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.

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):

...it 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)

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).

Documentary: Corruption in Africa

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