Friday, August 29, 2008

1.4 billion people in extreme poverty

The World Bank recently revised its poverty estimate and upped the number of poor people living with less amount than standard basic requirements required to live a life. According to new estimate computed by considering the rising cost of living and using updated poverty data from countries, the WB researchers have set an international poverty line equal to $1.25 a day (at 2005 PPP). Now, over one billion people (1,399.6 to be exact) are living under extreme poverty, according to a recent updated estimate by WB researchers Ravallion and Chen. The Asian Development Bank recently came up with its own Asian Poverty Line of $1.35, according to which 800 million people live in poverty in Asia alone.

More on this from The Economist:

The researchers now prefer a yardstick more typical of the 15 poorest countries that have credible poverty lines. By this definition, people are poor if they cannot match the standard of living of someone living on $1.25 a day in America in 2005. Such people would be recognised as poor even in Nepal, Tajikistan and hard-pressed African countries such as Uganda. But for those who still think a “dollar a day” has a better ring to it, the authors also calculate the number of people living on less than that at 2005 prices (see table).

The discovery of another 400m poor people will not satisfy some of the bank’s critics, who think it still undercounts poverty. Its cost-of-living estimates are based on the prices faced by a “representative household”, whose consumption mirrors national spending. But the poor are not representative. In particular, they buy in smaller quantities—a cupful of rice, not a 10-kilogram bag; a single cigarette, not a packet. As a result, the “poor pay more”.

Such concerns prompted the Asian Development Bank (ADB) to carry out its own study of the prices faced by the poor in 16 of its member countries (not including China). Its results, released on August 27th, found that in nine of those countries the poor in fact pay less. Even though they buy in smaller quantities, they save money by buying cut-price goods from cheaper outlets: kerbside haircuts not salons; open-air stalls not supermarkets; toddy not wine.

Here is the paper (The developing world is poorer than we thought, but no less successful in the fight against poverty) by Chen and Ravallion. Below is a summary of the paper:

The paper presents a major overhaul to the World Bank's past estimates of global poverty, incorporating new and better data. Extreme poverty-as judged by what "poverty" means in the world's poorest countries-is found to be more pervasive than we thought. Yet the data also provide robust evidence of continually declining poverty incidence and depth since the early 1980s. For 2005 we estimate that 1.4 billion people, or one quarter of the population of the developing world, lived below our international line of $1.25 a day in 2005 prices; 25 years earlier there were 1.9 billion poor, or one half of the population. Progress was uneven across regions. The poverty rate in East Asia fell from 80% to under 20 percent over this period. By contrast it stayed at around 50 percent in Sub-Saharan Africa, though with signs of progress since the mid 1990s. Because of lags in survey data availability, these estimates do not yet reflect the sharp rise in food prices since 2005.

Good stuff on growth economics

Here are some interesting stuff from Michael Spence's and El-Erian's paper titled "Growth Strategies and Dynamics: Insights from Country Experiences." I read the paper way back in April when it was first released during a panel discussion in DC. I went over the paper once again yesterday, reviewed it for my reference, and found these useful paragraphs.

...There is a certain amount of confusion in the literature with respect to informational gaps in the context of development. There are informational gaps and asymmetries (and related phenomena such as signaling, screening, and reputation building) throughout advanced economies in financial, labor, and other markets. These informational gaps are structural and do not disappear over time, absent regulation that alters the incentive structure with respect to disclosure. They also exist in developing economies, but they are fundamentally different from transitory informational gaps that tend to characterize new entrants to the global economy. The latter are not structural in the same sense, and they do decline over time with experience and normal informational spillovers. Domestic investors learn over time about the global economy and foreign investors learn about the domestic investment environment and institutions. The exception of course is when there is a blockage and relatively little interaction with the global economy. Under these conditions, incentives to jumpstart the process are appropriate.

Lessons from China's experience with growth:

China’s experience (and with variations India’s) sheds light on how to approach specific challenges that are inherent to a successful growth process. These include the pace and sequencing for liberalizing internal and external markets for goods and services, how and when and in what order to liberalize the capital account, management of the exchange rate, the role of industrial policy, overcoming the constraints imposed by a banking system riddled with NPLs and noncommercial operations, dealing with surges in capital inflows, and management of national financial wealth.

And, the ingredients in recipes that generate growth:

    1. Reliance on the market system for resource allocation (price signals, incentives, decentralization, and enough clarity of definition of property ownership to facilitate transactions and investment).
    2. A commitment to and intense focus on sustained growth and a government that acts in a manner that is representative of the interests of the citizens of the country. Persistence and determination are key ingredients as the process takes decades and involves inevitable bumps along the way. It is a multi-decade endeavor, somewhat akin to a long voyage (unique to each country in some respects), inevitably undertaken with incomplete and sometimes inaccurate charts and requiring midcourse adjustments, especially as the structure of the economy and the appropriate supporting policies shift significantly over time.
    3. Effective governance and leadership in building consensus behind policies designed to produce intertemporal improvements in the lives of citizens by choosing the right models and strategies for growth.
    4. Competent management of the macroeconomic environment in such a way as to promote domestic and foreign investment, including control of inflation and avoidance of policies that lead to damaging periods of very high inflation followed by growth-slowing policies needed to bring inflation down.
    5. High levels of saving and investment, especially public and private sector investment (in physical and social infrastructure, education, and health).
    6. Resource mobility, particularly labor mobility, combined with rapid creation of new productive employment and rapid movement of people from rural to urban centers. The result is rapid diversification and structural transformation of the economy.
    7. Leveraging the global economy to accelerate growth. This is the most important point of commonality and has two components: inbound transfer of knowledge and technology, and drawing on global demand to complement domestic components. The former rapidly increases the potential output of the economy, the latter permits much more rapid growth with exports as the driving force.

More on this topic here.

Thursday, August 28, 2008

Asian Poverty Line at $1.35 per day

The Asian Development Bank (ADB) has come up with its own benchmark to measure poverty in Asia. The new Asian Poverty Line defines poverty as living on $1.35 a day. The total number of poor people in Asia with this estimate is about 800 million. Last month, the World Bank economists revised poverty estimate and set the international poverty line as $1.25 a day in 2005 prices.

The ADB has set Asian Poverty Line by calculating the median of the national poverty lines of 15 of the poorest countries in Asia. In case of the WB estimate, the international poverty line was calculated using the same technique but there was just one country from Asia, i.e. Nepal in the list, which was dominated by African nations.

Asian Povery Line countries

This is what percentage of population (headcount) living below the $1.35 poverty line look like:

Headcount poverty under $1.35

And, this is what percentage of population living below the Asian Poverty Line looks like as against the $1 and $2 a day estimate:

Clearly, for Nepal with the new ADB estimate the percentage of population living in poverty is higher than under $1 a day. Under $1.35 a day estimate 59.5% of the population live in poverty, while under $1 a day 24.7% and under $2 a day 64.3% of the population live in poverty.

Wednesday, August 27, 2008

What should foreign aid do?

Here is nice, valuable paragraph from Easterly's book:

Put the focus back where it belongs: get the poorest people in the world such obvious goods as the vaccines, the antibiotics, the food supplements, the improved seeds, the fertilizer, the roads, the boreholes, the water pipes, the textbooks, and the nurses. This is not making the poor dependent on handouts: it is giving the poorest people the health, nutrition, education, and other inputs that raise the payoff to their own efforts to better their lives. (p369)

Norman Borlaug on African agriculture and biotech

Here an interview with Norman Borlaug, the father of the Green Revolution and winner of the 1970 Nobel Peace Price. He sees bio-technology as a promising field in helping Africa increase production and productivity, and sees roads as one of the growth constraints in Africa.

...Biotech has a big potential in Africa, not immediately, but down the road. Five to eight years from now, parts of it will play a role there. Take the case of maize with the gene that controls the tolerance level for the weed killer Roundup. Roundup kills all the weeds, but it's short-lived, so it doesn't have any residual effect, and from that standpoint it's safe for people and the environment. The gene for herbicide tolerance is built into the crop variety, so that when a farmer sprays he kills only weeds but not the crops. Roundup Ready soybeans and corn are being very widely used in the U.S. and Argentina. At this stage, we haven't used varieties with the tolerance for Roundup or any other weed killer [in Africa], but it will have a role to play.

Roundup Ready crops could be used in zero-tillage cultivation in African countries. In zero tillage, you leave the straw, the rice, the wheat if it's at high elevation, or most of the corn stock, remove only what's needed for animal feed, and plant directly [without plowing], because this will cut down erosion. Central African farmers don't have any animal power, because sleeping sickness kills all the animals--cattle, the horses, the burros and the mules. So draft animals don't exist, and farming is all by hand and the hand tools are hoes and machetes. Such hand tools are not very effective against the aggressive tropical grasses that typically invade farm fields. Some of those grasses have sharp spines on them, and they're not very edible. They invade the cornfields, and it gets so bad that farmers must abandon the fields for a while, move on, and clear some more forest. That's the way it's been going on for centuries, slash-and-burn farming. But with this kind of weed killer, Roundup, you can clear the fields of these invasive grasses and plant directly if you have the herbicide-tolerance gene in the crop plants.

...Supplying food to sub-Saharan African countries is made very complex because of a lack of infrastructure. For example, you bring fertilizer into a country like Ethiopia, and the cost of transporting the fertilizer up the mountain a few hundred miles to Addis Ababa doubles its cost. All through sub-Saharan Africa, the lack of roads is one of the biggest obstacles to development--and not just from the standpoint of moving agricultural inputs in and moving increased grain production to the cities. That's part of it, but I think roads also have great indirect value. If a road is built going across tribal groups and some beat-up old bus starts moving, in seven or eight years you'll hear people say, "You know, that tribe over there, they aren't so different from us after all, are they?"

And once there's a road and some vehicles moving along it, then you can build schools near a road. You go into the bush and you can get parents to build a school from local materials, but you can't get a teacher to come in because she or he will say, "Look, I spent six, eight years preparing myself to be a teacher. Now you want me to go back there in the bush? I won't be able to come out and see my family or friends for eight, nine months. No, I'm not going." The lack of roads in Africa greatly hinders agriculture, education, and development.

Read the full interview here. A related post about biography of Norman Borlaug is here.

Tuesday, August 26, 2008

Inflationary Nepali economy soon!

So, the newly elected Finance Minister Dr. Baburam Bhattarai, Maoist party's second-in-command, has outlined highlights of the upcoming budget. Here are some:

  • Relief to civil servants and those displaced by conflict ("to boost the national economy")
  • Allowances to elderly people and widows (why not introduce a valid federal mandated Medicare and Medicaid kind of program rather than giving allowances based on pure discretion?)
  • Salary of lower level government employees would be increased
  • Emphasis on industrialization and boosting economy to increase per capita income
  • Support to families of martyrs and those displaced by the state during the armed conflict

The budget is due mid-September. Does not these few highlights sound inflationary? Note that at present the inflation level is hovering around 9 percent.

South Asia: Energy trade, and trade and transport facilitation

Both these links come from the World Bank publications. Lately, I have been studying/working on prospects and scope of energy trade (hydropower), especially Nepal as an exporter. Does Nepal has a comparative advantage? How far can this trade go in the present investment and supply chain constraints? I will try to write an Op-Ed on this issue this weekend!

South Asia Energy: Potential and Prospects for Regional Trade

  • Energy trade is very minimal in South Asia. Only Nepal, India, and Bhutan currently trade electricity.
  • Despite being one of the most richest sources in current/flowing water having potential to produce huge amount of hydro energy, this region produces just 45 of the world's electricity.
  • Bhutan’s unexploited hydropower potential exceeds 23,000 MW and Nepal's exceeds 43,000 MW.
  • Bhutan’s electricity export in 2007 is expected to be 25% of its GDP and 60% of its state revenues.

South Asia: Trade and Transport Facilitation

  • Intra-regional trade constitutes less than 5 percent of total trade.
    South Asia's share of global trade is less than 2 percent.
  • International air freight is less than 1 percent of total trade volume.
  • Over a third of the South Asia’s exports consist of textiles and clothing.
  • The ports in the Bay of Bengal have low levels of productivity.
  • The South Asian logistics sector is at a formative stage but it is developing quickly.

Links of Interest

The global consensus on trade is unravelling

(Lawerence Summers discusses the difficult economic policy faced by the US and the emerging nations): is unclear which underlying driver of global growth will replace the one in place for the past decade – the US as importer of last resort. Global growth has depended on US growth, which has depended on the US consumer; and the US consumer has depended on rising asset values first of stocks and more recently of real estate. With falling house prices and a challenged financial system, US consumer spending is falling. The US is no longer in a position to be a net source of demand for the rest of the world. Indeed, with the drop in value of the dollar, US growth – which had been focused on imports and which had enabled the export-led growth of other countries – is a thing of the past. Already, Europe and Japan are in or are very close to being in recession.

The Bogs and Pitfalls of Democracy (Yubraj Acharay writes about the delicate foreign policy balance Nepal needs to maintain in order to not irritate both China and India. The recent visit by Nepal's Maoist's prime minister to China is against the usual tradition of first visiting India before going to China. India is already showing some concern in this matter.)

Workforce development as a response to information asymmetry

The Next Frontier: The Road Ahead for Low-Income Countries

What's the single thing most likely to double living standards in poor countries over the next decade? 

(For Antionette Sayeh, head of IMF's African Department and former Finance Minister of Liberia, it is roads; for Domenico Lombardi, President of the Oxford Institute for Economic Policy and Nonresident Senior Fellow at the Brookings Institutions, it is governance; Kumi Naidoo, Honorary President, CIVIVUS: World Alliance for Citizen Partnership, it is national ownership; for Andrew Kumbiatira, Executive Director of Malawai Economic Justice Network, it is investment in education; for Eveline Herfkens, Founder of the UN Millennium Campaign, it is delivering on promises to meet the MDGs; for Roy Cullen, Member of Parliament, House of COmmons, Canada, and author of The Poverty of Corrupt Nations, it is tackling corruption; and for Enrique v. Iglesias, former President of the Inter-American Development Bank, it is boosting productivity).

Simon Johnson on the emergence of the emerging markets (here is related video)

Monday, August 25, 2008

The Russian mess and the Socialist debacle

Why and how did one of the infamous Socialist experiments, the Russian economy, collapse? Many economists argue that it was due to the US policies (Cold War expenses) and capitalism. However, Richard Lipsey, argues that the destruction was in the making internally because of incoherence in production, prices, demand, and supply of goods and services.

Why did the academic community get the Russian story wrong? Well, because they were too naive and bought the state-cooked statistics at face value.

- They believed that Soviet statistics, although not good, were just subject to honest errors and reliable enough to convey useful information.

- They believed that national income figures were accurate representations of the economy.

- They would not listen to dissenters such as Jasny and Birman and other more recent émigrés who told of the decline in living standards. (Academics often do not see real events because of  concentrating exclusively on value statistics, which can obscure the reality of the physical objects that lie behind them.)

The following list captures what was wrong with the Soviet command economy:

Soviet managers were rewarded for fulfilling quantity targets with little attention to quality. Thus:

  • Administered prices plus allowing firms to retain some part of their profits give an incentive to maximize the quantity of output with little attention to quality.
  • Shoddy consumer goods abounded (a typical later example being black and white TV sets that tended to explode when overheated).
  • Shoddy parts were passed on down the line from one stage in the production process to the next. When a parts producer found that it was producing substandard parts, the incentive was to pass them on anyway and let the firms down the line cope rather than slowing production to fix the quality.
  • Quantity targets were often set on finished goods but not on parts so, for example, farm fields were littered with tractors that could not be repaired because of lack of spare parts while new tractors were available.
  • Prices were typically set with considerations other than market clearing in view. Thus prices did not respond quickly to changes in demand and supply, making the economy poorly adapted to deal with large shocks. Shortages and surpluses abounded.
  • Pricing of capital investments did not reflect opportunity costs. For years, because of the dogma that interest was a capitalist phenomenon, capital investment was not evaluated efficiently so that waste abounded.
  • The communist leaders were all urban persons and thought they could treat agricultural work as if it was a 9-5 factory job. Having no appreciation of the life and work of peasants, they collectivized agriculture, treating it as factory with disastrous results, including a famine in which several millions died in the 1930s and low agriculture productivity from then on. (Later what should have been one of the
    worlds’ great bread baskets came to require imported food in the 1970s and 1980s.)
  • Workers are paid more than the value of their output at controlled prices and so are forced to save because there are no goods available to buy. This is a time bomb as financial savings for which there is no real counterpart accumulate.
  • Services were valued at cost while there was little incentive to produce real value in many service activities. (For a later example, I once waited for an hour for a taxi in Budapest while the drivers played chess. Measured GNP is same if they play chess or take me to where I want to go.

The short paper is really informative about what was wrong with the analysis produced by Russia analysts in the US. This somehow has relevance to the current US involvement in Pakistan and Iraq.

(Thanks to Professor Farrant for the link).

Sunday, August 24, 2008

Documentary: Corruption in Africa

I don't know its source but it is worth watching!

Lessons from Cash Transfers from Africa and Latin America

There is a nice review of conditional cash transfers (CCTs) and the lessons learnt from African and Latin America in UNDP’s IPC website. CCTs are probably one of the most successful welfare, cash transfer programs that have helped tackle poverty effectively while ensuring better enrollment rates and healthcare of children from participating households. Here are some snippets from the publication:

Degalo Hailu and Fabio Veras Soares write:

…CCTs are considered innovative for several reasons: (i) their targeting mechanisms; (ii) beneficiaries receive cash rather than in-kind benefits; and (iii) the transfers are conditional. CCTs are designed to increase the human capital of beneficiaries by making transfers conditional on certain requirements, such as school attendance, visits to health clinics and renewals of immunisation. Additionally, CCTs aim to alleviate poverty in the short-term.

…Impact evaluations of CCTs have shown promising results. First, there is evidence of positive impacts on education and health outcomes. Second, there is some evidence of positive impacts on nutrition, mainly when the CCTs have been accompanied by the distribution of food supplements. Third, no major negative impact on labour supply has been observed (despite criticisms that CCTs foster dependency). Fourth, large-scale programmes have had impressive results in reducing inequality and some impact on poverty measures, especially by narrowing the poverty gap and lessening the severity of poverty.

…The low cost of CCTs, relative to traditional in-kind social assistance interventions, is another attractive feature of the programmes. The costs of Brazil’s Bolsa Família and Mexico’s Oportunidades—the two largest programmes in the region—are much less than 1 per cent of GDP. The way programmes are financed, however, can have crucial implications for their financial and political sustainability.

Tatiana Britto writes about Bosla Familia:

...No single transfer programme, on its own, can lift beneficiaries out of poverty permanently. This can only be done with a synergistic combination of public policies and economic growth, which is far beyond the scope of Bolsa Família.

...Bolsa Família now reaches 11.1 million families across Brazil and provides two different kinds of benefits: a basic transfer, completely unconditional and given to extremely poor families; and a transfer that varies according to the number of children in the family up to the age of 17. This is for poor and extremely poor families and is conditional on human capital investments such as school attendance, immunisation of children and pre-natal check-ups.

...The programme’s rationale is very similar to that of most CCTs in Latin America: to combine the short-term goals of poverty alleviation, through the cash transfers, with the long-term objectives of breaking intergenerational poverty traps, through the conditionalities on health and education.

Illiana Yaschine and Laura Davila write about exit conditions from CCT programs:

...Beneficiaries leave Mexico’s Oportunidades if they are above a certain poverty line. But this strategy does not mean that beneficiaries have built the human capital to break the intergenerational transmission of poverty.

Departure from CCT programmes should not be tied to poverty criteria. Because of the absence of an effective social protection system, the criteria should be based on the initial objective of the programme—building human capital.

…leaving the programme means that families are above the extreme poverty line at a particular moment, but it does not mean that they are no longer poor. This is particularly significant in Mexico’s case, given the limitations of its social and economic policy. The country lacks an effective social protection system, and thus it is not possible to ensure that households leaving Oportunidades will have access to other social programmes or will benefit from overall economic and labour market conditions. Families that leave CCT programmes must have recourse to other policies that enhance their living standards and guarantee their social rights in order to allow them escape from poverty.

Charity Moore write about the sources of funding for CCTs:

...Externally-financed programmes in small countries face challenges that differ from those of self-funded programmes in larger countries. Externally-funded programmes usually focus on short-term goals, while domestically-funded programmes focus on long-term human capital accumulation.

...The CCTs in Honduras and Nicaragua— respectively, the Programa de Asignación Familiar (PRAF) and the Red de Protección Social (RPS)—were two such programmes funded by an external lending institution. They faced obstacles that manifested themselves in different ways, but that stemmed from the similar core challenges involved in balancing the interests of internal and external stakeholders.

...Policymakers must work to balance the short- and long-term interests of internal and external stakeholders in order to create efficient and effective programmes. These can eventually be transformed into broader social protection strategies.

Rafel Perez Ribas and Guilherme Issamu Hirata write about what we do and don’t know about the impact of CCTs:

...Health co-responsibilities (“conditionalities”) might be more difficult to enforce and monitor than educational ones. CCT programmes affect decisions on time and budgetary allocations in favour of children, but it is unclear whether these changes stem from the transfer itself or from other programme components.

Households can be affected by the mere existence of a social programme and the presence of other beneficiaries in their community, whether or not they themselves are participating.

…the evaluation of Bolsa Família in Brazil has shown that beneficiary children are almost four percentage points more likely than non-beneficiaries to fail at school. This evidence raises concerns about the quality of the schooling that beneficiary children are receiving. A current challenge is to determine how CCT programmes could interact with other educational programmes in order to improve school quality and student performance.

...In Mexico, the supply of nutritional supplements for children might be the main reason for this positive impact. In Colombia, positive outcomes are supported by effective enforcement of the health check-up conditionality. In contrast, Bolsa Família’s evaluation shows no evidence of an impact on child nutrition or immunisation. Although it has raised the number of visits to health centres, Paraguay’s pilot programme, Tekoporã, has not managed to increase immunisation either.

... in poor areas the service supply constraint is greater in health than in education…households in poorer communities are more reluctant to change their attitude towards preventive health care than towards school attendance.

…In Mexico, for instance, only 50 per cent of PROGRESA’s diet diversification effect was explained by the monetary transfer (income effect). The remaining effect has been attributed mainly to the talks on health and nutrition.

…Recent studies on PROGRESA have shown that ineligible households are also affected by the programme. Nonbeneficiary households in areas where the programme operated have also increased their consumption because of its effect on the local economy. Moreover, the school enrolment rates of noneligible children have risen in districts that took part in the programme due to the so-called peer effect.

Pablo S. Villatoro writes about the tradeoffs between human capital accumulation and poverty reduction (??? I don’t really get a clear connection!);

…There are trade-offs between poverty reduction in the short- and medium term, and the increase in human capital in the long-term. For instance, if a programme targets those segments of the population with low rates of school attendance, the effects on human capital might be greater than if it had targeted poor families in general. But the impact on poverty would be less because large numbers of the poor would not take part in the programme. Conversely, if a programme focuses solely on the (extremely) poor, the transfers would go to children who are already in school, which may not be efficient in terms of the accumulation of human capital.

...Another approach is to give priority to the population affected by the greatest overlap between poverty and a deficit in human capital. This approach might lead to an increase in transfers to pre-school age children, minimizing the tension between human capital accumulation and poverty relief.

...It would also tackle poverty in the short run because of the demographic composition of the poorest homes. Moreover, it would facilitate labour market participation among poor women, since it lowers the opportunity cost associated with child care.

…if underinvestment in human capital is caused by market failures, income effect (unconditional transfer) is not enough to correct them: the beneficiaries’ behaviour can be more efficiently aligned with the social interest by using conditionalities….it is unlikely that unconditional transfers increase demand, because of the low monetary value of the benefit and the poor quality of the services. But if the aim is to alleviate poverty, using conditionalities makes it harder to achieve that aim, since they limit the beneficiaries’ freedom of choice and imposes extra costs.

...To reduce poverty in the short term, cash transfer programmes would have to impose time limits in order to obviate dependence and graduate beneficiaries who are no longer poor. A programme that seeks to reduce poverty in the medium-term requires complementary policies that foster the adult beneficiaries’ autonomous capacity to generate income, as well as policies that increase local demand for work.

...Programmes that focus sharply on building the human capital of children and adolescents have to provide transfers until the beneficiaries acquire sufficient human capital to increase the probability that they will escape poverty in the future.

Michelle Morais de Sa e Silva writes about Opportunity NYC (which is the first CCT type program in the US):

…The success of an incentivesbased programme such as Opportunity NYC depends partly on how well beneficiaries understand how it operates, so that they can respond to its incentives as expected.

The programme does not intend to alter the governance structure of the school system, nor does it involve innovative pedagogies or new classroom teaching practices.

It simply assumes that, by giving students monetary incentives, it will bring about improvements in test scores.

Sudhanshu Handa and Scott Stewart write about the orphan targeting dilemma in Eastern and Southern Africa:

Targeting households with children has a greater impact on school enrolment than other targeting strategies.

The experience of four countries in Southern Africa demonstrates that an orphan targeting approach reaches more orphans but excludes many of the poorest children, since orphans are not necessarily clustered in the poorest consumption decile. In Malawi, targeting households with children yields an increase in enrolment of five percentage points among children aged 6–17, while targeting households with orphans yields an increase of 4.2 points.

…Hence it is only when the focus is on the ultra-poorest children—those in the bottom decile—that the distinction between the two schemes (child-focused versus orphan-focused) becomes apparent. If policymakers give greater weight to this group, and if good targeting is possible, then the scheme that favours children over orphans will reach more children in the poorest decile relative to an orphan targeted scheme. Such a scheme would also reach about 50 per cent of orphans in the bottom decile.

There is much more in the publication about Social Cash Transfers program in Africa and CCTs in Latin America. Read the full publication here.

Saturday, August 23, 2008

Links of Interest

All you have to know about the Obamanomics

(this is so true and pragmatic)

So what we need to bring about is the end of the era of unresponsive and inefficient government and short-term thinking in government, so that the government is laying the groundwork, the framework, the foundation for the market to operate effectively and for every single individual to be able to be connected with that market and to succeed in that market. And it’s now a global marketplace.

Who is a Southasian?

The Maobaadi prime minister (Interview with Prachanda, the former rebel leader turned prime minister of Nepal)

Available options to Maoists-led government: Binding constraints to growth

Widening access to growth opportunities is possible when support policies are designed for facilitating the priority sectors. Hydropower, for example, is one of Nepal's top priority sectors to expand opportunities for growth. Even in a 1 MW construction site, fairly good employment opportunities can be created to displaced and landless populations. About 500 to 1000 people are normally needed per site in such a labor-intensive infrastructure projects. 

Opportunities can also be created in tourism sector.  It is the second largest sector after agriculture, which employs about 600,000 people with the estimation of generating US $205 million during 2007/08. Tourism can offer growth opportunity provided that serious efforts are made to increase its competitiveness in price index, human tourism, infrastructure, environment, technology, human resources, openness and social index. 

The other areas for widening the growth opportunities include data processing; software development and computer consultancy services; generation and transmission of electricity; manufacture of paper and paper products; manufacture of motorcycles and scooters and parts thereof; and establishment and management of educational and health institutions.   

Manmohan Singh's vision

Power and Roads for Africa: What the United States Can Do

Charles's fantasy farming won't feed Africa's poor (Paul Collier argues for genetic modification of crops to tackle global hunger; organic peasantry will not be enough)

...Organic peasant agriculture is a solution for the angst of affluence, but not hunger. Its apotheosis is the ban on GM crops.

...The GM ban has three adverse effects. It has retarded productivity in European agriculture; grain production could be increased by about 15% were the ban lifted. More subtly, because Europe is out of the market for GM technology, the pace of research has slowed. GM research takes a long time to come to fruition, and its core benefit - the permanent reduction of global food prices - cannot fully be captured through patents. European governments should be funding this research, but it is entirely reliant on the private sector. Private money for research depends on the prospect of sales, so the ban has not only blocked public research - it has reduced private research.

However, the worst consequence of the European ban is that it has terrified African governments - with the exception of South Africa - into banning genetic modification. They fear that growing modified crops would shut them out of European markets. Because Africa banned GM, there was no market for discoveries pertinent to the crops that Africa grows, and so no research. In turn, this has led to the critique that GM is irrelevant for Africa.

Africa cannot afford the GM ban. Its cities, fed by imports, need global prices to be low. Without cheap food the children of the urban poor will be malnourished. Africa's farmers, broadly self-sufficient, need higher productivity. Productivity per acre has stagnated, so rising production has depended on expanding the area under cultivation. But with population growth this option is running out.

Thursday, August 21, 2008

A tour of Millennium Villages Project

Here is a nice narration of Millennium Villages Project, spearheaded by Jeffrey Sachs. Sachs' experiment-based grand plan is to pump in money, both from IFIs and private donors, to eradicate extreme poverty by 2015. The success of the project depends on a lot of factors. The reporter sums it up pretty nicely:

Along with the UN Development Program, the Marshall Plan, and USAID, Sachs's project is one of the broadest and most ambitious human experiments ever launched. In some places it may well be of lasting importance. In others, it could fail utterly. It's all a matter of luck, politics, and hard work. Sachs is an expert on the last.

Here is how Sachs wants to scale the program up:

Pull one village up out of poverty, and then, as Sachs says all the time, you can "scale up" to more villages and, eventually, a whole country and perhaps, in time, a continent.

..There are essentially two dueling models of development in the aid community today. Sachs's idea is that with large infusions of money, villages will develop the means to link their own markets with larger, more globally connected markets in urban centers, leading to greater prosperity and at the same time allowing them eventually to assume the costs of the Millennium program innovations. In theory, local governments, having seen the advantages that the project brings, will also step in to help out—with improved programs, continuing financial support, and infrastructure maintenance. Meanwhile, Sachs and many other development experts believe that only huge donations of aid can help the desperately poor.

On the Russian mess:

"The reason shock therapy—as they call it—didn't work in Russia," he says, "was because the policies were not really carried out. People who criticize my work in these places don't read the data. They don't look at data because they are not interested and because, I am convinced, they can't read it. Whereas I live on data. I love data."

Indeed, some academics blame the failure of shock therapy in Russia on Sachs's reliance on statistics at the expense of sociology and politics. One well-known specialist on Russia, Stephen F. Cohen, then at Princeton, recalls plunking himself down next to Sachs on a plane headed for Moscow when Sachs was working with the Russian government. When Cohen asked him what he was reading about Russian history and current affairs, Sachs reportedly looked at him blankly and announced that economists did not need that kind of background, because, since the laws of economics were universal, data and statistics could tell them all they had to know.

Poverty-induced ignorance:

When Sachs gets up to speak ("President Jeff Sex," Toya's mayor announces), he has to explain the project to his listeners; a Malian translates the speech into Bambara, the nation's lingua franca. "I bring many partners who are interested in Toya," Sachs tells the silent crowd. "A movie star—you can see him on television, his name is Matt Damon." Around him the faces are blank. "The Secretary-General of the UN sends his good wishes." More blank faces: Damon and Ban Ki-moon, equally unknown quantities here. "And many international businesses want to help you," Sachs tells them. "A company called Sony, which makes computers, wants to give them to you." But what do they know of Sony or computers? He tells the crowd that there are "many exciting things we'll do together in the coming years." Among these he includes introducing new seed varieties, better irrigation, veterinary health care, fishing, a new ambulance, computers for the school, and even the development of tourism as a source of revenue. These are things the people understand better.

The long article is very descriptive. Nothing especially new stuff though!

Links of Interest

The selfish hegemon must offer a New Deal on trade (by Jagdish Bhagwati)

...First, as with Japan in the 1930s, when one-dollar blouses flooded the world, India and China today are growing and exporting rapidly. They are like Gullivers in a Lilliputian world economy. They create tsunamis for specific industries where their exports concentrate.

Second, competition has intensified. As exemplified by the Boeing-Airbus saga, the margins of competitive advantage have shrunk. No chief executive or any of his workers in tradable industries leads a happy life any more as there is always someone, from somewhere, breathing down his neck. I call this new phenomenon “kaleidoscopic comparative advantage”. It leads to volatility of jobs, as you have an advantage today and can lose it tomorrow.

Third, labour-saving technical change continuously threatens assembly-line jobs for the unskilled. The assembly lines continue but increasingly do not have workers on them; they are managed from a glass cage by skilled operators whose jobs increase instead.

The agenda for institutional change has to address this fragility of jobs, enabling unskilled and skilled workers to face the new uncertainties. To illustrate: higher education will have to be recast to reduce the proportion of time spent on specialisation: this would enable an easier response to shifting skill requirements as the kaleidoscope turns. Unskilled workers will have to be helped and encouraged to acquire skills and therefore increase their ability to shift to other jobs, even as they continue to work.

Emerging markets must shift their focus in wards (by Raghuram Rajan)

...Yet years of strong growth and cutbacks in public investment, which have restored economic health to emerging markets, have also eaten up excess capacity. Any increase in domestic demand, if it is not to result in bottlenecks and even higher inflation, will have to be accompanied by a shift in production from an external focus to an internal focus. This means that emerging market currencies will have to appreciate, and the weight of output will shift from traded goods such as T-shirts and electronics to non-traded goods such as real estate and health services over the next few years.

...Labour markets will have to be more flexible, while product markets will have to be deregulated far more if profitable productive growth is sought in the non-traded goods sector. With more expenditure flowing to assets such as housing, the financial sector will have to be careful not to precipitate booms and busts, and this will mean more reform as well as better supervision. Finally, governments will have to meet the greater demand for public investment without eroding fiscal discipline, maintaining greater caution as the cushion of large foreign exchange reserves diminishes and increases their vulnerability.

Africa's food crisis the handiwork of IMF, World Bank (virtually everything under the sun that goes wrong in Africa now is being traced back to IFIs!...a very cheap shot!)

At the time of decolonisation in the 1960s, Africa was not just self-sufficient in food but was actually a net food exporter. Its exports averaged 1.3 million tonnes a year between 1966-70. But today, the continent imports 25 per cent of its food, with almost every country being a net food importer. Hunger and famine have become recurrent phenomena, with the last three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, Southern Africa, and Central Africa.

...Instead of triggering a virtuous spiral of growth and prosperity, structural adjustment saddled Africa with low investment, increased unemployment, reduced social spending, reduced consumption, and low output, all combining to create a vicious cycle of stagnation and decline.

Lifting price controls on fertilizers while simultaneously cutting back on loans to farmers simply led to reduced applications, lower yields, and lower investment. One would have expected anyone to see this.
Moreover, the expected results of the withdrawal of the state in the hope that private sector would develop agriculture did not materialise. Instead, the private sector believed that reducing state expenditures created more risk and failed to step into the breach.

Zimbabwe inflation tops 11 mln pct as talks drag (the Zimbabwean economy has seen prices going out of bound...very unruly price whose cause can be traced back to Mugabe's dirty rule!)

...The Central Statistical Office said year-on-year inflation in June jumped to 11.27 million percent -- the highest current inflation rate in the world -- from 2.2 million in May. That would mean prices double about every three weeks. Many economists believe the real figure is higher still.

The central bank re-denominated the Zimbabwean dollar currency on July 30 by slashing off 10 zeros but this has had no effect on stemming the devaluation of the currency. It trades at Z$100 to the greenback, or Z$1 trillion in the old currency.


Tuesday, August 19, 2008

Times up for garment industry

That's the title of my latest Op-Ed published in The Kathmandu Post. This piece's main point: don't foster ailing industries by seeking preferential treatment in the international market. In Nepal's case, it is the garment and textile industry, which once was the largest foreign currency earning exportable commodity. Now, it has lost almost 80% of jobs and 98% of firms. Why? Because of its inability to withstand competition in the international market, especially after the end of Multi-Fiber Agreement (MFA) in 2005. Interestingly, for Nepal, the year 2005 can also be labeled as 'the Great Garment Depression of 2005'.I favor market competition, which probably is the best way to induce incentives among individuals and firms.

In light of these widely known reasons but scarcely mentioned by the bureaucrats, a new high level delegation, composed of Commerce Secretary and FNCCI and GAN members, is heading to the United States to lobby for preferential treatment of or duty free access to Nepali garments in the US market, which is the largest importer of readymade garments made in Nepal. What surprises me the most is the fact that our leaders and garment sector entrepreneurs have not yet realized the value of competition and the stark truth that the Nepali garment sector cannot simply compete with the big producers, who continue to take an advantage of agglomeration economies, from Cambodia, China, India, Vietnam, and Mexico, at least not in the current situation.

Instead of rectifying defective economic policies considering the changed circumstances in the market brought about by globalization, the bureaucrats are too bogged down and intent on getting the preferential treatment in the US market. It shows how misguided our economic priorities are and how ignorant and unyielding our policymakers are to change the course of economic policy for good.

The prevailing illusionary notion among the policy-makers and garment sector entrepreneurs -- who are already battered hard by the depression in the garment sector -- is that the industry can recoup lost jobs and revenues if they are able to secure special treatment in the US market.

However, what is hard to swallow is the fact that no such recouping would occur and greater revenue generation would just be a dream, unless a miracle happens in favor of Nepali products in the international market. After the end of the MFA, Nepal already has lost market pie to big producers from China, India, Cambodia, and Vietnam, among others.

Read the full Op-Ed here. Here is a previous post about carpet industry, preferential treatment, and poverty reduction (in reality, it is a modern day myth!). Related to this post is this news piece about "carpet exports roll down by 14%" this fiscal year.

Also, this time there is a pic of mine with my Op-Ed. Below is an embedded link of how the Op-Ed page looks like on the actual print version (what could be a better way to advertise myself than this! How much of rationality and selfishness is in question here?)

Links of Interest

Poverty in Focus: Cash Transfers : Lessons from Africa and Latin America (good edition on all you need to know about CCTs, its effectiveness, complicated issues related to exit strategies, and challenges.

Are Matlhus's Predicted 1798 Food Shortage Coming True? (Jeffrey Sachs says we still don't know for sure).

Ethiopia's new famine: 'A ticking time bomb' (Ethiopia faces a 'toxic cocktail': drought, global inflation, armed conflict and assorted plagues).

Economic costs of cheating on a spouse differ for men and women 

(Hmm... this is interesting: Men are 7 percent more likely to cheat than women)

According to lead author Bruce Elmslie, professor of economics at the UNH Whittemore School of Business and Economics and co-author Edinaldo Tebaldi, assistant professor of economics at Bryant University, the behaviour of men and women toward infidelity differs substantially, as men and women respond differently to the perceived costs and benefits of an affair.

For women, biological and socio-economic factors like men who are good candidates to father a child and who have the education and financial stability to provide for a family are significant factors women consider when deciding to have an affair. These factors do not come into play for men who, overall, are 7 percent more likely to cheat than women.

The likelihood of a man having had an affair increases with age and reaches a peak when a man is about 55 years old. It then decreases with age. For women, the peak is 45 years old, which the authors say is logical when considering the biological reasons why women cheat.

Globalization and health: Importing Competition

Carpets, duty free treatment, and poverty reduction-- a modern day myth!

Here is call for duty-free treatment of carpet made in Nepal for the sake of poverty reduction. Again, a call for inefficiency!

Nepal needs duty-free treatment of carpets and shirts in India, China, Europe and the US.

It should be noted that almost 98% of the garment and textile firms have gone out of business, especially after the end of MFA in 2005. And, over 80% of the jobs are already lost. Why? Because Nepali exporters never learnt how competition works and were always smug with duty free access in the West. Neither the government nor the entrepreneurs looked into enhancing our industry's capacity, competitiveness,quality, and market access. After all quota restrictions were phased out in 2005, big producers, who enjoy large agglomeration economies and offer cheaper products of the same quality, from China, India, Cambodia, and Vietnam took over the Nepali market pie in the West.

Given this reality, why would Nepal still need duty-free treatment in the West? Nepal is not going to recoup the market pie already lost the its international competitors. Also, the dream of poverty reduction through duty-free treatment is just a myth because already over 80% of the workers are out of jobs! The developing countries like Nepal were already given ample time to enhance their competitiveness in this sector; the first phase out began in 1995 and since then it is more than a decade-- ten years is a lot of time to enhance competitiveness of this sector by increasing investment in capital, quality, marketing, labor skills, etc. No such step was taken, hence this sorry fate! No regrets!

Forget about aiding this sector. It is high time Nepal prioritized other sectors like tourism and hydropower.

Sunday, August 17, 2008

Women may be uneducated but not ignorant!

What a nice sentence:

Women may be uneducated but apparently they are not ignorant.

Short and sweet sentence that speaks volumes against the argument that state provision of reservation/allocation of a certain percentage of seats, be it in the parliament or jobs in government agencies, to women is not good in terms of potentiality and efficacy. True in an ideal, perfect job market but not in a semi-market where there is a nexus or series of male dominance in almost all level and structure of political, economic, and social sphere. If we acknowledge that women empowerment has positive effect on the major indicators of development, then we should not hesitate to make decisions considering history, where women were never allowed to rise above the social ladder, irrespective of their qualifications, and were always kept under male dominance.

The trend of male dominance should be broken and it has to be done in such a way that women are given equal footing right from the beginning of reform process. This might also mean that incompetent women may land in positions they are not supposed to be if we consider merit. However market unfriendly it might seem, we have to realize that imperfect markets should not flourish on top of deep social discrimination against women.

If reforms related to representation, which should have a clear cut sunset clause, can temporarily overstep the logic of merit in the job market, and in the long run could lead to a more optimal solution than the existing sub-optimal one, then it is perfectly rational to implement that reform. Read my commentary on the economics of reservation published in January 2008 here (alternative like  here). I support temporary reservation of government jobs and parliament seats to the marginalized groups, including women. The government of Nepal had recently made a provision to allocate 33 percent of jobs in government agencies and in the parliament for these marginalized groups.

Here is a nice article about mainstreaming women.

...The CA holds approximately 33 percent women. Though it fails to fulfill righteous 50 percent—women consist of half of the population—it is still the giant stride from previous six percent women in the last elected parliament. Increasing number of women in politics is an encouraging sign but the question of their potentiality remains crucial, their voices might vanish into the shrill voices of males.

...When the women like tailors, domestic help were nominated as CA members, the media started publishing nonsense. They swept the ethic by blatantly portraying women as banal. News came with loathsome tendency: CA member while sewing cloths, or while washing others utensil. The intention behind this news was, look what has become of our country? Those low profile women have risen. What would those uneducated morons do? 

We cannot or must not undermine efficacy of women saying they are uneducated. Of course, they do not know many things but they can raise a voice for grass root level. They will give points that can be coded as law by the expert CA members. Women may be uneducated but apparently they are not ignorant.

Links of Interest

A very Canadian way to solve a world problem

Together they form the basis of what is often called "hidden hunger," the deforming element of malnutrition that stunts children's growth and can dramatically shorten the lives of youngsters and pregnant women throughout much of Africa and southeast Asia.

The other surprise was that the person advocating the investment is a Canadian: Susan Horton, an economics professor at Wilfrid Laurier University in Waterloo, Ont., who has been involved with Third World nutrition issues since a graduate-student stint at Bangladesh's International Centre for Diarrheal Disease Research about 30 years ago.

Her plan: An investment of $347 million a year over five years to scale up the delivery of vitamin A, iron and iodine, and to add zinc and folic acid to the majority of diets in sub-Saharan Africa and much of Asia. She believes the result would be an estimated $5 billion in health-care savings and future earnings — and saving something in the order of 3.5 million lives.

The Copenhagen Consensus for 2008 lists that micronutrient supplements for children (vitamin A and zinc) as the top most solvable (based on what produces the biggest bang for a buck) problem for this year. Every dollar spent on micronutrients would generate a $17 return in health and productivity costs, which is far greater than investments in global warming or counterterrorism, which require enormous amounts of public money to make even a modest amount of headway. The top ten problems in the list are micronutrient supplements for children (vitamin A and zince), the Doha development agenda, micronutrient fortification (iron and salt iodization), expanded immunization coverage for children, biofortification, deworming and other nutrition programs at school, lowering the price of schooling, increase and improve girls' schooling, community-based nutrition promotion, and provide support for women's reproductive role.

Why doesn't aid work in sub-Saharan Africa?

Unsolved problems in economics

  1. What caused the Industrial Revolution?
  2. What is the proper size and scope of government
  3. How can heterogeneous production goods be included in a mathematically tractable intertemporal equilibrium constrution?
  4. What caused The Great Depression?
  5. The Equity premium puzzle
  6. How is it possible to provide causal explanations using the purely logical constructions of mathematical economics?
  7. Futures contract model
  8. What is the microeconomic foundation of inflation?
  9. Is the money supply endogenous?
  10. How does price formation occur?
  11. What causes the variation of income among ethnic groups?

A fiasco named NOC (a good article about sorry state of state-run Nepal Oil Corporation and the perennial short supply of oil, even when subsidies are scrapped and prices upped multiple times. What's the secret: corruption, political infringement in management decision, poor governance, and poor accountability)

See my take on the Nepali fuel crisis and the troubled NOC here (written in Sept 2007, but for some reason it was not published in the newspaper I usually publish Op-Ed and Commentary).

Large cardamom export touches new record (Nepal is the largest exporter of large cardamom. This product has been identified as having the highest export potential. I don't understand why the policymakers are neglecting this particular product rather than actively promoting its production in the country. Nepal has already squandered decades promoting garment and textile sector. Sadly, the same sector is now reeling under sustained recession (I say the Great Garment Depression of 2005/06 in Nepal) chiefly because of slacking competitiveness of Nepali products and production efficiencies fostered by subsidies and duty free access in the West until the end of MFA in 2005)

Friday, August 15, 2008

Former guerrilla becomes Prime Minister

Finally after two years of political bickering, the political parties have chosen Pushpa Kamal Dahal aka Prachanda, the head of the Maoist guerrillas (former) who waged a bloody decade long war against the monarchy and state, as the first prime minister of the Federal Democratic Republic of Nepal. More here.

Prachanda as PM

It needs to be seen how Prachanda tames his belligerent guerrillas currently stationed at different cantonments supervised by the UN. Also, it needs to be seen what form of political and economic system Nepal would follow under his leadership. My concern about too many potential red tapes here. There will be more questions raised about the Maoists' bullying nature and their ability to lead the nation through the path of peace, which Nepal has barely witnessed in the past two years.

Keynes got it right but ...

Krugman recalls Keynes while explaining why nationalism, militarism and imperialism might overturn the gains from and prospects of globalization:

...Writing in 1919, the great British economist John Maynard Keynes described the world economy as it was on the eve of World War I. “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth ... he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world.”

And Keynes’s Londoner “regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement ... The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion ... appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.”

But then came three decades of war, revolution, political instability, depression and more war. By the end of World War II, the world was fragmented economically as well as politically. And it took a couple of generations to put it back together.

So, can things fall apart again? Yes, they can.

Consider how things have played out in the current food crisis. For years we were told that self-sufficiency was an outmoded concept, and that it was safe to rely on world markets for food supplies. But when the prices of wheat, rice and corn soared, Keynes’s “projects and politics” of “restrictions and exclusion” made a comeback: many governments rushed to protect domestic consumers by banning or limiting exports, leaving food-importing countries in dire straits.

And now comes “militarism and imperialism.” By itself, as I said, the war in Georgia isn’t that big a deal economically. But it does mark the end of the Pax Americana — the era in which the United States more or less maintained a monopoly on the use of military force. And that raises some real questions about the future of globalization.

...the belief that economic rationality always prevents war is an equally great illusion. And today’s high degree of global economic interdependence, which can be sustained only if all major governments act sensibly, is more fragile than we imagine.

Marriage between markets and regulation

The head of the UNDP says we need more regulation that does not stifle individual/market incentives:

Even very strong supporters of “capitalist globalization” believe that greater and more effective regulation is needed to make what some call “financial capitalism” sustainable...What we need to invent and develop are regulatory mechanisms that, on the one hand, don’t stifle private initiative and the creative energy of a market economy, but on the other hand, are very effective in their correction of the market failures that lead to excesses and misallocation of resources. We must also remember that democratic societies can only function well if the results achieved by the market economy are politically acceptable. The current global financial crisis provides a stark example of the consequences of missing and misguided regulation in the market economy.

Read the Q&A with Kemal Dervis, head of the UNDP here.

Thursday, August 14, 2008

Top universities in the world

Here is the full list of the academic ranking of world universities 2008. Obviously, the US education institutions occupy the top spots on the list.

academic ranking


Monday, August 11, 2008

Time to focus on tourism and hydro sectors

Finally, the Nepali businessmen have realized (after decades of inefficient investment in the garment and apparel sector) that Nepal should focus on what it inherently is best at exploiting comparative advantage. The President of Nepal Chamber of Commerce (NCC) argues that for economic development the government should focus on four main areas:

(i) Development of hydropower (ii) Promotion of tourism and special incentives for its development (iii) Strengthening of economic diplomacy and (iv) Human resource development.

Is it a self-discovery of the best sectors needed for economic development? If it is, then thank God, it has been acknowledged now, though late. Enough of focus on the uncompetitive garment, apparel, and carpet sector, which have led the economy nowhere! Now, it is time to change direction and focus on what Nepal is best at harnessing its comparative advantage.

Nepal has notorious transportation system, which has always created supply bottlenecks (contributing to longer delivery time and increase in cost of production). Focusing on tourism and hydro sector would be relevant because these sectors do not require well paved roads. Tourism relies very less on road transportation, as tourists usually either take airway or hike up the hills. Hydro sector also does not require roads as much as the export/trade sector does. So, in the short run Nepal is better off focusing on these sectors. Meanwhile, in the long run it should construct well paved roads/transport networks along with the development in the trading sector.

More like self-discovery, agian:

We have always urged the government to provide incentives to farmers, focus on agro and herb processing industries and link farms with the market - both domestic and overseas - in order to develop rural Nepal and help people enjoy the fruits of development. We have also focused on capacity building of commodity associations so that they can better serve the markets.

Very sticky labor laws are a big, big problem in Nepal:

...our long-running demands like "no work no pay" and a "hire and fire" provision in the labor law continue to fall on deaf ears. Labor law reform has been shelved for now.


Saturday, August 9, 2008

Looking at the share of imported intermediate goods used in manufacture of export goods

This article is interesting. It looks at how much of exports from China is made from imported intermediate goods and how much from domestically generated intermediate goods. The authors estimate that about 50% of China's export contains domestic content-- much lower than most other countries.

Why is it useful to dissect export data in this way? Well, it is important to analyze export statistics this way because it gives clearer picture while designing policies, especially to determine the effect of exchange rate fluctuations on domestic exports and on GDP growth. Cēterīs paribus, a given exchange rate appreciation would have a smaller effect on trade volume, the lower the share of domestic content in the exports.

We also estimated that the share of foreign value added in normal exports is way lower (between 5-11%) than in processing exports (between 74-82%). There are also interesting variations across sectors and firm ownership. Those sectors that are likely labelled as relatively sophisticated such as computers, telecommunication equipments, and electronic devices have particularly high foreign content (about 80%). Moreover, foreign-invested firms also tend to have higher foreign content in their exports than do Chinese domestic firms

Here is the conclusion:

Our best estimate suggests that the share of domestic content in China’s exports is about 50%, which is much lower than most other countries. This implies that a given exchange rate appreciation is likely to have a smaller effect on China’s trade surplus than for other countries. The domestic content share is particularly low in sectors that are likely to be labelled as sophisticated, such as electronic devices and telecommunication equipments. This means the competitive pressure China’s exports place on skilled workers in high-income countries is smaller than suggested by a simple-minded look at the raw trade data.