The Japanese virtue

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“In the face of calamity, a decent people has proved extremely resilient: no looting; very little complaining among the tsunami survivors. In Tokyo people queued patiently to meet their tax deadlines. Everywhere there was a calm determination to conjure a little order out of chaos. Volunteers have rushed to help. The country’s Self-Defence Forces, which dithered in response to the Kobe earthquake in 1995, have poured into the stricken area. Naoto Kan, the prime minister, who started the crisis with very low public support, has so far managed to keep a semblance of order in the country, despite a series of calamities that would challenge even the strongest of leaders. The government’s inept handling of the Kobe disaster did much to undermine Japan’s confidence in itself.”

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Read this article in The Economist.

Nepal, India & China – growth and trade compared

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China’s GDP growth rate has always been higher than that of Nepal’s. Since 2002 Indian growth rate started rising higher, but Nepal’s declined and then stayed below 5%. (Source: WDI)

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GDP per capita of China and India is rising very fast. But, Nepal’s is pretty much stagnant (or rising at a very slow pace). (Source: WDI)

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Since 1997 exports of goods and services (share of GDP) started to decline in the case of Nepal. Both China’s and India’s exports had been ever-increasing up until 2007, when the global financial crisis started and then followed by global economic crisis. China’s drop in exports was more pronounced than that of India’s after the economic crisis. Latest data show that exports of both the countries are picking up. (Source: WDI)

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India is the most important exports destination for Nepalese exporters. Almost 64 percent of total merchandise goods are exported to India. Exports to both India and World declined after 2008. Exports to China is very low as of now. (Source: DOTS, IMF)

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Imports from India accounts for almost 57 percent of total merchandise goods imports. Imports from China is picking up, thanks to cheap and competitive products. (Source: DOTS, IMF)

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Trade deficit is ever-increasing. Trade deficit with India was around US$1.08 billion in 2009 and with the world (excluding India) US$1.04 billion. Trade deficit with China is increasing but below US$500 million. (Source: DOTS, IMF)

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Nepal’s share of trade deficit (with respect to total trade deficit) is the highest with India, accounting for over 50 percent of total trade deficit. With China, it is around 15 percent of total trade deficit. (Source: DOTS, IMF)

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Trade in services and human development

Shepherd and Pasadilla (2011) find that less restrictive services trade policies are associated with better human development outcomes across a range of sectors. They argue: “Appropriate services trade liberalization can therefore promote human development directly through improved outcomes, in addition to indirectly effects through the income channel.”

Usually, the impact of services liberalization impacts income, which in turn is assumed to promote human development. But, the authors isolate the direct connection between service sector restrictiveness and development and find: (i) the tension between service sector openness and human development outcomes are overstated; (ii) there is no systematic association between greater policy restrictiveness and better outcomes; and (iii)  open and efficient services sectors can help promote human development.

Aid at a glance, Nepal (2006-2008)

Over the period 2007-08, humanitarian aid sector received the highest amount, followed by economic infrastructure & services, health and population and so on…. Here is an earlier post about the foreign aid in Nepal.

Tragedy in Japan

Donate for a noble cause and do you part in helping Japanese people overcome the misery brought by the earthquake and tsunami. Donate to The Nippon Foundation, an NGO working in a wide range of domestic and international activities, including health and welfare projects, educational and social issues, maritime development, and protection of the marine environment.

[FYI: My friend Shota Nakayasu is working in The Nippon Foundation.]

Political system and economic liberalization

Giuliano, Mishra and Spilimberg argue that economic reforms may scare politicians, but democracy and economic liberalization generally go hand in hand. Political liberalization and domestic financial, capital account, product markets (electricity and telecommunications), agriculture, and current account transactions tend to move together. But, look at political liberalization and trade. Trade seems to have increased, irrespective of political liberalization. Up until 1990, decrease in political liberalization actually boosted trade. Then political liberalization increased but trade performance continued increasing.

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The bottom line is that democracy is good for structural reforms, but the reverse is not true—economic liberalization introduced by autocracies does not cause a move to democracy. Moreover, there is no foundation for politicians’ fear that voters will punish policymakers who implement financial sector reforms or reduce fiscal deficits.

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The record of the Washington Consensus

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For 30 years, Washington has been shopping a trade-not-aid based economic diplomacy across Latin America and beyond. According to what is generally known as the “Washington consensus”, the US has provided Latin America loans conditional on privatisation, deregulation and other forms of structural adjustment. More recently, what has been on offer are trade deals such as the US-Colombia Free Trade Agreement: access to the US market in exchange for similar conditions.

The 30-year record of the Washington consensus was abysmal for Latin America, which grew less than 1% per year in per capita terms during the period, in contrast with 2.6% during the period 1960-81. East Asia, on the other hand, which is known for its state-managed globalisation (most recently epitomised by China), has grown 6.7% per annum in per capita terms since 1981, actually up from 3.5% in that same period.

The signature trade treaty, of course, was the North American Free Trade Agreement (Nafta). Despite the fact that exports to the US increased sevenfold, per capita growth and employment have been lacklustre at best. Mexico probably gained about 600,000 jobs in the manufacturing sector since Nafta took effect, but the country lost at least 2m in agriculture, as cheap imports of corn and other commodities flooded the newly liberalised market.

This dismal economic record prompted citizens across the Americas to vote out supporters of this model in the 2000s. Growth has since picked up, largely from domestic demand, and exports to China and elsewhere in Asia.

Interestingly, the only significant card-carrying members of the Washington consensus left in Latin America are Mexico and Colombia.

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More by Kevin Gallagher here.