Shattering taboo: Woman with a buffalo-cart!

A Tharu woman drives a buffalo-cart at Tikapur in Kailali district on Friday. This activity used to be male preserve until recently.

(Source: The Kathmandu Post, April 26, 2008)

Food Inflation Watch: Duflo argues for the need for insurance

MIT economist Esther Duflo on rising food prices:

...Several reasons explain the upward trend in prices, including the demand for biofuels (which consume a significant part of the corn produced worldwide), and the growth and enrichment of the world population (particularly the increased demand for meat in China – paradoxically, it takes more grain to produce a calorie in meat form than it does to produce a calorie in grain form).

Several short-term factors also help to explain the recent price peak. Because the main consumers of rice are also producers, the volume of rice traded is low compared to the volume of rice produced (only seven percent of produced rice is traded). Restrictions by big producers (such as India) can thus have large impacts on the world price of rice, since they affect a large proportion of the volume of rice traded. It keeps the prices in India relatively insulated from what is happening on the world market, however. Wheat harvests have been poor in several major producing countries, rice is suffering from a mysterious parasite in Vietnam, and following accusation of corruption and mismanagement in the last few years, there have been sharp declines in grain stocks maintained by governments to stabilise prices (they are at their lowest levels since 1984). As a result, prices are not only high in general, but also more volatile (another drop in rice prices is expected after the harvests in Indonesia and India); even the financial crisis plays a role: in the current meltdown, commodities offer an interesting betting opportunity.

...So when grain prices rise, some of the poor gain, and some lose – in the short-term. In part, the uproar over food prices reflects a fundamental political economy reality: when some gain and some lose, the voice of those who lose is always louder. This is particularly true of an increase in food prices, which hurt primarily the urban poor. In the medium-term, however, an increase in price volatility is damaging for everyone. Poor families in developing countries are already facing enormous risks (they are often self-employed, they are subject to the uncertainties of weather, and their health is fragile), and there is very little insurance against such risks, apart from their own savings or informal solidarity. Furthermore, these risks are more serious for households struggling to provide the bare minimum. A setback might mean sacrificing the children’s education, or not being able to save a little girl from a diarrhea attack (on this, see a beautiful paper by Elaina Rose, which showed that during drought, the relative survival probability of girls dramatically declines).³ A passing difficulty can leave a permanent scar.

Beyond emergency relief, which the world community is scrambling to organise at the moment, it is essential to establish effective insurance against variability in food prices for the poorest. Many argue now that the way to do it is to stop trade and encourage countries be “self sufficient” in food. This seems of course a third best solution, since the countries would then be entirely dependent on the vagaries of the weather at home. It is also not clear what countries that are net food importers would do (in the long run, the argument goes, they will improve their productivity… however, given Senegal’s climate, producing rice there will always be much more expansive than doing it in Thailand). The traditional method used by developing country governments – maintaining large stockpiles of grain by buying when the price is low and selling when the price is high – has its share of problems. In India, it was said that at some point that there were enough bags of rice in those storage facilities to go to the moon and back. The losses in storage and to corruption were important. Alternatively, the governments can manipulate prices using taxes and subsidies. Or perhaps it is time to be creative and make the international financial services actually work for the poor: governments could provide price insurance for the poor (in the form of transfers to some when price are high, and others when price are low). Countries that are neither net sellers nor net buyers could do this internally, and countries that are either net sellers or net buyers should be able to sell this insurance on the world market. There is nothing straightforward about these solutions. The key point, however, is that it is urgent to think of something.

The Cost of Food: Facts and Figures (from the BBC News)

 

Stuff by and of John Maynard Keynes

Here are some interesting stuff from the great economist John Maynard Keynes.

1. The Economic Consequences Of The Peace (published in 1920)
2. The World's Economic Outlook (published in 1932)
3. Introduction by Paul Krugman to The General Theory of Employment, Interest, and Money, by John Maynard Keynes
4. The General Theory of Employment, Interest, and Money (published in 1935)
5. An Open Letter to President Roosevelt
6. Keynes, Einstein and Scientific Revolution (by James K. Galbriath)
7. Tonnes and tonnes of stuff here

Enjoy the classic masterpieces by Keynes(except for #3 and #6)! HT to DeLong

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

Abstract

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?

Abstract

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

Abstract

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

Abstract

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.

Food Inflation Watch: Maize export ban by Nepal

The Nepali government has banned export of wheat from the country amidst rising food crisis in the international market. This move comes on the backdrop of shortage of wheat in the country because producers were increasing exports to Bangladesh, where wheat price is much higher than in Nepal. This reduced wheat supply in the Nepali market and shot up prices. Nepali flour mills, bakeries, biscuit, and noodle factories are expected to benefit from this move.

India, Vietnam, China, Bangladesh, Thailand, Philippines, Egypt, and many others have either imposed export ban or quotas and liberalized imports. Meanwhile, there have been riots in Latin America, Asia, and Sub-Saharan Africa. If all countries follow suit, then individual acts would stall international trade. This is going to put another hurdle in passage of the Doha Round, where agricultural sector reform has been a bone of contention between the West and the developing countries. What would be an acceptable solution?

My reaction: now even Nepal is fueling speculative drive in the international market. Prices began to rise rapidly after India impose ban on exports, followed by China, Vietnam, Thailand, and many others. More worse to come. The countries are ruining their own markets!