31, 2019

Prof Deepak Nayyar who has recently written a book Resurgent Asia. He sums up some of the findings in the article:

In 1820, Asia accounted for two-thirds of the world’s population and more than one-half of global income. The subsequent decline of Asia was attributed to its integration with a world economy shaped by colonialism and driven by imperialism.

By the late 1960s, Asia was the poorest continent in the world when it came to income levels, marginal except for its large population. Its social indicators of development, among the worst anywhere, epitomised its underdevelopment. The deep pessimism about Asia’s economic prospects, voiced by the Swedish economist Gunnar Myrdal in his 1968 book Asian Drama, was widespread at the time.

In the half century since then, Asia has witnessed a profound transformation in terms of the economic progress of its nations and the living conditions of its people. By 2016, as my analysis of UN data shows, it accounted for 30% of world income, 40% of world manufacturing, and over one-third of world trade, while its income per capita converged towards the world average.

This transformation was unequal across countries and between people. Even so, predicting it would have required an imagination run wild. Asia’s economic transformation in this short time-span is almost unprecedented in history. My new book, Resurgent Asia, looks at this phenomenal change.

Given the size and the diversity of the Asian continent, looking at the region as a whole is not always appropriate. So in my research, I’ve disaggregated Asia into its four constituent sub-regions – East, South-East, South and West Asia – and further into 14 selected countries described as the Asian-14. These are China, South Korea and Taiwan in East Asia; Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam in South-East Asia; Bangladesh, India, Pakistan, and Sri Lanka in South Asia; and Turkey in West Asia. These countries account for more than four-fifths of the population and income of the continent. Japan is not included in the study because it is a high income country in Asia, and was already industrialised 50 years ago.

It’s essential to recognise the diversity of Asia. There have been marked differences between countries in geographical size, embedded histories, colonial legacies, nationalist movements, initial conditions, natural resource endowments, population size, income levels and political systems. The reliance on markets and the degree of openness of economies has varied greatly across countries and over time.

Across Asia, the politics has also ranged widely from authoritarian regimes or oligarchies to political democracies. So did ideologies, from communism, to state capitalism and capitalism. Development outcomes differed across space and over time too. There were different paths to development, because there were no universal solutions, magic wands, or silver bullets.

Should be a good book…

Between nudge and sludge are lessons for India

October 31, 2019

Nice Mint piece by Puja Mehra differentiating between nudge and sludge:

  • Sludge is excessive or unjustified friction such as paperwork burden that slows or halts a behaviour or action. It makes life difficult to navigate and can be frustrating
  • The nudge philosophy is that the chosen option makes choosers better off as judged by themselves

Sludge often has costs far in excess of benefits and can hurt the most vulnerable members of society. Sunstein says firms, universities and government agencies should regularly conduct sludge audits to catalogue the costs of sludge and decide when and how to reduce it. The streamlined passport issuing service in India, designed to speed up processes, may have followed an informal kind of sludge audit.

 

Fewer women staff? Central banks are serious about it

October 31, 2019

My new piece in moneycontrol.

I reflect on the lessons from the recent ECB conference on Gender and career progression.

The conference will feature research on issues that women face in career advancement and on initiatives to address the gender gap. The conference is the second in a series organised jointly by the European Central Bank, the Bank of England and the Federal Reserve Board.

Lessons from fungi on markets, economics and inequality

October 31, 2019

Fascinating Ted talk by Toby Kiers, a microbiologist:

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Making the best out of second-best climate policies

October 31, 2019

Economists like Prof Avinash Dixit and Dani Rodrik often say second best is the best. We always hope for the best economic outcomes which is not really possible. By focusing on the best of the second best, is as good.

Olli Rehn Governor of the Bank of Finland says the same in this speech:

While street demonstrations and citizen activism play an important role in pressing for more ambitious climate action, what we need in terms of public policy is consistent, systemic and rational policy solutions to achieve effective concrete results.

Systemic in the sense that they need to cover and bite in energy production, transport fuels and manufacturing industries widely. Rational in the sense that they need to lean on insights based on theory and evidence – “In science we trust”. Economics can provide such insights on which policies actually work.

Based on economics and policy analysis, there are three essential and widely accepted requirements for an effective climate policy.

The first is efficiency, which implies that we should design policy action so that we get the biggest emission reductions for a buck.

The second requirement is that climate policy needs to be fair. The cost of transition needs to be evenly shared, and in such a way that also takes into account historical responsibility for emissions.

Thirdly, the policy needs to address the free-rider problem by ensuring that everyone has an incentive to take part in the system. Since climate change is a truly global problem, it implies by definition that we need solutions that in the end have a global scope. Free-riding and carbon leakage would simply erode the work of even the best of students.

Based on these three requirements, the first-best solution to limiting CO2 emissions would be a global carbon tax. Many economists have expressed their support for such a solution.1

In order to be effective, a global carbon tax would need to be complemented with a border carbon adjustment to avoid countries undermining the system by not signing up to it.

When theories are put into practice, however, policymakers face the complexity of the real world. The sense of urgency on climate action seems to vary from country to country across the global arena. Second-best solutions are therefore necessary as medium-term transitional measures, whether we like it or not. We have prominent regional and national initiatives, based on international treaties, in place that aim at effective climate change mitigation.

Hmm..

Rise of populism and economic natonalism

October 31, 2019

Those who think financial crisis are just about decline of markets and their resolution are mistaken. It has wider implications for society as we are seeing across the world. There is rise of populism and economic nationalism in major parts of the world.

Voxeu.org has dedicated a webpage for articles on the topic. Sergei Guriev introduces the debate and sums up views of three experts who have written on the forum.

Latest edition of Journal of Economic Perspectives has a symposium and 4 articles on the topic:

Symposium on Modern Populism
“On Latin American Populism, and Its Echoes around the World,” by Sebastian Edwards
In this article, I discuss the ways in which populist experiments have evolved historically. Populists are charismatic leaders who use a fiery rhetoric to pitch the interests of “the people” against those of banks, large firms, multinational companies, the International Monetary Fund, and immigrants. Populists implement redistributive policies that violate the basic laws of economics, and in particular budget constraints. Most populist experiments go through five distinct phases that span from euphoria to collapse. Historically, the vast majority of populist episodes end up badly; incomes of the poor and middle class tend to be lower than when the experiment was launched. I argue that many of the characteristics of traditional Latin American populism are present in more recent manifestations from around the globe.
Full-Text Access | Supplementary Materials

“Informational Autocrats,” by Sergei Guriev and Daniel Treisman

In recent decades, dictatorships based on mass repression have largely given way to a new model based on the manipulation of information. Instead of terrorizing citizens into submission, “informational autocrats” artificially boost their popularity by convincing the public they are competent. To do so, they use propaganda and silence informed members of the elite by co-optation or censorship. Using several sources, including a newly created dataset on authoritarian control techniques, we document a range of trends in recent autocracies consistent with this new model: a decline in violence, efforts to conceal state repression, rejection of official ideologies, imitation of democracy, a perceptions gap between the masses and the elite, and the adoption by leaders of a rhetoric of performance rather than one aimed at inspiring fear.
Full-Text Access | Supplementary Materials

“The Surge of Economic Nationalism in Western Europe,” by Italo Colantone and Piero Stanig

We document the surge of economic nationalist and radical-right parties in western Europe between the early 1990s and 2016. We discuss how economic shocks contribute to explaining this political shift, looking in turn at theory and evidence on the political effects of globalization, technological change, the financial and sovereign debt crises of 2008–2009 and 2011–2013, and immigration. The main message that emerges is that failures in addressing the distributional consequences of economic shocks are a key factor behind the success of nationalist and radical-right parties. We discuss how the economic explanations compete with and complement the “cultural backlash” view. We reflect on possible future political developments, which depend on the evolving intensities of economic shocks, on the strength and persistence of adjustment costs, and on changes on the supply side of politics.
Full-Text Access | Supplementary Materials

“Economic Insecurity and the Causes of Populism, Reconsidered,” Yotam Margalit

Growing conventional wisdom holds that a chief driver of the populist vote is economic insecurity. I contend that this view overstates the role of economic insecurity as an explanation in several ways. First, it conflates the significance of economic insecurity in influencing the election outcome on the margin with its significance in explaining the overall populist vote. Empirical findings indicate that the share of populist support explained by economic insecurity is modest. Second, recent evidence indicates that voters’ concern with immigration—a key issue for many populist parties—is only marginally shaped by its real or perceived repercussions on their economic standing. Third, economics-centric accounts of populism treat voters’ cultural concerns as largely a by-product of experiencing adverse economic change. This approach underplays the reverse process, whereby disaffection from social and cultural change drives both economic discontent and support for populism.
Full-Text Access | Supplementary Materials
Lots to read and figure…

The consequences for macroeconomics during the past 60 years: Defending temple of macroeconomics

October 31, 2019

The new edition of Journal of Economic Perspectives is out (HT: Niranjan Rajadhyaksha). The editor Tim Taylor blogs about it

Apart from papers on populism, it has this fascinating paper by Prof George Akerlof on macro during the last 60 years.

This passage on how certain ideas become paradigms and then defended at all costs is something:

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40th anniversary of Sukhamoy Chakravarty paper: Debates raised in the paper resonate today

October 30, 2019

The academia in west celebrates and reflects on anniversaries of famous research papers. For instance, Friedman’s 1968 paper on limits of monetary policy, Douglass North’s 1968 paper on shipping productivity and so on.

We in India first barely have a list of such papers and second there is hardly any reflection on their anniversaries.

In this aspect, it is really nice to read this Mint article by Niranjan Rajyadhaksha (who else) who reflects on 40th anniversary of a research paper by Sukhaomoy Chakravarty. The paper was titled as On the Question of Home Market and Prospects for Indian Growth and was published in EPW.

Niranajan writes:

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Impact of 3D printing on international trade..

October 30, 2019

There are concerns that 3D printing will lead to decline in trade as people begin to produce traded goods locally.

Caroline Freund, Alen Mulabdic and Michele Ruta in this research debunk this thought:

Mario Draghi’s farewell

October 30, 2019

The event is on youtube. The event starts with a musical performance, followed by remarks from Angela Merkel, Emmanuel Macron, Sergio Mattarella (President of Italy). Not sure whether previous ECB Presidents got similar farewell too. 

Here are Draghi’s remarks where he reviews the developments in 20 years of the monetary union. In the end he bids farewell:

The time has come for me to hand over to Christine Lagarde. I have every confidence that you will be a superb leader of the ECB.

My goal has always been to comply with the mandate enshrined in the Treaty, pursued in total independence, and carried out through an institution that has developed into a modern central bank capable of managing any challenge.

It has been a privilege and an honour to have the opportunity to do so.

 

Why Rich Cities Rebel?

October 29, 2019

Santiago, the richest city of Chile and Latin America recently erupted in protests.

Andres Velasco look at the reasons behind the protests:

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Happy Deepawali wishes to all..

October 28, 2019

Wishing all Mostly Economics visitors  very Happy Deepawali. Enjoy the festival and may all of you have a great year.

Memoirs of Sir Thomas Roe: 400 years of Indian & England

October 25, 2019

Lubbaba Al Azmi in this Madras Courier piece narrates the fascinating history..

400 years ago, Sir Thomas Roe landed in the Mughal court. As a British Ambassador, he tried to engage with Jahangir, the Mughal emperor, and attempted to build a trade relationship. However, his diplomacy did not cut the ice; it ended up being a failure.

But Thomas Roe has meticulously documented his efforts in his memoirs which are, till today, available in the British Library, London. A research scholar  Lubaaba Al-Azmi revisits his memoirs and writes about what it’s like to peruse through them.

Bank of Japan holds assets worth 100% of its GDP!

October 25, 2019

Chris Nealy of St Louis Fed in this piece:

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Doing Business Rankings: How the World Bank influences national regulatory policy..

October 25, 2019

India jumping to 63rd rank in Doing Business Rankings is talk of the town.

Beth Simmons (Wharton), Judith G. Kelley (Duke University) and Rush Doshi (Brookings Institution) in a paper discuss how these rankings influence policy.

In this K@W discussion, the authors discuss key ideas behind the paper:

Knowledge@Wharton: Do you know from the work that you did if these global performance indicators are really one of the determining factors in policy change, or are they part of a larger process that these countries are undertaking? 

Kelley: We have talked with folks inside the bank who are very passionate about what they do and believe that they are promoting a set of good policies. And we find that they report that they worked very closely with policymakers in these countries. What happens behind the scenes is really interesting. People within these bureaucracies that Beth just referred to established links to the agencies that are rating and ranking — in this case, the bank — and have backs-and-forth about advice, about how laws and regulations could be drafted differently so that they will move up the rankings, but also in a belief that this is a good thing.

On the ground, we won’t necessarily see a legislator going, “We’re now passing this particular thing because of the ranking.” I think it much more will be what happens behind the scenes — that is what this paper helps to uncover — but that is also what is really the powerfulness of it.

Knowledge@Wharton: Is there a possibility that the data can be molded to fit the narrative that a politician would like to achieve?

Simmons: Oh, that is very true. Sometimes these ratings and rankings are literally used to achieve policy objectives that particular government officials have in mind. That is one of the things we definitely noticed in the India case. But another thing I think is really important to stress is, what does it mean to be ranked and to be rated? To take every country from top to bottom, from the very best down to the very worst of something. That is really a lot of the theory behind why this indicator works. It’s not just that it’s the World Bank, although it’s important that it’s the World Bank. But it’s that the World Bank is using information in a very particular way.

We had a set of hypotheses about how ranking influences policymaking. One way is that when publics see the way their country has been ranked, this can be used as ammunition or as data for which to lobby, which to call for reforms. It’s like, “We can do better, we’re behind our major competitors on these important dimensions.”

In a survey we launched, we found that publics really do respond competitively to comparisons. When we told a set of respondents that their government was not performing as well as their major competitor — we were using China and India in this test — they were much more likely to say, “It’s crucial to respond to improving our ranks, and it’s crucial to improve our business climate.” Just varying that piece of information about how your competitor is doing itself can have a pretty strong effect.

There are several such rankings these days:

Knowledge@Wharton: What do you believe with this growth of global performance indicators? There are benefits, but there are also negatives. Where do you think the greatest influence lies?

Kelley: To go back to the ease of doing business index, you can find several accounts of countries that were concertedly gaming the system to try to move up in the rankings. Georgia comes to mind. To the extent to which countries can figure out how to move up in a way that is rather empty when it comes to policies on the ground, that is a negative consequence because it is just spending energy on stuff that is meaningless.

If you take something like the ease of doing business index, there are winners and losers from choosing a regulatory or deregulatory framework to implement. Many of these are ideological contestations. What is the most prominent ranking in the world? In some ways you could rank GDP, right? This is one way of measuring prosperity in the world. Then you’ve got other indicators that come out and say, “Well, it’s really about people’s well-being, it’s about happiness, or it’s about sustainable prosperity,” or whatever. There are ideological bents or philosophies to each one of these. In the case of the bank, deregulation could harm the environment, it could harm workers. So, there are winners and losers from each of these perspectives.

Eventually, everything loses its value. Humans soon realise the ways to game systems/ranking created by the humans.

Two new museums: RBI in Kolkata and Vijaya Bank in Bangalore

October 24, 2019

I had blogged about RBI opening a new museum in Kolkata.

Upala Sen reviews the museum in Telegraph

Vijaya Bank which was merged with Bank of Baroda has a museum in Bangalore. Earlier there were concerns that Directors Portraits were removed from the founder branch in Mangalore. They have been put in the museum.

 

Can a West African Currency Union Work? (Euro to Eco)

October 24, 2019

I had blogged about the West African countries trying to form a monetary union. The name of the proposed currency is Eco.

Simplice A. Asongu of the African Governance and Development Institute in this piece try to figure the idea:

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The Phillips curve: Dead or alive

October 24, 2019

The title sounds like the Bon Jovi song: Wanted Dead or Alive 🙂

Peter Hooper, Frederic S. Mishkin and Amir Sufi in this piece says Philips Curve is alive:

History of Deposit insurance in India: The insurance coverage needs to be raised

October 23, 2019

My piece in moneycontrol.com tracing history of Deposit Insurance in India.

It’s much easier to define financial or banking instability than stability. A strong pointer of banking instability is whether deposit insurance is becoming part of the public narrative. If so, it means people are worried about safety of their deposits.

The PMC (Punjab and Maharashtra Co-operative) Bank case and a string of banking frauds have highlighted the matter like never before. The worries are taking hold as rumour mills are working overtime on WhatsApp and the social media. To be fair, the Reserve Bank (RBI) and the government have taken some steps to dispel the fears.

All said and done, people get the signals. It’s not without reasons that historians say crisis related to banking, and that too on public deposits, is one of the toughest to resolve.

This piece reviews the history of deposit insurance in India to make sense of the issues plaguing the system.

Missing Women at Central Banks..

October 22, 2019

I pointed to this ECB research which showed why there are so few women in central banks.

ECB organised a conference on the theme.

Here is a NYT piece on the conference.

 


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