Archive for the ‘Growth and development’ Category

Egypt for Sale..

April 18, 2016

Interesting piece by Barak Barfi is a research fellow at New America.

He points how Egypt has continued to live on foreign aid and its claims of being a regional power are just false claims:


Most of Europe Is a lot poorer than most of the United States

April 5, 2016

Daniel Mitchell has a superb picturesque post  comparing Europe with US.

It first looks at which US States are richer/poorer than European countries. Does not look good for Europe. Germany the richest pean country is ranked 39th in the ranking.

Then there is a Europe map which colors the countries as purple and yellow. Purple ones are as rich as US states and Yellow ones are poorer than Mexico. Again only a handful are in purple and most are yellow.


Good stuff..

A brief history of human time..

March 17, 2016

Olivier Gergaud, Morgane Laouénan and Étienne Wasmer are doing some exciting research on human history.

Here is a note of their initial findings:

 Digging more and more into history..

What explains the different economic paths taken by Argentina and Chile?

March 10, 2016

The Impact of Globalization on Argentina and Chile is the title of a book which looks at the paths taken by two countries. Argentina which was one of the top economies in the beginning of 20th century is not even a pale shadow of its great past. Chile also after many upheavals has managed to get its act together.

The editor of the book, Prof Geoffrey Jones explains the findings in this interview:


Will India overcome challenges to build smart cities?

March 3, 2016

Nice post on India’s smart cities project.

Apart from the advantages and disadvantages in the project, article draws what different Indian cities are upto.


Evolution of world trade: 1800-2015

February 16, 2016

Giovanni Federico and Antonio Tena-Junguito update the historic trade data  of more than 2 centuries using a new database:

Trickle-Down vs Middle-Out Economics..The real history of economic growth

February 15, 2016

Eric Beinhocker of the Institute for New Economic Thinking has a piece on American economic dream gone wrong.

He first sums up how America moved from being what you know to who you know economy. Then he says US needs to go back to its core factor – rooting for middle class: The usual cited business of trickle down economics doesn’t work. What matters is middle out economics where middle class rules the roost:


From emerging to submerging markets..

February 12, 2016

Anders Aslund gives a nice name/tag to the once emerging markets – the submerging markets..

It is time to put the rise of the emerging economies in perspective. The rapid economic growth in much of the developing world since the beginning of the century was fueled by a commodity boom and an overextension of credit. But, because the emerging-market boom was not accompanied by sufficient structural reforms, it was not sustainable.

Today, most of the major emerging economies have experienced a severe reversal of fortune. Russia and Brazil have plunged into severe crises, with double-digit inflation accompanying a 4% contraction in GDP last year. South Africa is barely growing. China’s phenomenal rate of expansion has slowed to below 7%. Unsurprisingly, Goldman Sachs has closed its money-losing BRIC fund for investment in Brazil, Russia, India, and China.

Most parts of the article are of course well known and hugely written about..

When institutions are bad, how much do social networks really help?

February 11, 2016

Fascinating bit of research by trio of Ulrik Beck, Benedikte Bjerge, Marcel Fafchamps.

Ever since the seminal paper of Coase (1937), economists have known that transactions costs can hinder the efficiency of exchange. If transaction costs are present, some mutually beneficent transactions may not take place.

In developing countries, poor institutions mean that many such transactions are left on the table since transaction costs are too high. For example, property rights are often vaguely defined and contracts hard to enforce legally. Well-functioning institutions support well-functioning markets through low transaction costs. In these contexts, there is increasing evidence that households instead rely on their social networks. One example is how social ties play an important role in informal insurance schemes (Fafchamps and Lund 2003, Mazzocco and Saini 2012). In fact, the importance of social ties shows up in very diverse contexts where they can help to decrease transaction costs; other examples from the economics literature are in the selection of an international trading partner (Granovetter 1995, Topa 2001) and in labour markets where seeking and getting a job is affected by social networks (Rauch 2001, Chaney 2014).

There are good reasons to think that social networks can also reduce barriers to the exchange of production factors. Social connections can increase trust between individuals and important information can be exchanged. Social ties can also reduce the risk of violation of agreements, since the violator risks losing not only the contract but also the social connection. These are some of the ways in which social ties are thought to lower transaction costs. However, the extent to which social ties can offset the negative impacts of high transaction costs for exchange of production factors is an open research question. Earlier papers provide indirect evidence that this may be the case (Sadoulet et al. 1997, Holden and Ghebru 2005, Macours et al. 2010).

So what does their analysis show? Do networks help? Somewhat…


How digital world is disrupting GDP calculations?

February 11, 2016

Diane Coyle has a piece on the topic:

Digital technologies are having dramatic impacts on consumers, businesses, and markets. These developments have reignited the debate over the definition and measurement of common economic statistics such as GDP. This column examines the measurement challenges posed by digital innovation on the economic landscape. It shows how existing approaches are unable to capture certain elements of the consumer surplus created by digital innovation. It further demonstrates how they can misrepresent market-level shifts, leading to false assessments of production and growth.

Some examples of this:

Digital technologies, like any innovation, clearly create consumer surplus. Hedonic pricing techniques capture some quality improvements, but it seems unlikely they can ever fully reflect large qualitative changes in human possibilities or well-being due to such major innovations. It is clear that there is additional consumer surplus associated with developments such as the wider choice available through online marketplaces, or the time saved by using online services, or from zero price and voluntarily-produced online products and services. For example, somebody who uses an online platform to swap homes for a holiday might well spend the money they save on other goods and services that are captured in measured GDP, but the benefit of their ‘free’ holiday is not. It is not clear how to assess the scale of this digital surplus.

What’s more, the impact of digitally business on measured GDP by current definitions reveals some oddities. For example, the disintermediation and move to online provision in several sectors such as finance, travel, and retailing is reducing GDP as investment in commercial property declines, but the service provided to consumers is clearly the same or better. Figure 1 shows the decline in constant value investment in just two sectors in the UK, retailing and finance, taking their share of total gross domestic fixed capital formation in buildings from 17% in 1997 to 4% in 2014 (investment in buildings has typically been in the range of a fifth to a quarter of total business investment over this period.)

Hmm.. There is more in the post.

This is all interesting stuff to ponder upon. We could actually see a world where GDP does not show much progress or a decline but people are overall fine/happy..

Danish economic model: Don’t try it until you understand what it means..

January 5, 2016

There is a lot of talk especially in US Presidential debates on adopting Danish economic model.

Otto Brøns-Petersen of Center for Political Studies (CEPOS), a think tank in Denmark has an article on the issue. He says do not try the model at home until you know what it is all about:

Increasingly, both in Denmark and abroad, I hear the claim that Denmark is somehow proof that a gentler socialism is preferable to free-market capitalism, promising more happiness, greater wealth, or both. Recently, Democratic presidential candidates Bernie Sanders and Hillary Clinton declared their admiration for Denmark. I came across the rising attraction of the so-called Danish model earlier this year at conferences in Athens, Greece, and Sofia, Bulgaria. My advice at those events was and continues to be, “Don’t try this at home — at least until you understand what the Danish Model is about.”

The first thing to recognize is that Denmark, like the other Nordic countries, has quite a free-market economy, apart from its welfare state transfers and high government consumption. The Nordic countries tend to get rather high rankings on global measures of economic freedom. Denmark is thus number 22 on the Fraser Institute’s Economic Freedom of the World (EFW) index and number 11 on the index published by the Heritage Foundation.1 Denmark ranks at number 3 on the World Bank’s Doing Business report, which assesses the ease of doing business around the world.

….Second, Denmark did not become a rich country recently. As Figure 1 shows, Danish per capita GDP relative to other countries reached a maximum 40 to 60 years ago (ignoring the “noise” from the Great Depression and World War II). Denmark caught up to and overtook “old Europe” in the fifties, while it narrowed the gap with the United States and other Western offshoots until the early 1970s, when the process of catching up came to a halt. Danes are still not as rich as Americans.

…Denmark first became rich, and then introduced the government programs that make up the welfare state. The huge increase in government spending has been accompanied by deep structural problems, which has made it necessary to reform the Danish economy and welfare state. It can hardly be claimed that introducing the welfare state made Denmark rich; rather it was the other way around. Denmark first became rich, and then the authorities began to redistribute some of the wealth.

Hmm..Takes you to the Bhagwati vs Sen debates..

In the end, one needs to learn the right lessons. A welfare economy does not mean a careless one:

In many respects, Denmark could serve as a model for the world. But if you fail to learn the right lessons, it could be dangerous to try to imitate our model, especially the idea that you can become rich by redistributing wealth or that there is a gentler, more successful way to socialism than the one experienced by typical socialist countries.

And it would certainly be ironic if the Danish case were to become an excuse for politicians in the United States, Greece, or other countries to avoid fiscal consolidation and economic reform, since we Danes have been reforming and consolidating for decades to deal with the problems created by the introduction of our welfare state.

Nice bit..going back to basics..

IMF researchers respond to the GDP of planet doubt..

December 15, 2015

Prof. Peter A.G. van Bergeijk of Erasmus University raised the issue earlier. He said the Planet GDP aggregate differed when looked from different sources.

IMF researchers responded to the issue here. They say choice of numeraire matters. As most GDP is accounted in terms of USD. As USD has appreciated this year, these issues have cropped up:

How America’s dual economy is driving the great inequality

December 11, 2015

Peter Temin,eminent eco historian has written a piece on American inequality. He explains the findings here:


Will Macrinomics rescue Argentina?

December 10, 2015

It is quite a surname for a President to have – Macri and that too of Argentina. It was a matter of time before his policies were to be converted into Macrinomics.

There is a lot of noise That Macrinomics can do for Argentina where so many others have failed. But what if this too remains a promise?

K@W has a discussion on the issue:

As President-elect Mauricio Macri prepares to take office in Argentina, the country is at a crossroads: Will Macri’s administration mark a bright new age? Or will the current revival of optimism in Argentina be short-lived?

For the past 12 years, successive populist governments headed by the late Nestor Kirchner and his widow, outgoing President Cristina Fernandez de Kirchner, have staked the nation’s prosperity on high commodity prices and free-spending social programs, leaving Argentina mired in high inflation and a huge public-sector deficit, and isolated from access to international financial markets.

Under Macri, “important aftershocks are going to be felt across the region,” says Peter Schechter, director of the Latin America Center of the Atlantic Council, a Washington-based think-tank. The results of the Argentine presidential election will eventually have a profound effect on much more than domestic economic policy in Argentina, he adds. “It is a dramatic moment of inflection for the country.”

And yet, opinion is widely divided about Argentina’s prospects. Is the stage finally being set for Argentina to deliver on the enormous promise of its vast natural resources? Or will the nation of 43 million — the third most populous in South America after Brazil and Colombia — remain stymied by its deep-seated tradition of political divisiveness? The optimists stress that Argentina has a sizable middle class, huge energy reserves already popular with Chevron, Total and ExxonMobil, and an educated population. Those assets could offer significant additional opportunities for foreign investors and open new markets in Argentina for foreign providers of sophisticated consumer goods and value-added technologies and services — provided the Macri administration manages to make the critical economic reforms that he advocated during his campaign. Although everyone agrees that Argentina has vast potential for growth, the pessimists argue that Argentina’s long history of political instability and corruption does not bode well for Macri’s prospects to make those reforms over the next few years.

Argentina is a great case of misplace priorities and injustice to history. It was one of the richest countries in the beginning of the 20th century only to go down the drain with series of disasters. Like someone said, there are four kinds of countries – developed, underdeveloped, Japan and Argentina!

It will be really interesting to see what Macri ends up doing…

How is Development Economics Taught in Developing Countries?

November 19, 2015

David McKenzie (of World Bank) and Anna Luisa Paffhausen ( of University of Passau) have written an interesting paper on the topic. They summarise the findings in this post:


Should US try and become Denmark?

October 20, 2015

Election time in US and all kinds of comparisons and debates are on.

One of the talks in Presidential debate is whether “the capitalist” US should become “the socialist” Denmark? Marian Tupy of Cato responds:


The Prize in Economics to Prof Angus Deaton …(a prize in bread and butter economics)

October 13, 2015

There was a time when this blog used to get caught in the Prize fever. This time it did not even realise that this year’s award has been announced. Not sure whether this explains maturity of the blog or it has become too old to remember. It is though ironical to be distributing all these Prizes in economics given the state of economics around the world. Though this year’s prize is different.

This year’s Prize is an interesting one . Given to Prof Deaton for his work on “analysis of consumption, poverty, and welfare”. I mean till all this crisis, these terms had disappeared from economics lingo. No one cared much about these old historic economic issues of consumption, poverty, and welfare barring the development economists of course. Now because of inequality and Piketty people have again started to talk about these issues.

The Prize website poll says only about 30-35% knew about Prof Deaton’s work on the subject. His work is on three questions:

To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics.

The work for which Deaton is now being honored revolves around three central questions:

How do consumers distribute their spending among different goods?Answering this question is not only necessary for explaining and forecasting actual consumption patterns, but also crucial in evaluating how policy reforms, like changes in consumption taxes, affect the welfare of different groups. In his early work around 1980, Deaton developed the Almost Ideal Demand System – a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation.

How much of society’s income is spent and how much is saved? To explain capital formation and the magnitudes of business cycles, it is necessary to understand the interplay between income and consumption over time. In a few papers around 1990, Deaton showed that the prevailing consumption theory could not explain the actual relationships if the starting point was aggregate income and consumption. Instead, one should sum up how individuals adapt their own consumption to their individual income, which fluctuates in a very different way to aggregate income. This research clearly demonstrated why the analysis of individual data is key to untangling the patterns we see in aggregate data, an approach that has since become widely adopted in modern macroeconomics.

How do we best measure and analyze welfare and poverty? In his more recent research, Deaton highlights how reliable measures of individual household consumption levels can be used to discern mechanisms behind economic development. His research has uncovered important pitfalls when comparing the extent of poverty across time and place. It has also exemplified how the clever use of household data may shed light on such issues as the relationships between income and calorie intake, and the extent of gender discrimination within the family. Deaton’s focus on household surveys has helped transform development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data.

Just scroll the page for more resources..

Also check MR BLog for several links : one, two and three

China as an emperor with no clothes?

October 1, 2015

Most pessimists of a certain economy/economies have their day someday. So, time is ripe for China’s pessimists and they go abuzz saying “Didn’t I I tell you”? All this while those who built their careers over China’s optimism have been shrugged aside. How quickly the tides turn really.

Jim Chanos the China pessimst is one such fugure. In this interview, he calls the country as an emperor with no clothes. It is still not naked but is getting there:


Different kinds of democracies..

September 29, 2015

Dani Rodrik and Sharun Mukand have this insightful piece on political economy of democracies:


How growing cereals instead of tuber led to certain countries getting better institutions? (some parallels with Sholay..)

September 11, 2015

This idea of what leads certain regions to have higher incomes than others is as old a question as it can get. Within this, quality of institutions has emerged as one of the strongest reasons for high and low growth. Within this, the questions remains what leads to better institutions? Many explanations have been given like law, politics, finance and so on.

Joram Mayshar, Omer Moav, Zvika Neeman and Luigi Pascali have this interesting piece looking at geography and agriculture as a source for institutional differences. They build from Jared Diamond’s idea on why geography matters but have a different take.

The authors say that regions that grew things like tuber etc could not really store these agri items. Hence they had to be consumed right away. There was no case for appropriation by robbers and so on.

However, those who grew things like cereals etc which could be stored, there was a case for appropriation by robbers (Hindi Movie fans will remember Sholay :-)). Hence, the need for hierarchy and institutions to minimise these robberies.

That simple really..