Archive for the ‘Growth and development’ Category

Japan isn’t just a knockoff nation..

May 7, 2015

The big challenge for Asian countries like India and China is to innovate the next gen products and services.

Noah Smith has this interesting piece on how Japan achieved this transition. People in the west ofen complaint that Japan is just an imitating country. Reality could not be more different:


A new buzzword – frontier economies?

April 30, 2015

I was reading this recent post on capital flows from IMF in frontier economies. I assumed frontier economies to be another name for emerging economies. But no, it is a different class as explained here:

There is a group of fast-growing low-income countries that are attracting international investor interest—frontier economies. Understanding who they are, how they are different, and how they have moved themselves to the frontier matters for the global economy because they combine huge potential with big risks. 

Get to know them  

The first thing to note is that some of these countries already have moved to the lower-middle income group. While a working definition of frontier economies is subject to further discussion, broadly speaking, these countries have been deepening their financial markets, such as Bangladesh, Kenya, Nigeria, Mozambique, and Vietnam.

Some also have been able to tap the international capital markets, such as Bolivia, Ghana, Honduras, Mongolia, Nigeria, Senegal, Tanzania, Vietnam, and Zambia. Their markets are, however, not as deep and liquid as those of the emerging markets, but compared to the latter, they offer higher returns and the benefits of a diversified portfolio.

Really? Another buzzword called frontier economies. IMF is another champion in all these naming gaming and creating buzzwords.


Many frontier countries are growing at a fast pace, in most cases helped by sustained efforts to achieve macroeconomic stability, and by building business-friendly institutions ( Chart 1). These economies have also made significant efforts to lower inflation through prudent fiscal and monetary policy ( Chart 2).

Most of these countries have made progress in strengthening their policy making apparatus, reducing excessive red tape and lowering trade restrictions. Reforms to change their economic structure have helped them unlock their potential, including  greater weight on the services sector, such as in Tanzania and Kenya.

In many countries, alleviation of their debt burden over the past decade has freed up money for investments in physical and human capital. Several countries received debt relief under the Highly Indebted Poor Country Initiative, but others reduced their debt outside this initiative, such as Kenya, Mongolia, Nigeria, and Vietnam.

These countries have deepened their financial markets at a fast pace—they offer more domestic financial services and products than their peers. Some have attracted international investor interest in their domestic bonds market and several have issued sovereign bonds in the international capital markets ( Chart 3).

Access to international capital markets means these countries can attract financing to address gaps in infrastructure, such as roads and railways, which could provide further impetus to growth. But as described below, market access also poses new financial risks that countries need to carefully manage.

Influences from outside their borders

Low interest rates combined with advanced economies shedding debt have pushed investors to search for higher returns on their investments, which has expanded their interest to invest in frontier economies.

The quest for resources by emerging economies has contributed to improved terms of trade and a surge in both domestic and foreign investment in resource-rich countries, such as Bolivia, Ghana, Nigeria, and Mongolia.

Domestic public investment has increased as the low debt burden, favorable external borrowing rates, and high commodity prices have increased access to private financing sources outside their borders. 

Just another group of countries which have shown some recent promise.  And all these are countries which soon are called lost ones as well..

Paul Krugman’s Love Affair with France..

April 27, 2015

An article disputing Krugman’s assertion that austerity loving UK grew slowly that stimulus loving France.


Does Microfinance Still Hold Promise for Reaching the Poor?

April 3, 2015

WB chips in on the hot issue. The research department had a discussion on status of microfinance.

Key findings:


Book Review – The Birth of Plenty by William Bernstein

March 30, 2015

Finished reading this book by William Berstein. It is  one of those several books which tries to figure why the west grew in the last 200 years and others did not?

Bernstein has simplified the answers to four factor theory:

In The Birth of Plenty, William Bernstein, the bestselling author of The Four Pillars of Investing, presents his provocative, highly acclaimed theory of why prosperity has been the engine of civilization for the last 200 years.

This is a fascinating, irresistibly written “big-picture” work that highlights and explains the impact of four elements that when occurring simultaneously, are the fundamental building blocks for human progress:

  • Property rights, which drive creativity
  • Scientific rationalism, which permits the freedom to innovate without fear of retribution;
  • Capital markets, which provide funding for people to pursue their visions;
  • Transportation/communication, which allows for the effective transfer of ideas and products.

Meticulously researched, splendidly told, and featuring a new preface and introduction, The Birth of Plenty explains the interplay of the events, philosophies, and related phenomena that were nothing less than the crucible of the modern age. This is one of the rare books that will change how you look at the world.


In the tradition of Peter Bernstein’s Against the Gods: The Remarkable Story of Risk, comes Dr. William Bernstein’s The Birth of Plenty. This newsworthy book sheds new light in the history of human progress. Bill Bernstein is no stranger to McGraw-Hill. He has written two successful investing books for us and both have exceeded expectations; The premise of Dr. Bernstein’s book is fascinating as well as provocative. From the beginning of civilization until 1820, mankind experienced zero economic growth (0% GDP). This basically means that life for the average individual was no better in 5 A.D. than in 1555 A.D or 1555B.C. But after 1820, the world rapidly becomes a much more prosperous place for the average individual. What happened in 1820? Bernstein contends that there are four conditions necessary for sustained human economic progress: Property rights. Scientific rationalism. Capital markets. Communications and transportation technology. Holland, and by 1820 they were securely in place in the English-speaking world. It was not until much later that all four had spread over much of the rest of the globe. Global GDP since then has consistently been around 2%. And that 2% of growth has allowed most of the world to live in a much better place than our ancestors. While the historical aspect of Bernstein’s story will appeal to certain history buffs. His book is also full of implications for today’s society. Bernstein asserts that the absence of even one factor endangers economic progress and human welfare. He uses the beleaguered Middle East as one example – where the absence of capital markets and scientific rationalism have deterred the quality of life from improving. And Africa is sited as a dire example, where tragically in most of Africa all four factors are essentially absent

The book is written in a very nice and simple way trying to connect the dots. The examples picked from history are quite informative and tell you quite a few things.

Now one is not disagreeing that these four factors are not important. But to say these four sum up whatever it is to economic development, takes the story too far. All these books for instance have no answer to Chinese growth in the last 30 years It neither had property right nor very great capital markets. Likewise many Asian countries which have developed have not really followed these recipes for growth.

Overall, the book is a decent read given the various stories and ideas the book gives. Mixing technology with economics is quite interesting. It clearly has lessons on how to write an ambitious book like this.

Political economy behind resurgence of development financial institutions across the world..

March 20, 2015

Jaimini Bhagwati has a piece on this interesting development in world political economy. This time the instrument is DFIs (development financial institutions), a concept which was dying a slow death.

China has taken a lead in setting some Asia based DFIs which is crating ruffles in world polity:


Do Place-Based Policies Matter?

March 9, 2015

David Neumark and Helen Simpson reflect on place based policies. These policies favor a region/location for development.


How Brazil is using music therapy to alleviate poverty?

February 19, 2015

World Bank points to this:

It seems unlikely, but promoting the arts can actually help lift young people out of poverty. Some of Brazil’s poorest communities are using a rural development fund to provide cultural activities for their youth. Young people say playing music keeps them from the streets, teaches them new skills and gives them an opportunity to make friends. Take On what you want to change to end extreme poverty.
Check the short video on the webpage..


Do the Scandinavians really have it all figured out?

February 12, 2015

Interesting article on the Scandinavian way of life.

It is written by this American author Nathan Heller who compares these two styles:


Unintended consequences of malaria bed nets — used as fishing nets

February 11, 2015

Gulzar points to this interesting article on unintended consequences, something which econs love to ignore.

So what is the story here?


The productivity of trust between state and private firms

December 26, 2014

Ricardo Hausmann has a nice article on the topic. There is always this uneasy relationship between big businesses and government.

Both believe that they are distant from each other which is just that – a belief:


Why rapid growth is a strong predictor of future slowdowns?

December 11, 2014

An interesting piece by Larry Summers and Lant Pritchett (detailed paper here).

They say low growth after high growth is just a mean reversion. There is no reason why high growth shall continue forever. This is a harsh reality countries have to face and accept:


Economic development and the effectiveness of foreign aid: A historical perspective

November 28, 2014

Sebastian Edwards of UCLA updates the evidence on one of the controversial topics on development  — Does foreign aid work?

He says there are three schools of thought:


Living in two Colombias (just like two Indias, two US..)

November 27, 2014

How most countries have become divided into two halves — one the prospering and the other decaying (in some cases ever decaying).

Andres Velasco writes of two such Colombias:


Is Thanksgiving just a lesson on free markets?

November 27, 2014

Richard Maybury of Mises Institute has this really interesting article. I have no idea really on why thanksgiving day is celebrated. 

So Maybury explains why it is celebrated and why much of the traditional wisdom is plain myth. The real story is vastly different:


Why both Keyensian and Free market economic schools are wrong…

November 26, 2014

Jess Sachs says recent crisis has exposed both these dominant schools of thought (just read on..he actually advocates planning!!):


Africa’s Failure to Industrialize: Bad Luck or Bad Policy?

November 25, 2014

Brookings has released a series of papers on industrial experiences in Africa.

John Page summarises the findings:


Stop trying to save the world…why we should “dream smaller” in economic development?

November 19, 2014

Michael Hobbes, a long time development practitioner has written this really useful piece on economic development (HT: MR Blog).

In a longish piece he points how development world gets crazy about an idea and then oversells it to rest of the world. So we keep seeing fads come and go with overall development remaining unchanged. What is worse is that just because we see some positive result in a really small experiment in a small place, the experts sell it as the solution. The hype is built up for some years only to see plenty of dollars wasted and no progress.

The idea is not to shun these dev programs. But just have much smaller targets (dreams) and be really humble over its claims. Starts with this interesting example of Playpump:


50 years of Solow growth model…implications and impact

November 17, 2014

A nice interview of Prof. Robert Solow in McKinsey Quarterly (MQ). The interview celebrates 50 years of both the model and MQ.

The best thing about the interview is that it discusses how Solow model was actually applied to the real industries. What is Solow model? Well it says what matters for growth is not labor or capital but technology. What did the actual evidence show?

The Quarterly: What, if anything, surprised you about the findings of the early MGI studies?

Robert Solow: What came as something completely new to me was that if you looked at the same industry across countries, there were almost always dramatic differences in either labor productivity or total factor productivity. To my surprise, it turned out that most of the time, certainly more often than not, the difference in productivity—in the auto industry or the steel industry or the residential-construction industry in the US and in countries in Europe—was not only substantial but couldn’t seriously be explained by differences in access to technology.

We also found that the productivity differences could not be traced to differences in access to investment capital. The French automobile industry, much to my surprise, turned out to be more capital intensive than the American automobile industry. So it was not that either. The MGI studies instead traced these differences in productivity to organizational differences, to the way tasks were allocated within a firm or a division—essentially, to failures in managerial decisions.

I was, of course, instantly suspicious of this. I figured to myself, “What do you expect a bunch of management consultants to find but differences in management capacities? That’s in their genes. That’s not in my genes.” But MGI made a very convincing case for this. And I came to believe that it was right.

:-) Gave some legitimacy to the consulting industry..

What drove management? Competition..

The Quarterly: So management was the primary factor in productivity differences?

Robert Solow: Yes, and there was another surprise, for which there was partly anecdotal, partly statistical evidence. If you asked why there were differences that could be erased or diminished by better management, the answer was that it took the spur of sharp competition to induce managers to do what they were in principle capable of doing. So the idea that everybody is everywhere and always maximizing profits turned out to be not quite right.

MGI made a very good case that what was lacking in these trailing industries in other countries—or in the US, in cases where the US trailed—was enough exposure to competition from whoever in the world had the best practice. And this, of course, can apply within a country. We know that in any industry, there is a whole distribution of productivity levels across firms and even, sometimes, across establishments within a firm. And much of that must be due to the absence of any spur to do more.

So an interesting conclusion to me was that international trade serves a purpose beyond exploiting comparative advantage. It exposes high-level managers in various countries to a little fright. And fright turns out to be an important motivation.

The Quarterly: So competing against the global best-practice leaders is a way to encourage your own industry to use best practice?

Robert Solow: Yes, and it goes beyond that, even. Competing as part of the world economy is an important way of gaining access to scale. If you’re a Belgian company or even a French company, it may be that best practice requires a scale of production larger than the French domestic market will provide for French producers.

So it’s important for such companies to have access to the international market. That was not something I had thought of. And I don’t think anyone had—at least I had no reason to think, within economics, that there had been much thought about management activities as a big difference between best practice and less good practice. We had always thought, “Well, people seek profits. And if they seek profits, they’ll have to adopt best practice.” Not so.

He says the future research shd look at productivity in services sector:

The Quarterly: Looking toward the future, are there other issues in economics that MGI’s sector-level approach might be helpful for?

Robert Solow: I would like to see more work on the determinants of productivity and productivity increases within the service sector. To begin with, I don’t think we even have a very clear idea about the relative capital intensity within the service sector or between the service sector and goods-producing sector.

I remember I was once writing something in which I was describing the service sector as being of relatively low capital intensity. And then I stopped and remembered that the following day I had an appointment with my dentist and that my dentist’s office was as capital intensive a 500 square feet as I had ever seen in my life.

So I think the place where the MGI approach is most needed right now is in the service sector. There has been service-sector work within MGI, and outside of it as well, but not as much as is warranted in view of the 70 percent or more of all employment in advanced economies that’s in service industries.

The Quarterly: Are there particular places in the service sector where you’d look first?

Robert Solow: Well, that brings me to another MGI result that I found fascinating. At one point, we were trying to understand the industrial basis, the sectoral basis, for the acceleration and deceleration of productivity growth. And one of the things we found was that the two largest sectoral contributions to the acceleration of productivity growth when it was accelerating and, presumably, to the deceleration when it was decelerating came from wholesaling and retailing.1 Both of them, at the time, were low-productivity sectors and low-productivity-growth sectors. But they employ so many people that a slight improvement in the productivity of retailing makes a large contribution to the increase in national productivity.

There has been some work on that, but I think the work is needed now more in personal services. God knows, in healthcare. And education. Or child care. All sorts of things.

Nice bit..Calls himself an ordinary macroeconomist…hope most of us really ordinary economists also believe the same..


How Pakistan created its Unique identity system?

November 13, 2014

I was completely unaware of this thing called NADRA Card (National Database and Registration Authority) which serves as an identity card for Pakistan people.

This speech by Tariq Malik, former chairman, National Database and Registration Authority is quite a fascinating one. He explains how this idea of unique identity for Pakistan people came about and was then implemented in a vigorous fashion. There are not many poisitive stories from Pakistan but this one looks like quite a successful one. How the identity card eventually got integrated with all kinds of services and also helped in conducting a transparent election in 2013 is quite a story.

There are questions raised on this identity system but the speech is much more than that. It also explains how one goes around developing a good public organisation in countries like Pakistan.

Even more interesting is how NADRA is now doing similar/related projects in other countries as well. So, the quality of work is accepted at an international level as well.



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