Are Governments Overextended?
Have government debt levels reached dangerous levels? Certainly, for some
countries, the data would suggest so. However, this paper will argue that for
many governments, the amount of explicit debt on their balance sheets seriously
understates the magnitude of their future fiscal obligations. This clearly emerges
from the assessment of many analysts on the size of the prospective fiscal
obligations associated with aging populations. But this point is further reinforced
if one examines the range of other fiscal risk exposures of governments. Thus, an
examination of a government’s explicit debt should only be the starting point for
assessing the sustainability of a government’s fiscal position.
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Responsible Growth to 2050At plausible rates of growth in population and income per capita, world GDP in
2050 could be four times what it is today. This paper considers the benefits this
growth can provide, the risks that it presents, and the building blocks required to
achieve it. The authors argue that “business as usual” risks unsustainable
outcomes. The alternative—responsible growth that sustains environments and
supports social development—requires long term thinking if it is to be achieved.
Dealing with near-term inequality, improving governance in developing
countries, and providing global public goods, particularly vaccine development
for tropical diseases and tropical agricultural research, will be key to attaining the
prosperous future the authors envision.
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Governance MattersIn recent years there has been a surge of interest in governance: good governance
increasingly is seen as a vital adjunct to successful development efforts. This paper
attempts to explain what governance is and why it is important, and assess which
forms of governance are likely to best support and promote economic development.
Although economies with very different governance arrangements have
performed strongly in recent decades, a focus on governance is likely to bring out
some commonalities that may be helpful for 21st century policy-makers.
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Dollarisation in Theory and PracticeDollarisation involves the replacement of a soft domestic currency with a hard
foreign alternative. This paper explains the different forms that dollarisation can
take, its consequences for an economy, and concludes by exploring the
experience of Panama, a country dollarised since 1904.
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The Influence of Political Distortions on Economic Performance Author: An interview with introduction by Brian Snowdon, December 2004
Alberto Alesina is the Nathaniel Ropes Professor of Political Economy and
Chairman of the Department of Economics at Harvard University. In this
interview he discusses with Brian Snowdon his views on several important
contemporary issues, including politics and the business cycle, budget deficits,
currency unions, the European Union, the size of nations, economic growth,
inequality, democracy, foreign aid, ethnic fractionalisation, and the welfare state
in the US and Europe.
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The Economic Implications of Epidemics Old and NewThe outbreak of Severe Acute Respiratory Syndrome (SARS) in the winter of
2002–03 raised the specter of a new, unknown and uncontrollable infectious
disease that spreads quickly and is often fatal. Certain branches of economic
activity, notably tourism, felt its impact almost at once, and investor expectations
of a safe and controlled investment climate were brought into question. Part of
the shock of SARS was the abrupt reversal of a mounting legacy of disease
control that had altered societies’ expectations from coping with waves of
epidemics of smallpox, cholera, and measles, among other diseases, to
complacency with the virtual elimination of disease epidemics. This paper
analyzes the economic implications of the Great Plague in the fourteenth century,
the 1918–19 influenza epidemic, the HIV/AIDS curse and SARS to demonstrate
the short- and long-term effects of different kinds of epidemics. The magnitude
and nature of economic effects vary according to the duration and characteristics
of the
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A Portrait of the Artists as Young or Old InnovatorsEarlier research found that great painters can be categorized either as young
geniuses, who make sudden conceptual innovations early in their careers, or as
old masters, who work experimentally, by trial and error, and arrive at their
greatest contributions late in their lives. This paper extends this analysis to
literature, and shows that the same dichotomy applies to both poets and
novelists. Thus great conceptual writers, including T. S. Eliot and F. Scott
Fitzgerald, have peaked early and declined thereafter, whereas great
experimental writers, such as Robert Frost and Virginia Woolf, have produced
their most important work later in their careers. The likelihood that both patterns
exist not only in all the arts, but in all intellectual activities, poses a challenge to
economists, who have not studied life cycles of creativity. Understanding the life
cycles of great innovators may help us to increase the contributions of some of
the most productive members of our society.
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The Bourgeois Virtues‘Bourgeois virtue’ is not a contradiction in terms. The age of capitalism has
enormously enriched the world. But the enrichment is by no means only
material. The virtues enabled capitalist development; but a bourgeois life also
encouraged new versions of old virtues; and gave scope for varied lives.
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What Do Economists Know?How would you respond to a group of high school students when asked
“What do economists know?”. Alan Budd’s answers will be familiar to readers of
World Economics but bear repeating. Economics, unlike, say, Physics, tends to
attract beliefs and opinions by non-specialists held with as much assurance as
those of the experts within the discipline. After all, isn’t economics just common
sense? No, there are facts—which are often surprising and counter-intuitive—that
have been determined only by the special skills of economists. Certainly there
are things economists don’t know. But economists can be confident about quite a
lot of what they do think they know, even when they are disbelieved by large
parts of the public not to mention political leaders and policy makers. Sir Alan
revisits some fundamentals.
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The G-20 and the World Economy‘Globalisation’ is under attack throughout the world. However, no country has
ever developed successfully without participating actively in the global economy.
Countries and even whole regions that have failed to globalise, or which have
‘de-globalised’, have lagged. What is needed is more openness and better
handling of the major issues of macroeconomic stability and growth. C. Fred
Bergsten argues that the G-7, whose increasingly unrepresentative membership is
eroding the political legitimacy that is essential to win international support and
thus acceptance for many of its proposals, is increasingly unable to manage the
world economy effectively. Instead, it is the wider and more representative G-20
that can best make a major contribution to global macroeconomic stability and
growth, and it should gradually but steadily succeed the G-7 as the informal
steering committee for the world economy.
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What a Consumer Price Index Can’t DoA monthly consumer price index traces changes in the monthly cost of a year’s
consumption using a sample of prices. But in some months the prices that can be
sampled will temporarily exclude some of the products that were bought in the
base year, Christmas trees providing a textbook example. Worse still, it becomes
permanently impossible to observe prices for sampled products that have been
completely superseded. There are methods for dealing with these two problems,
but they leave serious and irremediable defects in the index.
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Globalisation, Economic Progress and New Millennium CollectivismThree major studies of globalisation and its effects have recently been published.
One of these is the report of an international commission of eminent persons.
The other two are books by leading economists, one by Jagdish Bhagwati and the
other by Martin Wolf. David Henderson comments on all these volumes, while
placing the issues that they raise and discuss in the wider context of economic
liberalisation in general and the attitudes and beliefs that bear on it.
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Asian DramaThe now largely forgotten book Asian Drama: An Inquiry into the Poverty of Nations
by Swedish social scientist Gunnar Myrdal was published in 1968. Myrdal called
his book “Asian Drama” because of the tensions he saw being played out in Asia
between modern ideals and the traditional. But there was another drama too—
the tension being played out, within the ‘modern project’, between the different
economic strategies that were on offer. It is this particular drama that Tim
Lankester focuses on in the context of India and Indonesia over the three
decades from the mid–1960s. And for both these populous countries, there are
dramas still to be played out. Both countries have new elected governments this
year, and growth prospects of their economies largely will depend on to what
extent remaining reform and governance issues are tackled.
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Pricing Cultural HeritageA growing determinant of leisure travel decisions has been the demand for
cultural destinations. This has presented complex challenges with regards to the
correct management of major cultural resources. Management options can be
assessed in terms of three criteria of performance: access, financial sustainability
and environmental sustainability. This paper shows that a promising means of
reconciling these desirable objectives is to harness the potential of economic
pricing strategies (such as entry charges), where data on willingness to pay for
visits are based on non-market valuation methods. A real-life illustration is
provided by examining the case of the Machu Picchu Historic Sanctuary in Peru.
It is shown that this approach can usefully inform expected changes in the entry
fee level and structure not just of Machu Picchu but cultural destinations and
resources more generally.
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Does European Union Environmental Policy Pass a Cost–Benefit Test?Most European Union countries are committed to some form of regulatory
impact assessment, and in some cases these assessments involve the formal use
of cost–benefit analysis. The European Treaty of Union also calls for a
comparison of costs and benefits for all European regulations. Despite this, only a
limited number of regulations have been subject to cost–benefit analysis. Using a
variety of sources, this paper investigates whether or not a selection of major
environmental regulations would pass a cost–benefit test. The general answer is
that, while some do, most do not. This finding has major implications for the
efficiency of European environmental legislation, and reflects on the willingness
of Member States to sign up to inefficient regulation.
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European Financial Market IntegrationEuropean Monetary Union and a vigorous legislative agenda have profoundly
changed the environment in which the European financial services industry
operates. These developments should have contributed to a deepening of
financial market integration in the European Union, especially within the
Eurozone. However, actual progress has been very uneven. Eurozone money
markets and bonds markets have achieved full or a very high level of integration.
Eurozone equity markets show increasing signs of integration, although
substantial barriers to cross-border trading remain. Bank credit markets, with the
exception of inter-bank lending, and insurance and funds industries, remain still
largely fragmented along national lines.
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Monetarism RevisitedAllan Meltzer responds to the article by Thomas Mayer
and Patrick Minford, ‘Monetarism: A
Retrospective’ that appeared in World Economics, Vol. 5,
No. 2 (April–June), 2004, pp. 147–185.
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Monetarism: A ResponseMeghnad Desai responds to the article by Thomas Mayer
and Patrick Minford, ‘Monetarism: A
Retrospective’ that appeared in World Economics, Vol. 5,
No. 2 (April–June), 2004, pp. 147–185.
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Monetarism in Retrospect — and ProspectAndrew Haldane responds to the article by Thomas Mayer
and Patrick Minford, ‘Monetarism: A
Retrospective’ that appeared in World Economics, Vol. 5,
No. 2 (April–June), 2004, pp. 147–185.
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Monetarism: A RejoinderTim Congdon responds to the article by Thomas Mayer
and Patrick Minford, ‘Monetarism: A
Retrospective’ that appeared in World Economics, Vol. 5,
No. 2 (April–June), 2004, pp. 147–185.
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The Quest for DevelopmentIt may be no coincidence that those countries that grew most rapidly in the late
twentieth century—including South Korea, China, and, of late, India—were
relatively developed civilizations when Western Europe began its overseas
expansion five centuries ago. In this article the authors explore the literature
showing that institutions matter to growth, then examine new evidence that the
‘social capability’ to achieve growth is a function of capacities that go beyond the
formal education system. Remarkably, a long history of nationhood at the time of
Columbus means better odds of growth today.
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Globalisation and the Asia–Pacific RevivalThis paper reviews evidence on the evolution of international economic
integration of Asia–Pacific countries, and discusses the extent to which this
explains their recent growth success. It starts with a review of some theoretical
arguments in the growth and globalisation debate, which is followed by a
presentation of facts about Asia–Pacific international economic integration and
growth relative to other regions of the world. The causes of the growth
acceleration in the Asia–Pacific region are then discussed, with reflections on the
relationships between policy reforms, openness, and per capita income growth.
Finally, some tentative conclusions are drawn about future growth in the region.
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The Health and Wealth of AfricaAmong Africa’s problems, chronic poverty and poor health stand out. Traditional
development thinking has maintained that health improvements are a
consequence of income growth. But new evidence shows that investing in health,
with the aid of the international community, could make a big difference in
Africa’s economic prospects. Moreover, some feasible, low-cost interventions
would likely have high returns. The pathways by which health can make a
difference economically include those based on the heightened effectiveness of
labor, increased savings, more effective educational investments, and
demographic change.
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Explaining the ‘Great Divergence’ Author: An interview with introduction by Brian Snowdon, June 2004
Daron Acemoglu is Professor of Economics at the Massachusetts Institute of
Technology. In this interview he discusses with Brian Snowdon some of his
recent research findings that confirm the key role played by ‘good’ and ‘bad’
institutions in determining the economic performance of countries. He shares his
views on a wide range of subjects including economic history, growth theory, the
role of institutions and geography in explaining growth and development, the
influence of trade on growth, global inequality, and political economy
perspectives on economic development.
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Fifty Years of Economic Growth in Western EuropeProductivity growth in virtually all west European countries exceeded that of the
United States throughout the period 1950 to 1995. Since then American
productivity performance has strengthened and that of the EU has weakened.
The most important reason is contrasting experiences with Information and
Communications Technology (ICT). The article argues that this may reflect a
failure of European countries to update their ‘social capability’ to the
requirements of a new technological epoch and points in particular to weaknesses
in human capital formation and to excessive employment protection as obstacles
to rapid realization of the productivity potential of ICT.
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MonetarismThis paper offers a retrospective on the monetarist debate started by Milton
Friedman in the 1950s, discussing both monetarist theory and policy
recommendations. While the inability to find a controllable monetary aggregate
with a velocity that can be accurately predicted has severely damaged the
monetarist case, on other issues, such as the importance of changes in the
monetary growth rate and the need to control inflation, the monetarist challenge
to Keynesian orthodoxy was successful and made a central contribution to the
currently prevailing macroeconomics.
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The End of the Road for the WTO?The collapse of the Doha Round in Cancun is symptomatic of a wider malaise in
the WTO. It has an overloaded agenda, and is becoming excessively legalised
and politicised. The “UN-isation” of the WTO proceeds apace. Its decisionmaking
mechanism is crippled. It is therefore not surprising that attention has
shifted decisively to preferential bilateral and regional trade agreements (PTAs).
To prevent permanent irrelevance, the WTO must, first, rediscover its market
access raison d’être; and, second, revive an effective negotiating mechanism. The
alternative is an increasingly fractured world trading system governed by
unbalanced, unstable, power-driven PTAs.
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International AidThis article describes the main reasons why aid has not been as effective at
addressing the world’s poverty problem as it could have been: lack of will on the
part of donors, inadequate policies and governance on the part of recipients, and
a lack of understanding of development and of how aid works best. It goes on to
argue that donors and recipients alike are now better positioned to make aid
more effective. However, the current and prospective level of aid is inadequate
for the achievement of the Millennium Development Goals. While the moral
case for more aid is compelling, it remains to be seen when and whether this will
lead to larger aid budgets.
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Escaping Regulation, Escaping ConventionContrary to widely held belief, small island countries have many lessons to offer
to other countries and the world community in terms of their development
strategies. This article provides evidence that small island countries are experts at
breaking and distorting global trade rules without being noticed or provoking
retaliatory actions. As unimportant actors in the global system, they tend to use
their sovereignty and non-market options to their advantage rather than relying
purely on global rules of free trade. Globalization is neither uniform nor
homogeneous, but includes opportunities and potential for derogations,
exceptions and special arrangements.
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Beyond the Ivory Tower Author: An interview with introduction by Brian Snowdon, March 2004
Stanley Fischer had a long and distinguished career as an academic economist at
MIT, and was Vice President, Development Economics and Chief Economist at
the World Bank, before becoming First Deputy Managing Director of the
International Monetary Fund in 1994. He is now President of Citigroup
International and Vice Chairman of Citigroup. In this interview, Brian Snowdon
discusses with Stanley Fischer several important issues relating to the
contemporary world economy, including problems of stabilisation, inflation and
growth, the economics and politics of transition, exchange rate regimes, the IMF,
the East Asian crisis, and globalisation and economic development.
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Does the IMF Perform a Catalytic Role?The IMF advertises itself as playing a catalytic role, whereby its lending
programmes induce other providers of finance to invest or lend as well. The
theoretical foundations of this claim are reviewed and found to be questionable.
The empirical evidence also appears to contradict the notion of a consistent and
significant catalytic effect. The policy implications of weak catalysis are reviewed
and alternative approaches to delivering a suitable adjustment process
investigated. While some of these alternatives seem worthy of further evaluation,
including greater official coordination and the use of alternative private and
official pools of capital, many are politically or operationally untenable.
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A Single European Market in Asset ManagementIn spite of progress with integration, the European single market is still far from
perfect. In particular, financial services markets are still heavily segmented along
national borders—even in the era of the Internet and the Euro. In order to
understand the reasons for and consequences of incomplete integration, a
detailed analysis is presented for the European asset management market. It
turns out that fragmentation is very costly both in micro- and macroeconomic
terms. The following obstacles are identified to be most relevant: tax
discrimination, certain properties of existing distribution channels, and regulative
issues related to fund mergers and registration. Only if these issues are addressed
by legislators and the industry can significant progress in integration be achieved.
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The Nobel Memorial Prize in EconomicsIn October 2003 the latest recipients of the Nobel Memorial Prize in Economics
were announced. Since its inception in 1969, 53 economists have been awarded
the Prize. A closer look at the biographical details of the Nobel Memorial
Laureates—including their broad field of study, citizenship, university affiliation
and place of doctoral training—provides some interesting insights into likely
future winners. This paper offers a set of criteria which, to date, the
overwhelming majority of recipients of the award have to some extent met.
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