Growth accelerations and decelerations in Western Africa

Here is a new working paper from the IMF:

The growth literature has had problems explaining the "sub-Saharan African growth dummy" in cross-country regressions. Instead of taking the usual approach of focusing on long-run growth and assuming that sub-Saharan countries have homogenous parameters in growth regressions, we concentrate our analysis on episodes of growth turnarounds (identifying growth accelerations, decelerations, and collapses) and use only West African countries in our sample. The driving force of growth turnarounds are estimated by analyzing external shocks, political and institutional changes, economic reforms, and indicators particularly relevant to the region. Using probits for a group of 22 Western African economies for the period 1960-2006, we find that growth accelerations are most clearly associated with external shocks, economic liberalization, political stability, and closeness to the coast; decelerations occurred during short-lived regimes and when corruption indices weakened; and collapses are linked to external shocks, falling domestic credit, and proximity to the coast. We then identify policy implications.

Nice discussion about the (Barro model)  cross-country panel growth regressions, growth accelerations, growth decelerations, and growth collapses in the context of a region where all these three episodes of growth are visibly seen over the past several decades.

Conditional Cash Transfer in the Philippines

 

More about the CCTs here.

Jeff Sachs on population growth and Malthus

 

Sachs argues that the Malthusian prediction (the rate of population increase would outstrip the rate of increase in output) has not been true so far because of tremendous increases in output per capita (due to technology breakthroughs).

However, he warns:

… it could be argued we have not really found a way to solve the Malthusian problem. We have thus far only managed to feed the globe’s growing population through mining of raw materials and sources of energy. We all know this cannot continue forever – some sources will run out and others will damage the earth beyond repair.

And, more more need of Keynesian policies in Africa:

Keynesian spending plans could be used to provide a massive investment of infrastructure to Africa that would set the continent on its way to development.

Greg Clark is a bit more assertive about the Malthusian prediction in his book.

Three decades of development economics and WDRs

New publication from the World Bank: Development Economics: Through the decades. This book examines how World Development Report (WDR) in the past three decades has influenced development economics. Cannot find the online downloadable version.

Here is an interesting figure/summary of country’s transition to a high-growth path.

Here is Joe Stiglitz about the WDR:

Throughout the history, the WDR has played an active role in shaping thought and policy, both within the World Bank and in the wider development community.It was sometimes overly ambitious, hoping to be able to summarize in a few clear messages the received wisdom on a key aspect of development. The world is too often too complicated for that to be done. When the WDR did so, it risked reemphasizing the obvious or what was well accepted, or conducting the discussion as such a high level of abstraction as to be of limited use. Occasionally, it became the publication vehicle for official doctrines- a summary of beliefs of the moment.Even here, it served a hopeful role, at least for students of evolution of economic thought, for they could see how thinking about development evolved over the years.

But to me, at least, its greatest contributions occurred when it helped to frame controversial issues, when it pushed the boundaries of thinking, when it opened up new frontiers- thinking about issues that had previously received too little attention- when it sparked a global debate. In those cases, the WDR’s effect was not only immediate, but also likely to be long lasting.

Links of Interest (12/19/2008)

The impact of global financial crisis on Sub-Saharan Africa

The rebirth of industrial policy

Keynesianism and Employment-linked tax incentives

Three decades of growth and economic perils on China’s path

VAT and enforcement with an informal sector

Greenspan thinks banks need more capital

Nepal’s finance minister warns to nationalize property if income tax is not paid by mid-Feb

Effect of energy crisis in Nepal (already affecting mobile operation and the embattled garment industry) More here, here, and here

UNWELCOME REPOSE: Workers at Heritage Fashion garment factory in Balkumari halt work after load-shedding, Thursday. Nepal Electricity Authority has increased power cut from forty-five hours to sixty-three hours a week. Power outage has hit industries and business installations severely, leading some to abrupt closure. (Source: The Kathmandu Post, 12/19/2008)

New papers about the global financial crisis

Stages of the 2007/2008 Global Financial Crisis: Is There a Wandering Asset-Price Bubble? by Lucjan T. Orlowski

This study identifies five distinctive stages of the current global financial crisis: the meltdown of the subprime mortgage market; spillovers into broader credit market; the liquidity crisis epitomized by the fallout of Northern Rock, Bear Stearns and Lehman Brothers with counterparty risk effects on other financial institutions; the commodity price bubble, and the ultimate demise of investment banking in the U.S. The study argues that the severity of the crisis is influenced strongly by changeable allocations of global savings coupled with excessive credit creation, which lead to over-pricing of varied types of assets. The study calls such process a “wandering asset-price bubble”. Unstable allocations elevate market, credit and liquidity risks. Monetary policy responses aimed at stabilizing financial markets are proposed.

Monetary Ease – A Factor behind Financial Crises? Some Evidence from OECD Countries by Rudiger Ahrend

This paper addresses the question of whether and how easy monetary policy may lead to excesses in financial and real asset markets and ultimately result in financial dislocation. It presents evidence suggesting that periods when short-term interest rates have been persistently and significantly below what Taylor rules would prescribe are correlated with increases in asset prices, especially as regards housing, though no systematic effects are identified on equity markets. Significant asset price increases, however, can also occur when interest rates are in line with Taylor rules, associated with periods of financial deregulation and/or innovation. The paper argues that accommodating monetary policy over the period 2002-2005, in combination with rapid financial market innovation, would seem in retrospect to have been among the factors behind the run-up in asset prices and financial imbalances -- the (partial) unwinding of which helped trigger the 2007/08 financial market turmoil.

Corruption takes toll in Nepal: Acute energy crisis hits the country

The Nepali government has declared energy crisis and has approved operation of thermal plants to add 200 MW to the national grid. The present demand of electricity is 770 MW but the supply is just 420 MW. The country is in deficit of 2.8 million units power per day. Imagine this happening in a country with the second highest potential to generate hydroelectricity in the world. It is estimated that Nepal can produce 83,000 MW of electricity.

The question is why is Nepal still lagging behind? Is it a lack of funds? I think no given the level of investment and investor’s interest in this sector. Is it appropriability? Yes, it was for around five years back when the Maoists rebellion reached its peak and they attacked hydropower plants. But, now no one is doing that. So, appropriability is not a constraint. Returns to investment and appropriability are not holding back progress in this sector. What could be? Corruption comes on the top of my list. It was estimated that almost 30% of the total estimated cost is actually invested in real project. Where does 70% go? In the pockets of bureaucrats at Ministry, regional offices, and local administration! Corruption is a form of red tape and future tax on people. At present, there is 10 hours of load shedding per week in Nepal.

I wish the corruption investigation (CIAA) body was a little bit more powerful and independent!!