Saturday, March 15, 2008

Top econ research universities in 2007

1 Princeton U.

2 Massachusetts Institute of Technology

3 U. of California at Berkeley

4 Harvard U.

5 Cornell U.

6 Yale U.

7 Harvard U.

8 U. of Chicago

9 U. of Illinois at Chicago

10 U. of California at San Diego

* An institution may appear more than once if the discipline is related to more than one department.

Source: The Chronice of Higher Education (HT: The Bayesian Heresy)

Is population growth holding back Africa?

May and Guengant, in a commentary (Africa's greatest challenge is to reduce fertility) in today's FT, argue that reducing fertility in Africa is the key to Africa's development and its prospects for full integration into the global economy.image

Sub-Saharan Africa -- Population Projections

...The persistent high fertility levels imply that population growth will continue despite the Aids epidemic. In mid-2007, sub-Saharan Africa had 788m people – 12 per cent of the world’s population. This share will increase to 18 per cent in 2050, or 1.8bn people. This assumes that African women would then have 2.5 children on average, against 5.5 today, according to the United Nations 2006 population projections. However, these projections imply rapid declines in fertility levels that are far from guaranteed, except in southern Africa. Higher 2050 population figures, potentially reaching 2bn or more, are plausible if fertility declines more slowly.

...slower population growth will help reduce the pressures countries face with food security, land tenure, environmental degradation and water supply...It will also ease the security problems that are often the result of conflicts over scarce resources, which are exacerbated by unsustainably high rates of population growth and widespread youth unemployment.

...growth rates in the order of 6 per cent per year translate into only half that level per capita because of the current pace of demographic growth...Unless fertility declines, attainment of the millennium development goals will remain an ever-receding mirage.

Doesn't this resonate old-school Malthusian arguments? Greg Clark makes similar kind of arguments in his book A Farewell to Alms. Though true that population increase impacts poverty reduction efforts, especially if fertility is high among poor neighborhoods, I do not think that it is a sticking bone to Africa's development. Does this mean that we should abandon all our livelihood generation and economic development efforts and focus on reducing fertility rates? With more than 24.1% of the population suffering from HIV/AIDS and population growth rate of around 1.4% in Botswana, I don't think fertility is a hinge to Botswana's development. We have clearly seen that improvements in political and economic institutions led to an impressive growth rate of over 5% in almost three decades in Botswana, which is seen as an example of how good institutions lead to high growth rate and development. Putting the whole blame on population growth for stagnant development is not fair to the African continent. The continent lacks (also fails) development because of political instability, HIV/AIDS, bad institution, natural resource curse (chiefly oil and diamond) followed by widespread corruption, low level of education, bad infrastructure, lack of rule of law, and adverse climatic conditions, among others. Also check out Paul Collier's book The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done about It and the development traps (conflict, natural resources, landlocked with bad neighbors, and bad governance). If you can't get hold of Collier's book, then check out this review- the blogger does a good job summarizing the book.


P.S.: For those who are interested in the role of institutions and how it shapes economic policies, plus the top-down and bottom-up approach, see this recent paper by William Easterly: Institutions: Top Down or Bottom Up

Rule of Law, Institutions, and Economic Growth

The Economist has an interesting and insightful article about how the "rule of law" argument evolved and made its way into the mainstream economics, especially development economics. Also see what Rodrik feels about The Economist magazine and this recent article!

...Economists became fascinated by the rule of law after the crumbling of the “Washington consensus”. This consensus, which was economic orthodoxy in the 1980s, held that the best way for countries to grow was to “get the policies right”—on, for example, budgets and exchange rates. But the Asian crisis of 1997-98 shook economists' confidence that they knew which policies were, in fact, right. This drove them to re-examine what had gone wrong. The answer, they concluded, was the institutional setting of policymaking, especially the rule of law. If the rules of the game were a mess, they reasoned, no amount of tinkering with macroeconomic policy would produce the desired results.

..."300% dividend"...a country's income per head rises by roughly 300% if it improves its governance by one standard deviation (Daniel Kaufmann and Aart Kraay)...

Economists have repeatedly found that the better the rule of law, the richer the nation...Every rich country with the arguable exceptions of Italy and Greece scores well on rule-of-law measures; most poor countries do not.

The World Bank is now running such projects (narrowly defined) worth almost $450m; on a wider definition, almost half the bank's total lending of $24 billion in 2006 had some rule-of-law component (for example, advice on conflict resolution in village-development projects, or on bankruptcy law in privatisation programmes). In roughly a decade the rule of law has gone from a specialist political and legal topic into a staple of economic thinking and the subject of a vast aid-giving effort.

...Among other proponents of a thick definition (of rule of law) are Friedrich Hayek, an Austrian economist, and Cass Sunstein of the University of Chicago. In their view, the rule of law includes elements of political morality.

...Thin definitions (of rule of law) are more formal. The important things, on this account, are not democracy and morality but property rights and the efficient administration of justice. Laws must provide stability. They do not necessarily have to be moral or promote human rights.

...One account of growth—associated with Douglass North of Washington University in St Louis, Missouri—is “institutional”. It focuses on the importance of property rights, transaction costs and economic organisation. On this view, stable, predictable laws encourage investment and growth. Thin definitions of the rule of law fit this well.The other—associated with Amartya Sen of Harvard—says that if you expand people's “capabilities” (Mr Sen's term), they will do things that help countries grow rich. Freeing people to take advantage of their capabilities usually means lifting the oppressive burden of the state and guaranteeing certain basic rights—a much thicker concept.

...But as a generalisation, the efforts of the past few years have thrown up mixed messages. They suggest the rule of law can be improved sharply; that rule-of-law reform is at root a political not a technical undertaking; and that it is linked to growth, if weakly in the short term. But they do not really bear out the assertion that the rule of law is an underlying prerequisite for growth. Rather, the more economists find out about the rule of law, the more desirable it seems—and the more problematic as a universal economic guide.