Friday, April 25, 2008

Food Inflation Watch: Ban Ki-moon urges action

The UN Secretary General Ban Ki-moon has urged all countries to contribute money to FAO (to the tune of $755 million) so that it can provide immediate relief to the most needy ones. The food crisis, triggered by rising prices, have turned violent and costly for governments around the world. The World Bank estimates that as many as 100 million people could go down the poverty line- a watershed in the achievements against poverty in last few years. Moreover, it also estimates that 33 countries are extremely vulnerable to chaos due to rising food crisis.

What I am wondering is why is it so difficult to raise $755, that too for a genuine cause? The developed countries organize so many development forums for developing countries and raise million of dollars in a day or two (for instance, for Afghanistan, Nepal, etc for reconstruction.) but why can't it do the same to solve this crisis? Everyone knows that the crisis is bubbling fast and it can explode any time, any where in the world, triggering a chain reaction (some say it might lead to "cold war" over food...a very exaggerated notation and prediction). Still, why are the developed countries so stingy in contributing money for a genuine, immediate cause? I can comprehend the economics behind it but not the politics. The champions of capitalism and free markets should be more concerned about calls for move to socialist state structure in Latin America due to capitalism's inability to deal with crisis in necessary items (remember, the president of Bolivia talked about revising capitalism last week!). This could prove more costly because it might accelerate the rate of move to socialist state in Latin America.

Interesting papers from the Journal of Development Economics

From Journal of Development Economics, Volume 86, Issue 2 (June 2008)

Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction


This paper presents a dynamic macroeconomic model that captures key linkages between foreign aid, public investment, growth, and poverty. Public capital is disaggregated into education, core infrastructure, and health. Dutch disease effects associated with aid are accounted for by endogenizing changes in the relative price of domestic goods. The impact of shocks on poverty is assessed through partial elasticities and household survey data. The model is calibrated for Ethiopia and changes in the level of nonfood aid are simulated. The amount by which (nonfood) aid should increase to reach the poverty targets of the Millennium Development Goals is also calculated, under alternative assumptions about the degree of efficiency of public investment.


Is migration a good substitute for education subsidies?


Assuming a given educational policy, the recent brain drain literature reveals that skilled migration can boost the average level of schooling in developing countries. In this paper, we introduce educational subsidies determined by governments concerned by the number of skilled workers remaining in the country. Our theoretical analysis shows that developing countries can benefit from skilled emigration when educational subsidies entail high fiscal distortions. However when taxes are not too distortionary, it is desirable to impede emigration and subsidize education. We then investigate the empirical relationship between educational subsidies and migration prospects, obtaining a negative relationship for 105 countries. Based on this result, we revisit the country specific effects of skilled migration upon human capital. We show that the endogeneity of public subsidies reduces the number of winners and increases the magnitude of the losses.


Remittances, transaction costs, and informality


Recorded workers' remittances to developing countries reached $167 billion in 2005, bringing increasing attention to these flows as a potential tool for development. In this paper, we explore the determinants of remittances and their associated transaction costs. We find that recorded remittances depend positively on the stock of migrants and negatively on transfer costs and exchange rate restrictions. In turn, transfer costs are lower when financial systems are more developed and exchange rates less volatile. The negative impact of transactions costs on remittances suggests that migrants either refrain from sending money home or else remit through informal channels when costs are high. We provide evidence from household surveys supportive of a sizeable informal sector.


Institutions and concentration


In a new dataset of 1.3 million firms from over 100 countries, I establish a number of regularities in cross-country differences in economic concentration. Concentration of sales and employment is substantially higher in smaller countries and in less-developed countries; these two factors alone explain roughly half the cross-country variation in concentration. Nevertheless, a number of institutional factors offer additional explanatory power for concentration. Concentration is higher in countries with higher entry costs for new firms, in countries with weaker antitrust policy, in countries with less financial development, in countries with weaker rule of law, and in countries with more burdensome regulation. Weak institutions are associated with higher concentration especially in industries that do not have naturally high levels of concentration. In addition, the relationships between institutions and concentration are more pronounced in nontradable and investment-intensive industries, suggesting that natural barriers to competition facilitate the monopolization of sectors especially when institutions are weak.

Bringing world-class health care to the poorest

Dr. Ernest Madu runs the Heart Institute of the Caribbean in Kingston, Jamaica, where he proves that -- with careful design, smart technical choices, and a true desire to serve -- it's possible to offer world-class healthcare in the developing world. Listen for some eye-opening statistics on heart disease, which is as ruthless a killer in poorer nations as in richer ones.