India’s Post-Liberalisation Blues
This article first explains why India’s recent form of rent seeking has not damaged its growth performance. Second, it argues that India’s recent embrace of Latin American style populism could lead to a ‘growth collapse’. Third, the entitlement economy being created from the rising tax revenues of recent economic growth could lead to fiscal crises in the face of terms of trade shocks. Fourth, its failure to complete the second generation reforms particularly of the labour market, has held back the labour-intensive industrialisation needed to make use of the ‘demographic dividend’.
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Raising Consumption, Maintaining Growth and Reducing EmissionsChina’s 12th five-year plan represents a radical change in strategy. China now sees its future growth within this strategy and accordingly as driven by: a rising share of consumption; moving to a low-carbon economy; and innovation. Two indicators are examined – capital efficiency and the relationship between greenhouse gas emissions and output. These help us to understand the scale of the challenges and possibilities in China over the coming decades. The power of China’s example will be immense in influencing the world’s transition to a low-carbon economy and thus how successful the world will be in managing the huge risks of climate change. The 12th plan is very likely to establish China as a leader in the new energy-industrial revolution and demonstrate to the world the potential of this revolution. The implications for the rich countries from such radical change are profound and they should be discussing now how they will handle and respond to such massive change.
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Counting the Bottom BillionWhat do the statistics from the international databases tell us about income and growth in Sub-Saharan Africa? Less than we would like to think. The article takes a starting point in per capita GDP estimates in Africa. Recently, Ghana announced a revision of its GDP statistics, increasing its national income estimates by over 60%. This article shows that similar revisions are to be expected in other countries. Many statistical offices are currently using outdated data and methods. It is argued that with the current uneven application of methods and poor availability of data, any ranking of African economies according to GDP levels is misleading. It is argued that the World Bank, prominent among data disseminators, is currently not providing the necessary information to complement its datasets, and that this shortcoming misleads data users.
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The Shadow Economy Labour ForceIn this paper, the main focus lies on the development and size of the shadow economy labour force in OECD, developing and transition countries. Besides informal employment in the rural and non-rural sector, other measures of informal employment like the share of employees not covered by social security, own account workers or unpaid family workers are also shown. The most influential factors on the shadow labour force are tax policies and state regulation, which, if they rise, increase both. Furthermore the discussion of the recent literature underlines that economic opportunities, the overall situation on the labour market and unemployment are crucial for an understanding of the dynamics of the shadow economy and especially the shadow labour force.
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Economic and Monetary Union GovernanceThe global financial crisis has exposed serious flaws in the economic governance of the Eurozone. The crisis has accelerated pre-existing divergence in the performance of member states in terms of economic growth, unemployment and inflation. Economic and Monetary Union (EMU) governance structures have proved ineffective in averting a sovereign debt crisis and in facilitating its management. European Union (EU) decision makers have resorted to new and untested policies, not provided for or envisaged by the EU founding treaties. Rescue loans to Greece and Ireland were crafted on an ad hoc basis so as to overcome the no-bailout clause of EMU. The EU decision to partner with the IMF, an extra-European institution, in the financing of a bailout fund for Eurozone states at risk of defaulting on their debts may be attributable to the dysfunctionalities of EMU institutions. Precrisis assessments that the EMU’s system of economic governance is fit for its purposes warrant re-examination. The effectiveness of the macroeconomic policy design of EMU can be gauged in comparison to that of the United States, an entity of comparable size and weight in the global economy. Reforms to the economic governance of the Eurozone are critical for the future of the Eurozone.
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Greece and IrelandIn this short paper, we deal with a comparison of the economic policies that Ireland and Greece have followed since the early 1990s on four fronts. We do that in four sections correspondingly. We begin with the general macroeconomic environment and policies’ comparison. We continue with the public-sector finances policies. After that, we deal with the structural policy reforms pursued in both countries in the last 20 years, following which we continue with taxation policies. Finally, we conclude, focusing on the prospects of both countries to exit the crisis.
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Currency WarsThe concept of ‘currency wars’ has come into popular use in recent years. This article examines various meanings of the phrase and its historical antecedents. It goes on to discuss why currency wars have become the focus of attention and the economic policy weapons that may be used to conduct such wars. It draws attention to the collateral economic damage that may be caused by unleashing these weapons both for the individual countries that use them and for the world economy. The article concludes that, while there may have been occasional currency battles or skirmishes, the empirical evidence does not support the claim that there is widespread currency warfare. However, currency misalignment does exist and correcting it would help induce the international adjustment needed to reduce the global economic imbalances that threaten international financial stability. The problem is to find effective institutional arrangements for encouraging this to happen. Current proposals under discussion that envisage an enhanced role for the IMF and the G20 seem unlikely to be very successful.
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Foreign Assistance and Economic GrowthThis paper examines the relationship between foreign assistance and economic growth for the period 1972 to 2010. Past literature indicates that, due to low domestic resource mobilisation, Pakistan had to resort to various forms of foreign assistance on a regular basis. Using time series data since 1972 and employing statistical tests we show that foreign assistance in the absence of macroeconomic stabilisation and structural reforms has a negative relationship with real per capita GDP. However, national savings as percentage of GDP show a positive relationship with real per capita GDP. Pakistan has a long history of dependence on multilateral and bilateral development partners. Over the decades the share of grants as percentage of total foreign assistance has declined, forcing the country to procure loans at harsh conditionalities. Given the positive impact of national savings on economic growth there is an urgent need for improving the tax base, promoting instruments that encourage savings culture in the private sector and attracting remittances from abroad. These increased savings would then have to be channelled towards productive investments, which in turn require pro-market reforms.
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Does Government Spending Crowd Out Private Consumption and Investment?This paper reviews the theoretical and empirical literature on the existence of crowding-out versus crowding-in effects. It also provides some new empirical evidence on the effect of changes in government spending on private consumption and investment by using a panel of 145 countries from 1960 to 2007. We find that government spending crowds out both private consumption and investment. In addition, we show that this result does not depend on the phase of the business cycle, but differs substantially among regions. We also find that the crowding-out effects are larger in the event of expansionary changes.
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The Diseconomies of TerrorismThe Global Terrorism Database (GTD) contains many active and inactive terrorist groups. The defining characteristic of the terrorist groups contained in the GTD is smallness. Unlike the modern business enterprise, for example, there appears to be no trend towards ‘bigness’. This paper presents an analysis of the size distribution of terrorist groups and the implications of this size distribution for the technological conditions under which the output of terrorism may be increased. With net internal and external diseconomies to larger-scale production of terrorism, we should observe relatively small terrorist groups and little or no tendency for the number and size of terrorist groups in the ‘terrorism industry’ to increase. These facts do characterise the empirically observed size distribution of terrorist groups, and imply that the technological conditions under which the output of terrorism may be increased are characterised by internal and external diseconomies to larger-scale production of terrorism.
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Keith Boyfield on Stephen Ellis: Season of Rains: Africa in the World. Diane Flaherty and Bill Gibson on Sylvia Nasar: Grand Pursuit: Author: , December 2011
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Currency Valuation and Purchasing Power ParityThis paper aims to highlight key limitations of The Economist magazine’s Big Mac Index (BMI). The Economist markets the BMI as a tool to determine valuation of currencies. This paper shows that the BMI is a misleading measure of currency valuation for economies whose markets are structurally different from the benchmark currency countries.
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Should Argentina be Welcomed Back by Investors?The search for higher yields has prompted bond investors to venture into increasingly risky territory, such as single-B-rated credits – Argentina among them, the country involved in the largest sovereign default in history. In the author’s view, investors should approach investment opportunities in Argentina with extreme caution. The government’s ability to service its financial obligations remains quite limited, and its attitude towards official and private creditors remains one of contempt. The country is ranked uniformly low in various measures of the business climate, competitiveness, transparency, corruption and economic liberty. It is thus classified correctly as a very risky credit by the leading rating agencies.
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The Argentine Productivity SlowdownThe purpose of this working paper is to analyse the main causes of economic growth in Argentina during the 1990–2006 period. This research proposes a methodology in order to identify Total Factor Productivity (TFP) gains in the strict sense of positive shifts in the production function, independent of short-run cyclical fluctuations in the utilization of productive factors and relative prices effects; distinguishing it from residual or apparent TFP which expresses a phenomenon of real cost changes but not necessarily changes in long-run economic growth. The main results of this research are that strict TFP has a lower trend than apparent TFP. Similar conclusions are obtained in the case of labour productivity adjusted for labour intensity. Argentina sustained a prolonged period of economic growth over 1990–2004, biased to capital accumulation and utilization during the 1990s, and biased to labour input demand after the devaluation year of 2002. In the light of these findings and the data problems after 2007 there are doubts about the ability of the Argentine economy to generate the necessary productivity gains to support sustainable long-term economic growth.
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House Price Indices: Does Measurement Matter?A key factor in understanding the global recession is movements in residential property price indexes (RPPIs). Of concern is that more than one national RPPI is often compiled and disseminated for a country, each differing in regard to their methodology, and thus results. Key methodological issues include the: (i) use of stocks or flows and values or quantities for weights; (ii) method of enabling constant quality measures; (iii) coverage in terms of geography, type of housing and financing; and (iv) valuation of prices. The paper outlines such issues by way of three case studies: the United Kingdom, the United States and the Russian Federation.
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Indian Wholesale and Consumer Price IndicesThe Central Statistics Office of the Government of India launched a new Consumer Price Index (CPI) which will start producing consumer price inflation estimates from January 2012. The creation of the new index is a delayed response to the findings of the National Statistical Commission which found deficiencies in the existing systems of price data collection and the compilation of indices. Until relatively recently there have only been piecemeal changes in the system of measuring inflation in India with the Reserve Bank of India and various government departments relying mainly on a Wholesale Price Index to shape policy. The emergence of volatile inflationary pressures in recent years have seen greater urgency in the process of revising the methods by which price indices are measured in India culminating in the discontinuation of some indices, major overhauls in the methods of construction of others and the launch of the new all India CPI. This paper will review the main price indices published in India highlighting some of their main statistical and economic strengths and weaknesses and will discuss both the proposed and the actual changes that have been made.
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The Crisis in LatviaBetween 2008 and 2010 Latvia – a small country on the Baltic Sea coast and a member of the European Union (EU) – lost a huge 21.7% of its real gross domestic product (GDP). It is one of the largest recent GDP falls not only in the history of the EU, but also globally. But the crisis described in this article is not the classical ‘boom and bust’ cycle-type crisis: Latvia had to face cyclical, structural, financial and global problems simultaneously. This article briefly describes the anatomy of the crisis in Latvia.
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China Investment Corporation’s Post-Crisis Investment StrategyChina Investment Corporation (CIC) has transformed its initial investment strategy of focusing mainly on the US financial sector during 2007–08 into a new strategy of diversified investments across geography and sectors since 2009. Massive financial losses and domestic political backlash during the global financial crisis of 2008 gave impetus to CIC’s rethinking of strategy. In the midst of the crisis, it engineered a capacity-building and reorganisation exercise to reposition itself for a new strategy that has since allowed for more diversification of investments. A more receptive global investment climate for sovereign wealth funds has also aided CIC’s efforts to present itself as a responsible global investor, and facilitated its investments in the post-crisis period. CIC has emerged as one of the most aggressive sovereign wealth funds as global markets recover. Post-crisis, CIC’s new strategy of diversification is characterised by continued investments in the financial sector, but with new investments increasingly directed to real sectors of energy, natural resources and real estate in both developed and emerging economies. CIC’s impeccable timing in making diversified investments, and its attention to reducing risks and enhancing returns, has been rewarded by an impressive turnaround in performance since 2009. Consequently, it is well poised for its mission towards making long-term risk-adjusted returns. Going forward, the success and sustainability of the new strategy will be contingent on how well CIC can navigate domestic bureaucratic rivalry and the shifting climate of the international investment environment in the medium to long term. Ultimately, CIC’s shareholder, the government of the People’s Republic of China (PRC ), holds the key to its future direction and goals.
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Adjustment in the Global EconomyThis article discusses the global adjustment process and the current challenges for policymaking, with a special focus on the asymmetries and their implications for economic policy. It reviews the uneven recovery faced by developed and emerging economies. Emphasis is made on the situation of China and the US, especially in terms of the implications of their adjustments to the global economic tensions. The article also puts a highlight on the challenges that the emerging economies face, in terms of exchange rate appreciations, capital inflows and inflation pressures and their implications for economic policy management. Policymakers in emerging economies should secure a strong and sustainable growth, and containing inflationary pressures is a key factor in this endeavor.
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The Great Depression, the Great Recession and the Next CrisisThe paper discusses and pinpoints three strategic factors that led to the global Great Depression of the early 1930s. After the Great Depression, the lessons learned were encapsulated in Keynesianism and Monetarism. The unanticipated and unprecedented global Great Recession of 2008–09 did not degenerate into the global Great Depression. The paper maintains that this was because of the voluntary global adoption and implementation of Keynesianism, not Monetarism. By May 2010, world industrial production had recovered beyond its previous peak in March 2008. But has the world economy really recovered? Although the world succeeded in aborting the global Great Recession, high unemployment aggregates, bloated budgets and sky-high debts continue to dog many developed economies, including the United States, the Eurozone nations and the United Kingdom. The paper goes on to discuss if the growth path of the world economy would take the form of a W-shape. The paper concludes with the overall important lessons learned by the world in handling the global Great Recession and the Keynesian prescription.
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Prospects for the Evolution of Global ReservesThe global reserve system has returned to the top of the agenda in debates about international monetary reform. Much of the contemporary discussion draws on familiar issues but it has been given a new relevance in the aftermath of the global financial crisis of 2008/09. One particular focus relates to the composition of international reserve assets and the role of the dollar. Will the dollar’s preeminent position be eroded and will the dollar be replaced by other international currencies? This paper examines the factors that determine a currency’s international status and assesses various candidate currencies including the euro and the Chinese renminbi. It also analyses the Special Drawing Right (SDR ) as an international reserve asset. It concludes that, while there may be advantages in enhancing the SDR ’s role and endeavouring to implement the commitment made in the Second Amendment to the IMF’s Articles of Agreement to encourage it to become the world’s principal international reserve asset, the more likely outcome is that the dollar will retain its status as the main international currency, although it may be joined by other currencies in a multiple currency system.
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Shibley Rahman on Carol Graham: The Pursuit of Happiness: Toward an Economy of Well-Being Author: Shibley Rahman, September 2011
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Graham Bird on Fault Lines and Fractures Threatening the World Economy Author: Graham Bird, September 2011
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Boosting Infrastructure Investments in AfricaThe absolute and relative lack of infrastructure in Africa suggests that the continent’s competitiveness could be boosted by scaling up investments in infrastructure. Such investments would facilitate domestic and international trade, enhance Africa’s integration into the global economy and promote better human development outcomes, especially, by bringing unconnected rural communities into the mainstream economy. While there are yawning gaps in all infrastructure subsectors, inadequate energy supply is directly correlated to low education levels, poor health outcomes, as well as limited economic opportunities and technology choices. Efforts by government to invest in infrastructure have proved inadequate to close the infrastructure gap. These investment opportunities have not been seized by the private sector due to the unfavourable business environment, poor incentives and regulatory frameworks. Therefore, Africa’s infrastructure challenge is not only in closing the huge financing gap, but also in building the necessary skills and capacity to attract investments. Although scaling up infrastructure investments offers the private sector enormous opportunities, unlocking these investments should be preceded by appropriate policy and structural reforms. The good news is that there is hope, and current developments are signalling an increased awareness by African governments. Development partners should therefore take advantage of the increasing political will for reform through knowledge and capacity building activities, especially, in fragile and post-conflict countries where the need is greatest.
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Trade Out of PovertyIntegration into the world economy has proven a powerful means for countries to promote economic growth, development, and poverty reduction, and therefore governments need to have a renewed focus on trade policy towards developing countries to help improve the lives of the world’s poorest. The world’s richest countries should open their markets unconditionally to all Least Developed and low-income countries. The EU and US and other developed countries’ Rules of Origin requirements should be aligned so that developing countries have only one set of rules to adhere to, as the existing complex rules frequently result in countries paying tariffs or being excluded by bureaucracy. Rich countries must end their export and domestic subsidies that undermine the livelihoods of millions. Tariffs between the poorest countries be reduced and customs duties replaced with other sources of revenue. There needs to be a significant increase in emphasis on infrastructure, roads, ports and administrative structures that make trade possible.
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Connecting the African ContinentThis paper provides an overview of the contribution of economic infrastructure to growth and human development in Africa. Challenges for infrastructure provision including finance, recurrent costs and public-sector responsibilities are covered, together with assessment of the global trends of urbanisation, climate change and future resource scarcity. The paper describes and explains the work of the UK Department for International Development on economic infrastructure in Africa, covering innovations in areas of private-sector infrastructure, regional approaches, improving the investment climate, and international coordination. The paper concludes with several policy directions for current political processes.
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The European Union’s Trade Policies and Africa’s ExportsAn important determinant of the sustainability of growth in Africa is the extent to which the continent can exploit the opportunities available from trade. Trade barriers exist to key African exports, which make it difficult for the continent to take advantage of the growth-enhancing benefits of trade or to follow an export-orientated development plan, leaving Africa dependent on the world price of natural resources and minerals such as oil, copper and diamonds. This study evaluates the impact of trade policies in the European Union (EU) and other large trading blocs on a range of African exports. We found that, contrary to many pronouncements, trade policies in the EU, especially tariff barriers, have not significantly hindered Africa’s exports. Furthermore, it was discovered that the export performance of African exports is hampered more by non-tariff barriers to African exports and by capacity constraints within African countries.
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Malthus PostponedThe authors examine the potential to promote palm oil production in the tropical regions of sub-Saharan Africa. Given world population pressures and soaring food prices, the need to grow more food has never been more urgent. Palm oil cultivation offers one possible route to meet this demand; it also has a variety of other uses, notably biofuel. Major investors are committing substantial sums to develop palm oil plantations throughout West Africa. However, this major driver of economic growth has triggered controversy, particularly from environmental NGOs. The article assesses how far these criticisms are valid. In the process, four key challenges surrounding the development of plantation crops are identified. The REDD initiative – aimed at restricting forest land conversion for commercial purposes – is analysed and a number of practical hurdles to successful implementation are highlighted. The authors conclude that large-scale commercial plantation agriculture clearly has a major contribution to make in resolving the rapidly emerging global food crisis.
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A New ChallengeOver the last five years there has been a noticeable shift in focus among leading oil and gas companies active in the continent of Africa. Rather than focusing on West and North Africa for investment opportunities, there has been a move to explore new prospects in East Africa. The region is rapidly becoming a prominent investment destination in both the upstream and downstream oil sectors. In 2011 several majors including BG, Eni and Petrobras, are planning to sink wells and all of them are investing significant amounts in search of deepwater gas reserves. Alongside these exploration initiatives the author assesses plans for a new pipeline with a capacity of 450,000 barrels a day, to be constructed from Juba in Southern Sudan to Lamu on the Kenyan coast. Increasingly, as the author notes, the region is emerging as a significant location for investment in hydrocarbon resources.
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Vibrant Africa Continues to AttractThe global economic crisis of 2007–09 left Sub-Saharan countries relatively unscathed. There are a number of reasons for this, but one crucial factor has been the relative lack of integration of the economies of most Sub-Saharan countries with the world economy. This insulated much of the region from the severities of the asset ‘boom’ and ‘bust’ that whiplashed global financial markets in the developed world between 2007 and 2009. There are some positive, rather than neutral, aspects of Africa’s growth potential and the unfolding investment story.
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Sub-Saharan AfricaSub Saharan Africa’s (SSA’s) growth bounced back to 5% in 2010 following a slowdown to 2.8% in 2009 because of the GFC. Moreover, SSA’s 5-plus growth rate is sustainable. Improvements in domestic fundamentals due to better economic management and improved political stability have been mainly responsible for the turnaround in the past decade. The impact of high commodity prices, reorientation of trade to fast growing Asian countries, advances in new technology, especially mobile telephony, will continue to be growth drivers. SSA’s good growth prospects will be underpinned by domestic demand and a surge in Asian demand for some time. However, growth could be higher still, more durable and job-creating if some of the region’s key constraints – infrastructure, governance and skills – were addressed.
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Africa’s Water Author: , June 2011
Water underpins the whole of Africa’s economy, be it municipal, agricultural, industrial or mining, and is, unfortunately, often a critical factor in limiting economic growth or peace and stability. Aside from the issues of poor health, inadequate water and sanitation infrastructure debilitates the continent’s potential. This happens by making life difficult for businesses, which have to contend with daily problems relating to security of supply for economic activity and international investors who are simply put off by not being able to drink tap water in hotels when exploring business development opportunities. But such observations are glib in light of the significant public health difficulties imposed on millions of Africans, which result from the lack of environmental regulation in the sector.
In the municipal supply sector, there is a long history of aid-related water schemes in Africa, from the micro to macro scale, which have met with varying degrees of success. Examination of the success of privatesector participation in both rural and municipal supply is presented, along with an analysis of where projects have encountered difficulties. The rise of food and commodity prices has delivered the economic justification to develop a better understanding of the water economy in Africa. The argument for Africa to develop an understanding of the wider water economy, to ensure profitable and sustainable development, is presented in relation to agricultural and industrial use. Consideration is also given to the role of water in conflict mitigation.
The benefits and pitfalls of water in the industrial economies of Africa, namely mining and hydrocarbon exploitation, are considered, along with a discussion on the need to understand the environmental regulatory framework for the water economy.
C onclusions are drawn in relation to how water underpins all of Africa’s economic activity along with a summary of the key points that need to be considered by policymakers in developing the continent’s potential.
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Global Financial Crisis, Protectionism and Current Account DeficitThe recent financial and economic crisis, and the resurgence in the popularity of emerging markets has raised fears in these economies of a resumption in capital flight or a sudden stop of capital inflows. The latter, in particular, is intensively discussed in South Africa. We try to evaluate this danger by focusing on the sustainability of South Africa’s current account deficit during the recent past, and on longterm economic policy developments in the country. We argue that the macroeconomic as well as the relevant microeconomic policy variables do not suggest a sudden stop. However, to lower this risk further, the microeconomic environment has to be improved considerably in the future. This includes mainly reforms in the areas of infrastructure, competition and trade policy.
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Further Fallout from the Global Financial CrisisWe examine the recent credit slowdown in emerging markets from three analytical angles. First, we find that, similar to past history, a credit boom preceded the current slowdown in many emerging markets, and argue that, going forward, a protracted period of sluggish growth is likely. Second, we focus on a relatively understudied region – the Middle East and North Africa (MENA) – using a more detailed banking data. We uncover a key role played by bank funding, in particular, deposit growth and external borrowing slowed considerably, despite expansionary monetary policy. Finally, we show that bank-level fundamentals – capitalisation and loan quality – helped to explain differences in credit growth across banks and countries.
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Measuring African GDPThere is much speculation about the growth potential of African economies. But in the light of unreliable official statistics and the highly selective information often presented by investment companies with an incentive to highlight the positive, this article aims to provide some extra analysis to add to the recent widespread comments on high growth rates within the continent. Problems are noted with official economic data and the strengths of Purchasing Power Parity (PPP) measures for GDP comparisons are noted. GDP figures for Africa and five other major economic areas are analysed for the three decades to 2010 in terms of GDP growth and GDP level by decade. These figures are then viewed in per capita terms, drawing attention to significant population growth within the continent, and therefore less impressive per capita figures. A closer look at the location and distribution of economic activity within the African continent highlights the high concentration of economic activity within a small number of countries. However, it is concluded that the future prospects for African growth are still generally positive. Despite the heavy reliance on oil exports in some countries, headline GDP figures also reflect incidences of broad-based growth which looks set to continue so long as Asian demand remains high and good economic policies are pursued.
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The International Liquidity Crisis of 2008–2009The ‘credit crunch’ that began in August 2007 turned into a crisis when Lehman Brothers failed in September 2008. That event caused large international capital flows, including heavy repatriation of dollars to the United States. Central banks, led by the Federal Reserve, augmented the supply of international liquidity through bilateral central bank swap facilities, and thereby prevented the crisis from becoming much worse. We discuss the reasons for establishing swap facilities, the risks that central banks run in extending swap lines and the limitations to their utility in relieving liquidity pressures. We conclude that the credit crisis is likely to have a lasting effect on the international liquidity policies of governments and central banks.
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Managing Today’s Global EconomyFollowing the path-breaking work of Coase (1960), economists have recognised the complex issues of managing jointly owned and utilised properties, so-called commons. Increasingly we see this as a problem of externalities, as with public goods. We recognise the wide range of occurrences, ranging from small public sites – visualise an overcrowded public park – to worldwide issues, like global warming, and we observe the diverse ways in which these resources are being managed or mismanaged. This article suggests that the global economy is also a commons, one whose management poses special challenges. The current world situation suggests the urgent need to recognise this fact and to devise ways to reconcile the interests of various participants in an increasingly integrated global economy.
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Why is the Chinese Saving Rate so High?China’s saving rate is high from many perspectives – historical experience, international standards and model predictions. Furthermore, the average saving rate has been rising over time, with much of the increase taking place in the 2000s. What sets China apart from the rest of the world is that its rising aggregate saving has reflected high savings rates in all three sectors: corporate, household and government. Our evidence casts doubt on the proposition that distortions and subsidies account for China’s high saving rate. Instead, we argue that tough corporate restructuring (including pension and home ownership reforms), a marked Lewismodel transformation process (where the average wage exceeds the marginal product of labour in the subsistence sector) and rapid ageing process have all played more important roles. Such structural factors suggest that the Chinese saving rate may peak over the coming years.
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On Economic Growth and Domestic Saving in IndiaThis study examines the economic growth and domestic saving in India. The onset of gradual economic reforms since the 1980s provided some fillip to growth, and the momentum was carried forward through the adoption of a wide-ranging structural adjustment program since the beginning 1990s. The sustainability of an accelerated growth trajectory hinges heavily on the acceleration of saving and investment and the improvements in productivity. While foreign direct investment, liberalization of trade and the globalisation of goods and financial markets have well-documented gains, the accrual of these gains is contingent on the acceleration of productivity to a threshold level where the firms can effectively compete for market share in both domestic and international markets. Gobalization is unlikely to take developing economies out of low level equilibrium traps of underdevelopment, if it is not accompanied by the institutional reforms, development of adequate infrastructure, unleashing of productivities, development of efficient financial sector, and the improvements in the competitiveness of import-competing industries in the domestic and export-oriented industries in the international markets.
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Recent Developments on the Rare Earth FrontChinese actions in the rare earths market have raised a number of concerns about the country’s motives in restricting exports. One theory is that the country simply wants to ensure that it has adequate supplies for its future expansion into a number of energyefficient, and high-tech sectors using large amounts of this resource. Another view is that the country is practising a new type of mercantilism – leveraging the country’s current near monopoly over the resource to coerce using firms to locate in China and transfer their technology to Chinese firms: technocratic mercantilism. An analysis of China’s recent actions, together with empirical work suggesting a severe technological readiness lag, lends some support to the mercantilist interpretation.
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Communist China’s CapitalismThis article explains the contemporary Chinese–American economic relationship as an ironic variant of the classical theory of capitalist imperialism. Communist China is the modern world’s great imperial power (exporter of surplus savings). China exports its savings by undervaluing its own currency and acquiring foreign exchange reserves. As the supplier of foreign exchange reserves, the United States is not merely the colony, but the crown jewel of China’s empire. It absorbs China’s savings and consumes the corresponding surplus Chinese goods. However, unlike the old imperialist system, this relationship can be ended without military rebellion. The US, by controlling access to its financial markets, owns the ‘off switch’ for the Chinese export machine.
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The Power of Price Indexes Author: Raymond Cheung and Mike Waterson, March 2011
Price indexes are the most important of all economic indicators simply because they are the tool used to calculate the real size, speed and direction of all forms of economic activity. Price indexes are compiled almost everywhere, but with major differences in method and sampling procedures. Some methods and procedures have led to significant errors. Even in the case of a country as advanced as Japan, critics have calculated that imperfections in method have led to a rate of price inflation around 1.8% per year above the level a true cost of living index would have shown. Further research undertaken by World Economics has attempted to make estimates for changes in discounting and promotional practices at the retail level. The conclusion is that, in reality, the overestimation of price changes by the Japanese CPI in recent years may well have been in excess of 2% per annum, and could have been significantly more. Different CPI assumptions change economic growth estimates dramatically. Using World Economics estimates, adding in a minimum figure for marketing and retail changes seen in recent years suggests, contrary to official data, that Japanese consumption growth exceeded that of the US.
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Defence R&D SpendingA nation’s defence R&D determines the international competitiveness of its defence industries and the technical superiority of its military forces. Whilst there is much secrecy, there are published data on defence R&D for many nations. Exceptions include China, Iran, Israel, North Korea, Pakistan and Russia. Defence R&D has led to rising unit costs of equipment and questions about the long-run affordability of some weapons. There are also external economic benefits but a lack of any measures of defence output. This article reviews what is known, what is not known and what is needed to be known for an informed debate and policy choices.
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Towards New Thinking in EconomicsTerry Barker is a leading British economist in macroeconomics, climate economics and empirical analysis. For over 45 years, he has been involved in research at Cambridge on economic theory and applied economics, in areas such as: trade theory and space and time economics; structural macroeconomics; and the macroeconometric modelling of energy-environment-economy interactions. This has included trade theory, space-time economics, climate mitigation economics, and macro-econometric modelling. Though he can be considered a ‘descendant’ of Keynes, Barker defies any categorisation of belonging to a particular school of economic thought. A notable contribution has been his empirical modelling work showing how tougher climate mitigation policies may actually bring long-term socioeconomic benefits. Whilst at the conference on new economics as ‘mainstream’ economics that he initiated in January 2010 in Cambridge, we discussed at length his extremely interesting viewpoints and research. This interview takes the reader through the intellectual history and work of a determined man, who has never ceased encouraging new ideas and pushing forward fresh economic thinking for the benefit of societal progress.
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Low-Carbon Development for the Least Developed CountriesThe global community has to act collectively to halt climate change. But such collective action must take into account the development needs of the least developed countries (LDCs), which are likely to be hit earliest and hardest by climate change. The priority of such countries remains poverty alleviation and the achievement of the Millennium Development Goals, but the three challenges of limiting climate change, adapting to its consequences and reducing poverty have to be faced together. This requires LDCs eventually to follow a development path that differs from those trodden by today’s industrial countries and emerging market economies. There is no room in the long term for high-emission economies, and high-carbon growth is unsustainable given the possible consequences for fossil-fuel supplies and climate-change impacts.
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Punishing European CartelsAntitrust authorities across the world are waging war against domestic and international cartels. The European Commission in particular has intensified its prosecution activities and increased dramatically the fines it imposes on cartelists. This article undertakes a statistical overview of the Commission’s prosecution activities and fines over the last decade of pan-European (and in many cases global) cartels, principally under the current penalty guidelines which became effective on 1 September 2006.
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Understanding the Greek CrisisThis paper focuses on the distortions that the Greek public debt has imposed on the Greek banking system, and suggests how these can be unwound. The low level of competitiveness of the Greek economy, which is well below the competitiveness of the developed countries, poses a great challenge for the Greek banks. At the same time it puts at risk Greece’s economy ability to service both the private and public debt, which, as an aggregate, are comparable to the indebtedness of the developed nations. An adjustment of economic activity to match the current low level of competitiveness will increase the risks faced by the financial system and make an orderly servicing of the debt of the economy very challenging. It follows that only one reasonable policy option remains: to increase the competitiveness of the economy through an aggressive reform agenda, so that it will match its level of indebtedness, and through the resulting growth shift the excessive debt of the public sector to the private sector.
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The G20 After the Seoul SummitTo some, the G20 offers a representative, legitimate and effective forum for dealing with global economic issues, and represents a distinct improvement on the G8. To others it is seen as still lacking full legitimacy and as being an unlikely institutional vehicle for organising global economic cooperation and coordination. This article assesses these views in the aftermath of the Seoul summit of November 2010. To what extent has the momentum that appeared to have been generated at the London summit in April, 009 been maintained? Many of the more intractable problems facing the world economy were, in fact, deferred in 2009, allowing the impression to be created that there was a higher degree of international consensus than there really was. Moreover, the crisis circumstances at the time placed a high premium on swift policy action. As the crisis has eased, more fundamental disagreements have emerged, and these were reflected by the discussions in Seoul. The reality is likely to be that while it is a useful institution for debate and discussion, and perhaps for helping to resolve disagreement, the achievements of the G20 will probably turn out to be more modest than the London summit might have suggested.
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Christopher Adam on James M. Broughton and Domenico Lombardi (eds) Finance, Development, and the IMF. Author: , March 2011
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