Archive for October 31st, 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:


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.


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. 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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