Sunday, January 30, 2011

The Doha Round is doable in 2011

A “High Level Trade Experts Group” argues that passage of the Doha Round is doable in 2011, but this would require increased attention of world leaders. The Group has called for December 31, 2011 as the deadline for the passage of the Doha package.

  • Doha is doable this year; rapid progress is being made in closing the negotiating gaps; this started in November 2010.
  • Getting the deal done requires head-of-state attention; they must authorize, or personally negotiate the last trade-offs framed by the draft agreement that their WTO ambassadors hope to have ready for April.
  • The window for this deal is the first half of 2011; after that all bets are off until 2013 at the earliest (due to elections in the US).

Richard Baldwin argues that the convergence of some of the developments in trade has created a new window of opportunity:

Oversimplifying for clarity’s sake, the Doha deal involves reduced ceilings on agricultural protection and subsidisation in exchange for reduced tariff ceilings on industrial goods. Food prices are high so the agricultural liberalisation won’t hurt farmers much and manufacturing production in emerging market is booming, so the tariff cuts won’t be very politically painful.

The new trade giants – India, Brazil, and China – are eager to guard the WTO’s central place in the world trade system; inter alia, they fear that US, EU, and Japanese use of deep regional trade agreements could create a parallel system of trade governance that excludes them.

The EU, having already locked in the agricultural liberalisation unilaterally, is eager to collect the benefits of lower limits on emerging market tariffs on industrial goods.
The US political parties – both Republicans and Democrats – would rather take the issue off the table before the 2012 presidential election campaigns.

[…] If Doha were put on hold until 2013, there is a good chance that it would never get done. The world has changed so radically since Doha was launched in 2001 that the temptation to scrap it and start again (implying that a round won’t be finished in this decade) could prove irresistible. Doha’s negotiating mandate is based largely on leftovers from the 1994 Uruguay Round. China, India, and Brazil would have much greater influence over any new agenda than they did when Doha was launched in 2001.

Here (the main paper by Antoine Bouet and David Laborde 2009) is an updated estimation of the potential costs of a failed Doha Round. The total cost of failure of the Doha Round is estimated to be US$ 1.171 trillion in forgone world exports if protectionist measures persist. Meanwhile, welfare loss are estimated to be US$ 193 billion.

Under a scenario where applied tariffs of major economies increase up to the currently bound tariff rates, we find that world trade decreases by 7.7 percent and world welfare drops by US$353 bn. We then compare a resort to protectionism when the Doha Development Agenda (DDA) is implemented versus a resort to protectionism when the DDA is not implemented. We find that this trade agreement could prevent the potential loss of US$ 809 bn of trade, and could therefore act as an efficient multilateral insurance scheme against the adverse consequences of “beggar-thy-neighbor” trade policies.

Here is earlier estimates of the Doha Round. Here is a piece about the industrial and export interests of Nepal in the Doha Round of trade negotiations. Here is a link to the recent WTO workshop on the Doha Round.

Saturday, January 29, 2011

Where have all the trees gone?

Where have all the trees gone? A scene from Dhulikhel Resort. We were supposed to see the mountain range, but, thanks to bad weather, bad luck!

Friday, January 28, 2011

South Asian growth prospects

According to the latest Global Economic Prospects 2011, the South Asia region is projected to post GDP growth of 7.9% on average over the 2011-2012 fiscal years, buoyed by vibrant growth in India. This compares with estimated growth of 8.7% in fiscal year 2010. For a comparison between Nepal, South Asia and developing countries see this.

In 2012, South Asia is expected to have nominal GDP of US$ 2.88 trillion and population of 1.64 billion. GDP per capita is expected to be US$ 1754.4, with real GDP per capita growth of 6.7%

South Asia’s real GDP growth accelerated to an estimated 8.7 percent in FY2010-11 from 7.0 percent in FY2009-10, buoyed by very strong growth in India, which represents 80 percent of regional GDP. Excluding India, regional GDP growth (on a fiscal year basis) firmed, but to a more modest 5.1 percent from 4.3 percent the year before. On a calendar year basis, GDP for the region as a whole is estimated to have expanded 8.4 percent in 2010 after 5.3 percent in 2009, and to 4.8 percent in 2010 from 3.8 percent in 2009 if India is excluded.

The main reasons for this strong performance are robust domestic demand, aided by macroeconomic policy stimulus measures, a revival in investor and consumer sentiment, improved external demand, and stronger private capital inflows. Specifically,

  • Afghanistan: a good harvest and strong donor funding
  • India: a favorable monsoon
  • The Maldives:  recovery of tourism
  • Bhutan: rising capital expenditures for ongoing development of hydropower capacity
  • Sri Lanka: the peace dividend
  • Pakistan: ailed by a standstill on policy implementation, severe disruption tied to massive flooding and continued security problems
  • Nepal: ailed by political stalemate
  • Bangladesh: ailed by power-supply bottlenecks

South Asia has the largest fiscal deficit (8.2% in 2010) among developing countries. Fiscal deficits of Bangladesh, the Maldives, India, Sri Lanka, Pakistan, and Bhutan are 2.5%, 22.4%, 9.6%, 8%, 6.3%, and 6.1% respectively. Meanwhile, South Asia’s general government tax revenues averaged 14.3% of GDP in 2009, which is lower than in other developing regions.

Interest payments averaged 18.2%, which is by far the highest share among developing countries. While, Afghanistan’s and Nepal’s interest payments are manageable at less than 4% of total budget, other countries have very high rates with Sri Lanka paying as high as 25.8%.

Inflationary pressure in the region, except in Afghanistan and the Maldives, was pretty high. Apart from domestic demand, increased capacity utilization rates, accommodative macroeconomic policy and increased inflationary expectations, rising international fuel and food prices also contributed to push up prices. The rise in headline prices in Bangladesh, Bhutan and India are spillovers from India. Temporary price shocks due to devastating floods in Pakistan is another reason for high prices. This has led to an appreciation of South Asian currencies.

Exports recovered initially starting first month of 2009 but dipped in mid-2009 and again recovered in early 2010, but is declining again. Power outages impacted ready-made garment production (which represents over 75% of merchandise exports of Bangladesh); and floods reduced cotton harvests by 20% in Pakistan and decline in exports of textiles (which represents two-thirds of total merchandise exports).

Remittances has been a major player in South Asia economies with Nepal, Bangladesh, Sri Lanka, Pakistan and India receiving respectively 23%, 12%, 9%, 5.1%, and 4% of GDP in 2010,. Overall, remittances in South Asia increased by an estimated 10.3% in 2010. Partly because of strong remittances inflows, imports increased and current account deficit worsened.

The region benefited from aggressive demand stimulus measures, a revival in investor and consumer sentiment, and a resumption of capital inflows. A recent move toward tighter policy will likely need to be pursued further, given the region’s high fiscal deficits (the largest among developing regions), high inflation and deteriorating current accounts.


  • Continue robust growth in the next two years, although slightly lower than in 2010. It could be a result of tightening of fiscal and monetary policies. India, the Maldives, and Sri Lanka are pursuing fiscal deficit-reduction programs.
  • Tight policies could lead to an easing of regional inflationary pressures.
  • With less accommodative macro-policy and projected deceleration in the rate of growth of remittances, private consumption is expected to decelerate.
  • Regional investment in expected to increase, particularly due to strong growth fundamentals in India, ongoing post-war reconstruction in Sri Lanka, and post-flooding reconstruction in Pakistan.
  • Rate of growth of imports is expected to outpace that of exports. It will hit current account deficit.
  • Moreover, higher oil and grain prices would also affect current account deficit.
South Asia Macroeconomic Forecasts, 2008-2012
Indicator 2008 2009 2010 2011 2012
Real Expenditure Growth
GDP at market prices 4.8 7 8.7 7.7 8.1
Private consumption 5.6 5.1 7.5 5.2 5.7
Government consumption 18.1 6.1 9.1 8.4 7
Fixed investment 4.1 5.7 10.3 13.2 13.3
Exports, GNFS 16 -6.1 7.4 8.8 10.3
Imports, GNFS 19 -7.4 6.2 9.4 10.3
Contribution to GDP Growth
Private consumption 3.4 3.1 4.5 3.1 3.3
Government consumption 1.8 0.7 1 0.9 0.8
Fixed investment 1.3 1.8 3.2 4.1 4.4
Net exports 3.2 -1.4 1.4 1.7 2
Price Deflators
GDP at market prices -3.1 -0.1 13.6 20.3 3.2
Private consumption -2.6 0.8 13.3 18.9 3
Exports, GNFS -3.4 1.5 4.3 2.5 -0.5
Imports, GNFS -4.9 4.6 3.9 -1.8 -1
Share of GDP
Private consumption 60.6 60.1 59.2 57.2 55.9
Government consumption 11.6 11.6 11.7 11.7 11.5
Fixed investment 30.9 30.1 30.7 32.2 33.6
Change in stocks 1.4 1.3 1.2 1.1 1
Total investment 32.2 31.5 31.9 33.3 34.6
Exports, GNFS 22.1 19.7 17.9 15.4 15.2
Imports, GNFS 27.6 25 22.3 18.5 18.1
Nominal GDP (USD billions) 1511 1616.1 1995.8 2586.5 2883.5
Population (millions) 1560.5 1581.6 1602.4 1622.8 1643.5
GDP per capita, current USD 968.3 1021.8 1245.5 1593.8 1754.4
Real per capita GDP growth 3.4 5.6 7.3 6.3 6.7

Source: Global Economic Prospects 2011; 2011 and 2012 are forecasts

Thursday, January 27, 2011

CPI & Food Prices in Nepal

Food prices are fast outstripping overall general prices (CPI). It will continue to drag down real GDP growth and real per capita GDP. Globally, food prices have already shot up the roof compared to the mid-2008 level, when food importing countries faced serious problems. As of now, Nepal is a net food importing country and further rise in food prices would put more pressure on CPI, exports, and growth. (Data sourced from here (.xls)).

Agricultural trade balance (US$ million)
Country 1994-1996 1999-2001 2005 2006 2007
Afghanistan -103.919 -201.554 -708.639 -824.99 -722.815
Bangladesh -847.266 -1619.12 -2078.89 -2706.83 -3611.82
Bhutan -4.89333 -8.325 -13.183 -6.339 -5.859
India 2649.018 1351.741 3659.151 4190.592 8974.276
Nepal -120.834 -151.065 -257.962 -135.267 -200.323
Pakistan -992.736 -800.784 -1195.89 -1449.75 -1697.7
Sri Lanka 29.099 215.2273 389.077 -354.751 -398.91

South Asian trade balance in major agricultural goods:

Agri-goods trade balance, 2007 (US$ '000)
Country Cereal Potato Meat Fruits
Afghanistan 752 -14,696 2381
Bangladesh -613509 -2,953 -586 -29592
Bhutan -2676 349 -1 2227
India 2938739 10,991 897,461 159962
Nepal -83549 -6,784 -284 -23212
Pakistan 1267348 20,863 27,631 83726
Sri Lanka -292116 -13,677 -6,954 -14875

Source: FAO Statistical Year Book 2009/10

The chart below shows rise in global food prices.

The FAO Food Price Index has surpassed the upper bound reached in 2008. Commodity-wise, price of sugar has been spiking since May 2009. Similarly, prices of cereals and oil & fats are also going up. Price of meat is stabilizing but still is higher than in December 2008. The price of dairy is reaching the level reached in December 2008.

Among the causes of global rise in food prices are high petroleum prices (increases transportation costs and induces diversion of food production to biofuels), inelastic demand for food; depletion in food stocks; changes in exchange rates; lack of reliable information on food production; speculation; and production shortfalls.

After reaching peak in 2008, food prices were coming down due to good harvests for most basic food items. But, severe weather in some of the world’s biggest food exporting countries damaged harvests and led to another spike in December 2010. Flooding in Pakistan, Australia, and Canada, and drought and fires in Russia have affected crops in 2010 and even in 2011. Wheat production is going to come down this year. It will push prices even higher. Speculators are also helping to jack up prices.

Wednesday, January 26, 2011

Trade and the Global Recession

Global trade fell 30 percent relative to GDP during the Great Recession of 2008-2009. Did this collapse result from factors impeding international transactions or did it simply reflect the greater severity of the recession in highly traded sectors? We answer this question with detailed international data, interpreted within a general-equilibrium trade model. Counterfactual simulations of the model show that a shift in spending away from manufactures, particularly durables, accounts for more than 80 percent of the drop in trade/GDP. Increased trade impediments reduced trade in some countries, but globally the impact of these changes largely cancels out.

Full paper by Eaton, Kortum, Neiman and Romalis (2011) here.

Tuesday, January 25, 2011

Politics and economics of hydropower in Nepal

This blog post is adapted from an excellent rundown of the major political and economic issues pertinent to hydropower development in Nepal written by Deepak Adhikari, Nepal correspondent for the AFP.

Power to the people?

Deepak Adhikari

With winter in full swing, the spectre of planned power cuts, euphemistically called “load shedding”, is haunting Nepal's electricity consumers. The country’s citizens dread this time of year, which not only brings the Himalayan chill but also the inevitable power shortages, beginning in October to November and continuing until the monsoon arrives in June or July. By February the cuts are expected to intensify to 16 hours a day.

It’s a pattern that is fuelling the country’s debate over hydroelectricity – as well as frustration with the failure to move forward with dam projects. With a government eager to build large-scale schemes pitted against an active civil society keener on small-scale hydropower, progress has stalled. And a middle way is needed fast.

Nepal was not supposed to be like this. Or so its people were led to believe. Almost all educated Nepalis know the official magnitude of hydroelectricity that the country’s 6,000 rivers (many of them snow-fed) are capable of generating: 83,000 megawatts. But in a nation that produces a meagre 698 megawatts of hydropower – far below demand – such extreme estimates are increasingly questioned.

In a recent article on Nepal’s energy sector, two researchers sought to dispel the “83,000 megawatts” hydro-myth: “A Russian Masters level student, who, unfortunately, was not able to travel to Nepal for his research, came up with this number,” they wrote, referring to Dr Hari Man Shrestha, who carried out his research at the Moscow Power Institute. Citing two other contradictory figures (40,000 megawatts and 200,000 megawatts) that feature in discussion of the sector, the authors opined that a thorough study to establish the country’s true hydro potential was badly needed.

At a recent seminar on strengthening the Nepal Electricity Authority – a government body that buys, monitors and supplies electricity in Nepal – the energy minister, Dr Prakash Sharan Mahat, sounded cautious but optimistic. Reminding the audience of the ministry’s goal to produce 10,000 megawatts in 10 years, he said: “We’ll have to wait for four to five years, then we don’t have to face load shedding.” When a participant questioned the usefulness of a seminar conducted in a luxury hotel, he replied, “We should think big.”

To think big or small is at the heart of the hydro debate in Nepal, a country rich in biodiversity but also endowed with fast flowing rivers that surge through the Himalayas. The coalition government, like its predecessor, the Maoist government, has promised to cash in on the nation’s “liquid gold”. Though most of Nepal’s hydroelectric power can be generated using run-of-the-river systems, large dams, some argue, are inevitable for a nation only just emerging from the shadow of a decade-long civil war and desperate for development and growth. Government policy therefore remains large-scale and export-oriented. But Nepal’s “big thinking hydrology” has seen strong opposition from a vibrant civil society, especially since the restoration of democracy in 1990. Indeed, Nepal’s quest to exploit hydropower potential mirrors the political upheaval of the past two decades.

The early 1990s marked the World Bank’s infamous withdrawal from the 404-megawatt Arun III project located on the eponymous river in north-eastern Nepal. On the basis of a petition filed by members of the local community and activists, Nepal’s Supreme Court ruled that the World Bank and Nepalese government must provide information on the project to the public. There were several criticisms of the scheme, including the fear of a rise in the electricity tariff (the project’s estimated cost was US$5,400 [36,800 yuan] per kilowatt), the ecological impact of the plant on the rich biodiversity of the Arun Valley and the claim the project was too big for Nepal (the cost was equal to the country’s entire annual budget).

These concerns eventually forced the World Bank to back out, a phenomenon often equated with the shattering of the dream of prosperous Nepal. Writing a decade later in his book In Defence of Democracy: Dynamics and Faultlines of Nepal's Political Economy, former finance minister Dr Ram Sharan Mahat rues the project’s demise: “Arun III was lost, and with it the attractive financial package whose benefits included the huge social profit potential to boost the national revenue also vanished.”

Then came the Mahakali Treaty between Nepal and India in the mid-1990s, which envisioned the 315-metre high, multipurpose Pancheshwar dam, with water-storage capacity of 12.3 billion cubic metres and a 6,480 megawatt power house. Nepal’s Supreme Court determined that the treaty required ratification by a two third majority of the parliament. After intense debate, the agreement was finally ratified on November 27, 1996, but deep disagreement split the main opposition party (the United Marxist Leninists). The treaty stipulated that the detailed project report (DPR) would be completed in six months, but more than 10 years after signing it, India and Nepal have failed to make significant progress.

What could be the reason behind the initial euphoria and the now dormant status of the treaty? Some hydro-watchers say that India is not interested in exploiting and developing Nepal’s hydro potential and is, rather, thirsty for water. The critics says that the Indian side is eager to build the 269-metre high dam at Barahkshetra on the Kosi River, a major contributor to the Ganges in India, as a solution to the annual floods in Bihar and Uttar Pradesh, its two most populous states.

Prashant Aryal, a Nepali journalist who has written extensively on Nepal’s hydropower sector, says that India is drawn by water and irrigation, not electricity. “India imports power from Bhutan, its friendly neighbour; it has signed nuclear deal with the US; and has its own hydro capacity in north-east and other parts,” he says. “So, it would be incorrect to say that it is eyeing Nepal’s hydroelectricity.” Electrical engineer Bimal Gurung disagrees: “India, which is increasingly drawn into the climate-change debate, can’t use thermal plant,” he argues. “It would be cheaper to import from its geographically close neighbour Nepal than from remote Bhutan.”

But the Bhutanese model, in which India builds the project and then imports the power, has drawn criticism from experts in Nepal. In an article published in Himal Southasian magazine in August, leading water-resource expert Dipak Gyawali termed the model, a “neo-colonial path to power”. In the much discussed article (Bhutan business news editor Tenzin Lamzang has responded in the Bhutan Times), he writes: “A rent-seeking, royalty-earning model might enrich governments, politicians and senior bureaucrats for some time, much like the Arab sheikhdoms, but it does nothing to develop national capacity – which is what development is, in the true sense.”

The sentiment is echoed by Ratan Bhandari, a coordinator of the Water and Energy Users’ Federation Nepal (WAFED), an organisation that questions the utility of big dams and says that it fights for the benefit of the local people. “We are not anti-dam or anti-development per se,” he clarifies at the outset, before elaborating on the disadvantages of big dams: “They displace many thousands of people, destroy local environment and benefit only the rich.” In fact, Bhandari’s own involvement in the protest movement parallels the development of a hydro project in his home village in western Nepal.

The 750-megawatt West Seti project has been through many ups and downs, culminating in the sudden withdrawal of its Chinese investor early last year. Initially conceived as a 77-megawatt run-of-the-river project, it was later optimised to a 195-metre, concrete face rockfill dam capable of producing 750 megawatts of electricity. But, if it goes ahead, it is feared the dam will displace the people of four districts. The reservoir will cover 25 square kilometres and have a volume of around 1.5 billion cubic metres. “No project can be successful without the inclusion of the local communities,” Bhandari argues. “We should make sure that the projects are for our benefit not for some foreign investment company.” He says that the very concept of exporting electricity to India is flawed because it is only raw material, not a product to be exported.

Can Nepal itself develop the hydro projects that require huge investment? Bhandari and Gurung, who stand on opposite sides of the hydro debate, agree that there is money in Nepal but lack of security is hindering investment. Gurung argues that, since most of Nepal’s hydro plants would be run-of-the-river, and if care is taken to construct earthquake resistant facilities, even big dams are realistic. “The structure should be designed properly,” he says. “For rapid growth, big projects are what we need at the moment.”

According to US-based NGO International Rivers, 400,000 square kilometres of land has been submerged due to the construction of 40,000 big dams in the past 50 years. Critics of such dams say that there is no compensation for the social, economic and environmental cost of these projects.

How can these opposing development narratives for Nepal be reconciled? Perhaps there is a middle way after all. As Bhandari says, “Not all big dams are bad and not all small dams are good.” The solution may be promoting micro hydropower as well as investing in environmentally friendly and sustainable medium-sized and large-scale projects.

Aid & Pakistan’s political economy

[…] The deep pockets of the United States' civilian program in Pakistan-in the form of $1.5 billion a year in development assistance-don't seem to contain the leverage to push those reforms through.

[…] The IMF's view matters, because Pakistan has been waiting for the remaining $3.5 billion from an $11.3 billion bailout package that kept Pakistan's economy from collapse in the wake of the 2008 financial crisis. But that support carries explicit conditions, including progress on both energy pricing and tax reform.

[…] U.S. policymakers should note well this series of events and remember a simple lesson. Billions of dollars of U.S. assistance-and a sustained diplomatic focus on the reform agenda-have not given the United States the ability to dictate the outcomes of Pakistan's political process. This is inconvenient for the United States, but not surprising. For the United States and for other major donors in Pakistan, money has never brought leverage.

[…] Pakistan's energy sector demonstrates the difficulty in achieving the kind of influence donor countries would like to have. For decades, the World Bank and the Asian Development Bank-armed with sums greater than the current Kerry-Lugar-Berman U.S. aid package-have urged the Government of Pakistan to finally reduce the price subsidies on electricity, to no avail. Time and again, project documents cite the same problems, the donors recommend the same solutions, the government of Pakistan promises to implement the same reform, the government breaks (and donors lament) the same promises. Meanwhile, the basic politics maintaining the status quo have not changed-there are too many reaping the benefits of subsidized power, and ordinary consumers feel they aren't getting service that warrants paying more.

[…] When Vice President Biden visited Islamabad this week, he promised that the United States would "keep the entire commitment" of the pledged $7.5 billion in Kerry-Lugar assistance. This assurance will surely be welcomed by Pakistan, and it's a fair reflection of Pakistan's short-term and long-term importance to U.S. interests. Adjusting where and how aid is spent-including by taking the requests of the Pakistani government into account-is necessary to respond to the real needs on the ground. (On that note, we applaud the decision to put $190 million into direct smartcard grants to help Pakistani flood victims rebuild their lives). But U.S. policymakers should not expect the aid money to give the United States greater influence on economic reforms in Islamabad. This is not the point, nor the potential, of U.S. aid.

[…] The key point is that certain aid projects can carry both direct benefits (better services and infrastructure for the people of Pakistan) and indirect benefits (incentives for the Pakistani political system to achieve greater results with their existing resources). Here are a few examples to consider: U.S. investments in energy generation and transmission capacity can be linked to public commitments to raise electricity tariffs  only when brownouts have been reduced below an announced benchmark. In this grand bargain, as service quality improves, tariffs would go up, and another round of aid investments would be delivered. In another case, U.S.-financed tools can be deployed to help Pakistani citizens hold their government accountable-with regular reports on simple indicators of development, for example, or an easily accessible database of all development projects funded from internal or external resources.  Or a pilot Cash on Delivery aid contract in one or more Pakistani provinces could put levers in the hands of education reformers and help their ideas gain traction.

More by Nancy Birdsall et al. here.

Monday, January 24, 2011

Martin Ravallion is unhappy with HDI -- Part II

The changes introduced in the new HDI have reduced its (seemingly low) valuations of longevity in poor countries even further. The Human Development Report’s implicit valuation on an extra year of life expectancy is now over 17,000 times higher in the richest country than in the poorest – a far greater difference than in their average income (which is 460 times higher in the richest country than the poorest). A poor country experiencing falling life expectancy due to (say) a collapse in its healthcare system could still see its HDI improve with even a small rate of economic growth.

A rich person will be able to afford to spend more to live longer than a poor person, and will typically do so. But how much should one build such inequalities into our assessment of a country’s progress in “human development”? That is a difficult question, which has certainly not been resolved here. However, given that the last 20 Human Development Reports have clearly intended to support a high value in development policymaking on attainments in health, it is puzzling that the 2010 Report has chosen a trade-off that puts such seemingly low value on the gains from longevity in poor countries. Possibly the construction of the HDI did not adequately consider what trade-offs were acceptable. Good intentions alone do not make for good measurement.

More by Martin Ravallion here. Here is a back-and-forth charges between Ravallion and Sabina Alkire about the new Multidimensional Poverty Index (MPI). Ravallion argues that the troubling tradeoffs could have been largely avoided using a different aggregation function for the HDI, while still allowing imperfect substitution.

Climate change economist vs. climate change scientist

Me: I work on climate change economics in DFID.

Stranger in lift: Climate change. Not sure I’m convinced of the science.

Me: I’m not a climate change scientist. I work on the economics of climate change - how much it costs to take action or not take action.

Stranger in lift: Oh… (looking confused)

Me: But not in an abstract way – though I do commission some research, yes – but mostly I advise developing countries on what to do about climate change.

Stranger in lift: So you tell developing countries what to do? Surely that’s not morally right? They didn’t cause the problem.

Me: Well, many governments actually seek DFID’s advice and funding to help with issues like this (stranger smiles politely and breathes a sigh of relief as the doors open to let us out) and taking action might be in their interest anyway (I trail off)…nice to meet you anyway, bye…

Hmm. Perhaps not the simplest of explanations.

More by Hannah Ryder, senior economist at DFID, here.

Did Global Imbalances Cause the Global Financial Crisis?

Global imbalances -- the coexistence of large deficits and surpluses in the global economy, such as too much spending by U.S. consumers and too little by Chinese consumers -- were not a major cause of the global crisis, according to a new working paper by Luis Serven and Ha Nguyen. In fact, how international capital flowed before and during the crisis suggests global imbalances are the result of structural distortions in global financial markets and major individual economies, which have led to a steady rise in demand for U.S. assets from the rest of the world. Without changes in those structural and policy choices, global imbalances could persist. This contradicts the conventional view that global imbalances are caused by unsustainable, high demand for goods in the U.S. and other rich countries and that a correction must involve major U.S. trade adjustment and depreciation of the dollar. The paper also evaluates the future of global imbalances, especially their impact on developing countries.

Full paper here . The paper argues that global imbalances were not among the main causes of the financial crisis.

US$ 100 Trillion Additional Credit Needed to Support Global Growth

Credit levels will need to double over the next 10 years, growing by US$ 103 trillion, to support consensus-projected economic growth. This doubling of credit could be achieved without increasing the risk of major crisis, finds More Credit with Fewer Crises: Responsibly Meeting the World’s Growing Demand for Credit, a report released by the World Economic Forum in collaboration with McKinsey & Company.

Asia will face the challenge of meeting the high credit demand growth of US$ 40 trillion with less developed financial systems and capital markets. In the European Union, a further US$ 13 trillion of credit in the form of bank lending will be needed. To supply this, banks will require additional capital that, after retained earnings, could lead to a capital shortfall of US$ 2 trillion. Analysis shows that the US would continue to need to draw on global savings, potentially by up to US$ 3.8 trillion in 2020, in order to fund its credit needs, unless there is a marked increase in US domestic savings rates.

More here

Sunday, January 23, 2011

Nepal’s BoT with India, the US, Germany & Japan

Nepal's trade deficit with major trading partners (US$ million)
Year Balance of Trade (BoT) India United States Germany Japan
Total % of BoT Total % of BoT Total % of BoT Total % of BoT
1990 -375 -44 12 36 -9 54 -14 -108 29
1991 -243 -68 28 54 -22 103 -43 -106 44
1992 -124 -59 48 75 -61 131 -105 -63 51
1993 -175 -66 38 94 -54 166 -95 -71 41
1994 -283 -80 28 109 -39 132 -47 -70 25
1995 -444 -93 21 88 -20 107 -24 -65 15
1996 -988 -375 38 89 -9 78 -8 -81 8
1997 -1244 -344 28 89 -7 114 -9 -68 5
1998 -990 -294 30 93 -9 86 -9 -42 4
1999 -624 3 -1 151 -24 75 -12 -24 4
2000 -850 -267 31 173 -20 87 -10 -32 4
2001 -813 -260 32 185 -23 61 -7 -27 3
2002 -785 -210 27 89 -11 31 -4 -22 3
2003 -954 -572 60 141 -15 16 -2 -18 2
2004 -1113 -650 58 112 -10 22 -2 -16 1
2005 -1257 -691 55 81 -6 22 -2 -28 2
2006 -1568 -919 59 74 -5 1 0 -19 1
2007 -1967 -1000 51 57 -3 -3 0 -41 2
2008 -2206 -1222 55 52 -2 7 0 -46 2
2009 -2121 -1079 51 21 -1 6 0 -40 2

Note: Numbers are rounded to the nearest whole number; For % of balance of trade (BoT), negative value means trade surplus as a percent of total trade balance, and vice versa. Source: Key Indicators for Asia and the Pacific 2010 (xls).

Total trade deficit as of 2009 was US$ 1079 million (US$ 1.079 billion). Trade deficit with India accounted for 51 percent of the total trade deficit; with the US 1 percent surplus of total trade deficit; and with Japan two percent of total trade deficit. Surprisingly, there was trade surplus of around US$ 3 million with India in 1999. With the US, there generally is trade surplus, which is decreasing continuously since 2003. The high trade deficit with India is partly because of a result of high petroleum and fuel imports. These figures slightly vary depending on which database (WB’s WDI, IMF’s DOTS, ADB’s Key indicators, and the GoN’s data) you use. But, the trend is pretty much the same. It looks like trade deficit is a permanent feature of Nepal’s performance in external trade.

In 2009, after two successive years of negative growth, exports increased by 13.5 percent. Meanwhile, imports have been increasing at a rapid pace, reaching 28.2 percent in 2009. Over the period 2005-2009, average exports, on an annual basis, increased by 4.7 percent, but imports surged by 16 percent. Total exports and total imports in 2009 amounted to US$ 698 million and US$ 2820 million, which means that total exports represented 25 percent of total imports.

India is by far the most important export and import destination, accounting for 60 percent of total exports and 53 percent of total imports. Trade deficit with India was around US$ 1079 million with the world (excluding India) was US$ 1042 million.

The other significant export destinations are the US, Germany, Bangladesh, the UK, France, Canada, Italy, Japan, and Turkey. Meanwhile, the other significant imports destinations are China, Singapore, Thailand, Japan, Saudi Arabia, Indonesia, Germany, Australia, and the US.