Friday, August 17, 2012

Links of Interest (2012-08-17)

Links to (and excerpts from) some of the interesting news and papers.

Syndicates and distortions in Nepal (The Economist):

[…] “This is the main reason for their reckless driving,” said the nation’s top traffic cop. “There is a syndicate system, a cartel. The cartel is very powerful…it is very difficult to fight against them.”

High fares, poor services and an atrocious safety record are the result. In the past few weeks scores have died in bus wrecks on difficult mountain roads around the country. Drivers are said to joke that the driving licence is a “licence to kill”.

Last week the transport industry went on strike, throwing millions of daily routines out of joint. They were demanding that the government concede to 15 demands. The authorities had been willing to meet 14 of them.

[…]The transport cartels erect high barriers to entry (the right to ply a city route reportedly costs as much as a new minibus) and they enjoy the support of powerful politicians. “These are among the biggest donors to political parties and they send the most people to rallies and strikes,” says Chandan Sapkota of Satwee, an economics think-tank.

But what ails the transport sector is also the case in every other lucrative industry. Every political party is involved. The country has been run in the same manner through periods of royal autocracy and multi-party democracy alike.

Dutch disease starts to take toll on economy (The Himalayan Times): Also see this blog

“Remittance has financed imports, leading to an unsustainably high merchandise trade deficit, which has reached as high as 26 per cent of GDP,” another trade researcher Chandan Sapkota, said, adding that the remittance-financed high imports have also been crucial for revenue generation as over 50 per cent of total tax revenue is coming from consumption tax. The country’s import has increased by four times to Rs 419.57 billion — in the first 11 months of the last fiscal year — from Rs 125.5 billion in the fiscal year 2002-03.

[...] But remittance has also been responsible for the Dutch disease effect, which is the loss of competitiveness of non-resource tradable sector — exports sector — due to the appreciation of the exchange rate after substantial inflow of resources from one particular sector –– remittance, according to Sapkota.

Remittances and Dutch disease in Nepal (Karobar Economic Daily):

"रेमिट्यान्सले आर्थिक वृद्धिमा नकारात्मक असर परेको र बढ्दो निर्भरताले नेपालका लागि यो ‘डच–रोग’ बन्न लागेको एक अध्ययनले देखाएको छ ।

साउथ एसिया वाच अन ट्रेड, इकोनोमिक्स एन्ड एन्भायरोन्मेन्ट (सावती)का शोधकर्ता चन्दन सापकोटाले गरेको ‘नेपालमा रेमिट्यान्स : वरदान या अभिशाप’ विषयक अध्ययनमा रेमिट्यान्सले डच रोगको प्रभावलाई प्रेरित गरेको उल्लेख छ । लगानी वातावरण बनाउन नीतिगत सुधारमा ढिलो भइसकेको निष्कर्ष अध्ययनको छ ।

[…]“रेमिट्यान्स प्राप्तिले नेपाल पनि यही मानसिकताको सिकार भएको छ,” अर्थशास्त्री प्रा. डा. विश्वम्भर प्याकु¥यालले भने, “कुल गार्हस्थ्य उत्पादन (जीडीपी)मा २५ प्रतिशत योगदान रहेको रेमिट्यान्सको दिगो उपयोगमा जोड दिन आवश्यक भइसकेको छ ।”

उनले रेमिट्यान्सको नकारात्मक असर न्यूनीकरणका लागि आवश्यक कदम चाल्न ढिला भइसकेको पनि बताए । “जीडीपीमा कृषि र गैरकृषि क्षेत्रको योगदानको अवस्था परिवर्तन भए पनि कृषिमा निर्भरता घट्न सकेको छैन,” उनले भने, “कृषि क्षेत्रको उत्पादकत्व बढाउन रेमिट्यान्स उपयोग गर्न सकिन्थ्यो ।”

नेपालले संक्रमणकालीन अर्थतन्त्र व्यवस्थापन गर्न नसकेको प्याकु¥यालले बताए । “रेमिट्यान्स प्राप्तिले शोधनान्तर बचत र विनिमय सञ्चितिका सूचकमा मात्र जोड दिए बृहत् अर्थतन्त्रलाई सम्हाल्न गाह्रो हुन्छ,” उनले भने

Determinants of Donor Generosity: A Survey of the Aid Budget Literature

[…]aid inertia, the donor country’s GDP per capita, the existence of an independent aid agency, and colonial history have a robust and quantitatively relevant impact on countries’ aid efforts. Among the potential substitutes for aid, remittances exert a robust effect. Excluding year fixed effects, political globalization, Russian military capacity, peer effects, aid effectiveness, and government debt also play a significant role.

What explains political institutions? Evidence from colonial British America

[…]In a recent paper (Nikolova 2012), I argue that institutional change depends on labour market conditions: elites opt for liberal representative institutions when labour is scarce, and vice versa. I use a unique data set covering a period of relatively rapid change in representative institutions in the thirteen British American colonies from their very establishment to the American Revolution. In contrast to theories arguing that inequality is the primary determinant of the quality of political institutions (Boix 2003, Acemoglu and Robinson 2005), I show that liberal representative institutions may arise even in cases of high inequality, as the positive impact of labour scarcity outweighs the usual negative relationship between inequality and democracy. The relative fluidity of political institutions in this setting and time period also questions the validity of arguments linking institutions to historical persistence. In terms of implications for contemporary countries, the theory predicts that as autocratic regimes – such as China – face more binding labour constraints, democracy will be more likely to emerge.

[…]My analysis emphasises the importance of labour market structure in addition to inequality in explaining the evolution of political institutions in colonial British America. But just how relevant is the political experience of these colonies for explaining more recent institutional change? Female enfranchisement in Western Europe and the US coincided with the end of the First World War, which made male workers scarce (see Braun and Kvasnicka 2011). Similarly, countries with a labour shortage in particular occupations have point-based immigration schemes that grant citizenship and the associated political rights to qualified candidates. For instance, Canada and Australia have special programmes giving permanent residence to highly skilled immigrants. Therefore, the findings of my research provide a different angle to the debate in the literature on what pushes institutional change.

The fiscal cost of trade liberalisation

[…]Our argument is not that trade liberalisation is bad per se. In the long run a fall in tariffs will have a positive impact on welfare as it increases the efficiency of the tax system. However we point out that the net effect will always be negative for countries which are trapped in a low tax-capacity equilibrium, precisely those countries which were characterised by low revenue collection even before they decreased tariffs. We indeed observe that nearly a third of countries which experience a fall in trade tax revenues never recover the lost revenues through other means in our sample. Other countries will suffer from a short-run loss, but will be better off in the long-run.

Technical aid on public sector financial management has always been the poor parent of official development aid (OECD 2010). Both the evidence and the theoretical framework we develop point to the need to increase efforts to improve developing countries’ capacity to raise taxes. Our model suggests in particular that the gains from trade liberalisation can be obtained by investing in tax capacity. Building more efficient tax administrations in developing countries may lead them to open up to trade as they will no longer need to levy tariffs to raise revenue, though other protectionist motives for raising tariffs may be at play.

Top tax payers in Nepal are the banks (The Kathmandu Post) – It says a lot about investment climate and remittance inflows!


The service sector has emerged as the biggest income tax payer to the government even as the manufacturing sector have been reeling due to infrastructure- and labour-related problems.

Among the top 10 companies that were the highest income taxpayers last fiscal year 2011-12, only Surya Nepal could make it on highest taxpayers’ list this year. All the other companies are from the service sector with as many as seven banks and two telecom operators making the list.