Friday, February 27, 2009

Globalization and policy space

Jon Garvie discusses four books covering different themes about globalization: Grewal’s Network Power, Wise’s Cultural Globalization, Walker and Thompson’s Critical Mass, and Green’s From Poverty to Power. I like the way he invokes Keynes’ referral to the need for ‘policy space’ to better shape globalization.

David Singh Grewal’s Network Power argues that globalization has made us less free and attempts a systematic analysis of how this came about. Grewal understands globalization as a network. It grows and asserts itself organically, and embraces abstract social norms (privatization, deregulation, free trade and so on) from which it becomes impossible for individuals or nations to deviate, even when they are shown to fail.

Green pleads that developing countries should be allowed the same “policy space” to develop at their own pace, rather than undergo forced liberalization at the behest of the WTO. Given the recent failure to conclude the Doha “development” deal, driven by poor countries’ refusal to relinquish some measures of agricultural protection, his wish may well be granted.

…in order to act on that insight, individuals and states must be allowed the freedom to self-organize; to cherry-pick from the disparate patterns of trade, finance and culture, and not swallow whole the received wisdom of civil society or international institutions. In 1933, John Maynard Keynes wrote that:

“Ideas, knowledge, science, hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible and, above all, let finance be primarily national. Yet, at the same time, those who seek to disembarrass a country of its entanglements should be very slow and wary. It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction.”

More on financial crisis, globalization and policy space here.

Tuesday, February 24, 2009

The Somali story

From the FP magazine:

Somalia is a state governed only by anarchy. A graveyard of foreign-policy failures, it has known just six months of peace in the past two decades. Now, as the country’s endless chaos threatens to engulf an entire region, the world again simply watches it burn.
Somalia’s pirates are threatening to choke off one of the most strategic waterways in the world, the Gulf of Aden, which 20,000 ships pass through every year. These heavily armed buccaneers hijacked more than 40 vessels in 2008, netting as much as $100 million in ransom. It’s the greatest piracy epidemic of modern times.
Somalia is a political paradox—unified on the surface, poisonously divided beneath. It is one of the world’s most homogeneous nation-states, with nearly all of its estimated 9 to 10 million people sharing the same language (Somali), the same religion (Sunni Islam), the same culture, and the same ethnicity. But in Somalia, it’s all about clan. Somalis divide themselves into a dizzying number of clans, subclans, sub-subclans, and so on, with shifting allegiances and knotty backstories that have bedeviled outsiders for years.
Death comes more frequently and randomly than ever before. I met one man in Mogadishu who was chatting with his wife on her cellphone when she was cut in half by a stray mortar shell. Another man I spoke to went out for a walk, got shot in the leg during a crossfire, and had to spend seven days eating grass before the fighting ended and he could crawl away.

Wednesday, February 18, 2009

The other side of the crisis II

Michael Clemens gives clear perspectives on why hiring restrictions for those on H1-B visas is bad for the US economy. A clear-cut piece!

First, the lesson of America’s long history is that there is simply no tradeoff between immigration and the job opportunities of people already here—even in times of crisis. Let’s dump the soundbites and stare directly at our experience as a nation. Below is a graph I created from primary statistical sources listed at the end of this post. It shows U.S. immigration since 1880, superimposed on a graph of U.S. unemployment from 1890 through two weeks ago:

These numbers are remarkable. Collapses in immigration utterly failed to keep Americans at work during the major depressions of the 1890s and 1930s. Enormous surges in immigration accompanied falling unemployment in the early 1900s and after 1981. If you still think that the big picture of U.S. history involves any sort of tradeoff between immigration and unemployment, it’s time to re-envision our stunningly dynamic, flexible economy. Non-partisan research from thinktanks and academia shows that highly skilled workers, in particular, create new jobs for others when they enter the United States—both by helping existing companies grow (pdf) and by starting new companies. Bill Kerr of Harvard Business School also shows that immigrants play an important role in U.S. innovation in science and technology, finding in a recent study “that in periods when H-1B visa numbers went down, so did patent applications filed by immigrants [in the U.S.]. And when H-1B visa numbers went up, patent applications followed suit.”

Second, the two Senators responsible for the anti-immigration provision of the stimulus bill—Chuck Grassley and Bernie Sanders—didn’t write it to help American workers through the crisis. Both of them represent states (Iowa and Vermont) where hardly any of our highly skilled foreign workers go. Grassley was working hard to restrict the number of high-skill workers entering on H-1B visas, with help from Sanders, back in 2007. Back then there was not a glimmer of the layoffs we’ve seen recently. Back then the economy was so hot that tech companies were being starved of qualified workers by caps on H-1B visas, caps that Bill Gates pleaded Congress to raise. Today’s crisis has simply given longtime nativists a cherished chance to impose their will on other people by force. In this case those other people are intelligent and highly skilled workers, mostly from developing countries, whose unlucky birthplace bars them from spectacularly high-paying opportunities that nativists prefer to see as their exclusive and heaven-ordained right.

Third, restricting access to the United States for smart, highly educated, energetic workers is bad for development. International connections among skilled workers have been important to the engines of growth and poverty reduction that have arisen in several developing countries over the past few decades. Sociologist AnnaLee Saxenian has documented the myriad unpredictable ways that skilled Indian and Chinese workers abroad helped high-tech industries to form in their home countries, thereby raising the returns to education even for people who don’t wish to leave. The same Bill Kerr mentioned above has shown that skilled migrants abroad raise knowledge transfer to, and manufacturing output in, developing countries of origin. A growing research literature suggests that highly skilled workers abroad can generate new trade and new investment for developing countries, and even help foster democratic institutions in developing countries—to say nothing of the money they send home, often to families whose economic deprivation cannot be imagined by most Americans in their darkest moments. If you believe that restricting skilled-worker migration is a positive force for development, pick a ghetto or impoverished rural county in the United States and ponder the economic and ethical consequences of trapping smart young people in that place with forcible travel restrictions.

It’s not surprising that the U.S. is sprouting more protectionists in this time of crisis. Fighting this destructive tendency is all the more noble when times are tough. As the crisis continues, let us not take another step down the lose-lose road of isolation.  Rather, let us see this moment in history as an opportunity to reform broken immigration systems in the rich world, recognizing that pro-development migration policies, some of which I outline in my chapter on migration in The White House and the World, will make poor and developed countries alike more prosperous in the end.

See this one as well.

Hausmann on the global financial crisis

Hausmann has a nice piece on the VoxEu website about the global financial crisis and how global and regional multilateral institutions can help the developing countries cope with the fallout of this crisis on their economy (basically, by stepping up lending and widening their scope and role). He uses the fan belt analogy (I think this one is his favorite as he uses this one in the growth diagnostics studies as well)!

When the fan belt of the car breaks, the engine overheats, seizes, and stops. A new fan belt is no longer enough for a solution. If the Wall Street is the belt, Main Street is the engine. Since the engine has seized, even fully capitalised banks will be weary to lend into a downturn, and firms and households would be unwise to borrow, even if credit was available. Credit crunches often lead to recessions, but the eventual recovery has never been lead by credit, as Calvo, Izquierdo and Talvi (2006) have shown for emerging markets.

A more sustainable complementary alternative is to use the super-borrower capacity to reflate the global economy and to reestablish financial links globally. This can be done in several ways.

First, multilateral development banks should be recapitalised –by issuing guarantees in the form of callable capital – allowing them to raise funds in global capital markets to on-lend to the developing world.

Second, the IMF should also be recapitalised, possibly through an issuance of SDRs, so as to make sure that the organisation has more than enough funds to help reconnect countries to finance.

See my earlier discussion about the fallout of the global financial crisis on the developing countries here.

Impact of the financial crisis on the developing world

In a new UNU discussion paper, Wim Naude argues that the financial crisis would affect the developing countries through three different channels. They are (i) banking failures and reductions in domestic lending, (ii) reduction in export earnings, and (iii) reduction in financial flows. It is a nice summary of the causes and impacts of the financial crisis on the developing countries. See this report from the IDS as well. Below is a chart (sourced from Naude’s discussion paper) that summarizes required responses to the financial crisis.

The International Monetary Fund (IMF) expects growth in world trade to decline from 9.4 per cent in 2006 to 2.1 per cent in 2009. The expected declines will come through a combination of lower commodity prices, a reduction in demand for their goods from advanced economies and less tourism. Moreover, the International Labour Organization (ILO) predicts that unemployment could rise by 20 million across the world and that the number of people working for less than the US$2 per day poverty line will rise by 100 million.

There is little doubt that the developing countries would suffer less than the developed world. A large scale fiscal stimulus is beyond the developing countries’ reach because of revenue shortage, fiscal imbalance, and institutional capacity.

The developing countries will not have to worry that much about containment of financial panic in the immediate term because the epicenter of the crisis was in the Wall Street. However, they will have to take on the short term measures as outlined above in the chart. Recapitalizing banks and encouraging merger and acquisition would help consolidate the financial sector. This should be coupled with expansionary monetary policies such as raising inflation targets (but don’t adhere to strict inflation targeting as it binds monetary tools required to respond in these kind of situation) and reducing costs of borrowing (by decreasing lending rates). The fiscal response has to be bigger and bold with an increase in infrastructure spending (it is needed anyway because of severe short supply of infrastructure), expansion of social safety nets (also conditional cash transfers) and spending on education/human resources. On the trade side, the developing countries should lobby for more open markets abroad and also keep their markets open (to be fair to all, there should not be protectionist moves).

The question is: from where the developing countries are going to get the required funding? Well, the developed world has to do something to prop up investment and consumption in the developing countries. The WB proposed 0.7% of the stimulus package to go to Vulnerability Fund for the developing countries. This fund is supposed to increase investment in infrastructure projects, safety net programs, and financing for small and medium-sized business and microfinance institutions. The IMF has to expand SDRs (with minimal conditionality) to all the developing countries, not just a select few emerging ones. See this and this by Rodrik.

See my earlier opinion piece on the impact of global financial crisis on the Nepali economy here. Also see this.

Green jobs and pro-poor policy

UN secretary-general Ban Ki-moon and Nobel laureate and former US vice-president Al Gore argue for ‘green growth’ and pro-poor policies:

What we need is both stimulus and long-term investments that accomplish two objectives simultaneously with one global economic policy response – a policy that addresses our urgent and immediate economic and social needs and that launches a new green global economy. In short, we need to make “growing green” our mantra.

First, a synchronised global recession requires a synchronised global res­ponse. We need stimulus and intense co-ordination of economic policy among all main economies.

Second, we need “pro-poor” policies now. In much of the developing world, governments do not have the option to borrow or print money to cushion the devastating economic blows. Therefore, governments in industrialised countries must reach beyond their borders and invest immediately in those cost-effective programmes that boost the productivity of the poorest. Last year, food riots and unrest swept more than 30 countries. Ominously, this was even before September’s financial implosion, which sparked the global recession that has driven a further 100m people deeper into poverty.

This means increasing overseas development assistance this year. It means strengthening social safety nets. It means investing in agriculture in developing countries by getting seeds, tools, sustainable agricultural practices and credit to smallholder farmers so they can produce more food and get it to local and regional markets. Pro-poor policy also means inc­reasing investments in better land use, water conservation and drought-resistant crops to help farmers adapt to a changing climate, which – if not add­ressed – could usher in chronic hunger and malnutrition across large swaths of the developing world.

Monday, February 16, 2009

Pay taxes, become responsible citizens

That is the title of my latest opinion piece. It is about Voluntary Disclosure of Income Scheme (VDIS), launched by Nepal’s Finance Minister last October in order to give an opportunity to tax evaders to pay all outstanding dues to the nation and divulge earned assets and income to the appropriate authorities. Ironically, the business community is clamoring against it. My simple question: why should any one flinch from fulfilling their basic duty as a responsible citizen?

Tax revenue forms the basis for government expenditure. It is the duty of the government to provide public goods and facilitate private sector participation in the economy. It is also the duty of citizens to pay taxes so that the government could fulfill its duties. Despite simple rules and low rates, tax revenue collection in Nepal is one of the lowest in South Asia. This is partly due to bureaucratic inefficiency and corruption. A much bigger problem lies in the tendency of some high-income earners and businesspersons to evade taxes.

It is ironic that businesspersons are needlessly clamoring against VDIS. They are apprehensive of revealing sources of their income and assets. What baffles me the most is that why anybody should be reluctant to reveal the total worth of their assets and income to government and pay taxes accordingly. This is the fundamental responsibility of a citizen, who in turn expects public goods such as defense, infrastructure, education, and health care, among others, from the government.

Any excuse for tax evasion is no less than cheating the nation. There is nothing wrong in disclosing one’s earned income and assets to appropriate authorities and pay taxes based on regulations passed by the parliament. The government estimated that 10,000 individuals, mostly from the business sector, have failed to disclose income and pay taxes. I believe this figure is an underestimation given the level of bureaucratic efficiency and missing trail of information about earned income and assets. Out of 10,000 individuals from whom the government requested compliance to VDIS, so far, only about 2000 have come to its terms. The government aims to collect Rs 2 billion revenue through VDIS and encourage (if not enforce) disclosure of Rs 20 billion worth of income and assets. The government expects to collect Rs 142 billion as tax revenue this fiscal year.

…Toward the end of first deadline of VDIS, one individual disclosed property worth Rs 1 billion and paid 10 million in taxes. How reckless is it to hide so much income and assets and not pay Rs 10 million in taxes for years? Hundreds of such individuals have amassed income and assets without disclosing them to the proper authorities. With an extra Rs 2 billion, the government could provide healthcare and education to millions of citizens. It could build new infrastructure and repair crumbling ones to connect production sites with markets and help businesses decrease transportation costs. It could invest in new hydropower projects to supply badly-needed energy to the industrial sector and households. The more revenue the nation generates, the more its capacity to invest in public goods.

Read the full column here. My earlier post on taxes, revenues, and expenditures in South Asia here.

Sunday, February 15, 2009

The effect of global economic crisis on poverty

The World Bank estimates that as many as 53 million additional people could fall below the poverty line of $1.25 a day due to the impact of global economic crisis. Declining growth rates coupled with high levels of poverty would be a disaster in the developing countries. It argues that almost 40% of developing countries are exposed to the declining growth rates and high levels of poverty, and an additional 56% of the countries are exposed to decelerating growth or high poverty levels. Less than 10% of the developing countries face ‘little risk’.

It also paints a gloomy picture about infant mortality. It states that between between 200,000 and 400,000 more babies could die each year between now and 2015 if the crisis persists (this totals to 1.4 to 2.8 million).

What about the capacity of the developing countries to deal with the crisis on their own? A WB policy brief states that one-fourth of the countries have the ability to expand fiscal deficits to undertake significant countercyclical spending. Even one-third of these require aid to take this course of action. All others vulnerable countries are fiscally unable to tackle this problem on their own. The bad news is that only one-third of the countries have the institutional capacity to absorb increased spending even if there were external assistance.

Last week, the IDS complied views and analysis from wide range of experts from the developing countries on the fallout of global financial crisis on the developing countries. They identified six main ways the financial crisis will affect the developing countries: lower demand for exports, fall in portfolio and foreign direct investment, fall in exchange rate, rising risk premiums and interest rates, decline in remittances, and decline in foreign aid. On top of this, last year’s rise in commodity and food prices is expected to push over a 150 million people below the standard dollar a day poverty line. More on the impact of food prices here.

Saturday, February 14, 2009

Taxes, revenues and expenditures in South Asia

This is how tax structure, revenues and expenditure looks like in South Asia.

Country

VAT (%)

Corporate income tax (%)

Total tax rate (% of profit)

Maldives

0

0

9.1

Pakistan

15

35

28.9

Nepal

13

20

34.1

Afghanistan

--

20

36.4

Bangladesh

15

40

39.5

Bhutan

--

30

39.8

Sri Lanka

15

35

63.7

India

12.5

30

71.5

Source: Doing Business Report 2009

Nepal’s tax rates are the third lowest in the SAARC region. My main point: appropriability concerns due to taxes are not a binding constraint on growth in Nepal. For my bet on infrastructure see this.

Meanwhile, this is what the revenues and expenditures (% of GDP) looks like in South Asia:

And, this is how fiscal balance looks like:

Source: ADB

The puzzle now is: despite having one of the lowest and simplest tax rates, why revenue is always low in Nepal? Tax evasion and inefficient bureaucracy to check evasion might answer a part of the question. I am still looking for the other part!

Lower taxes always does not mean higher revenue (supply-side econ???). Moreover, higher taxes also does not necessarily mean higher revenue. What comes into play? Other stuffs that affect revenue collection such as bureaucratic efficiency, corruption, level of tax evasion, depth of informal economy… What would be a good policy if first best policy options do not deliver intended outcomes? Well, second best policy options might help before going for first best policy options. This takes me to Lipsey and Lancaster’s 1956 paper and Rodrik and Hausmann’s growth diagnostics!

Thursday, February 12, 2009

The other side of the crisis

Friedman writes in the NYT:

…the U.S. Senate unfortunately voted on Feb. 6 to restrict banks and other financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits known as H-1B visas.

It is a lose-lose strategy! It reminds me of a Sanskrit proverb: Bad times, bad decision!

Friedman has a solution:

When the best brains in the world are on sale, you don’t shut them out. You open your doors wider. We need to attack this financial crisis with green cards not just greenbacks, and with start-ups not just bailouts.

Note this as well:

…more than half of Silicon Valley start-ups were founded by immigrants over the last decade. These immigrant-founded tech companies employed 450,000 workers and had sales of $52 billion in 2005

Tsvangirai as PM in Zimbabwe

Finally, a good news coming out of Zimbabwe! Morgan Tsvangirai has taken oath of office as the prime minister of a country that is embattled with hyperinflation, massive unemployment, cholera outbreak, and social breakdown. All one can hope is that Mugabe won't interfere with Tsvangirai as he did during the past election. Can Zimbabwe reemerge as the bread basket of Africa? This is uncertain but what is certain now is that the country will find hard to feed the existing population and manage the currency that has no worth in the market.
"The first priority is to stabilise the economy," he said. "The economic collapse has forced millions of our most able to flee the country. This must end today."

Monday, February 9, 2009

Nepal: Poor Infrastructure, Poor GDP Growth Rate!

This is how Nepal stands in infrastructure rating in the world: out of 134 countries considered in Global Competitiveness Report 2008-2009, Nepal ranks 132. Deficient supply of infrastructure and poor quality of existing ones are the recipes for industrial retardation and slow economic growth rate. The figure below shows infrastructure rating of Asian and Sub-Saharan African nations plotted against GDP per capita of 2006 in constant 2000 US$.

Infrastructure rating, Nepal

I guess it is not surprising that Nepal is the poorest country in Asia (and twelfth poorest nation in the world) and has the one of the poorest infrastructure ratings (quality and quantity) in the world. The transportation costs (inland + international) is also the highest in South Asia. The transportation costs for textile and clothing industry is the highest in the region and is three times the cost prevailing in India.

Some people argue that this is expected because Nepal is a landlocked country. Well, there is no reason to believe that a landlocked country must be in short supply of good quality infrastructure (roads, rails, ICT, and airways). I wonder why Burkina Faso, a landlocked country in Sub-Saharan Africa, is able to have more road density and better infrastructure rating than Nepal!

Road density, Nepal

My bet: the biggest binding constraint on growth in Nepal is bad infrastructure. This is what I claim in my new paper on growth diagnostics of the Nepali economy. That said, I also show why other constraints do not qualify to be the most binding constraint on growth. Full paper to be finished by the end of this month. More on this stuff coming soon!

Thursday, February 5, 2009

Financial crisis and developing countries

The Globalisation Team at the Institute of Development Economics has a nice compilation of views and analysis on the fallout of global financial crisis on the developing countries. It has interesting perspectives from different countries.

They argue that the cause of the global financial crisis is not just restricted to the US subprime mortgage crisis. In fact, it was a result of the interaction between at least three factors: (i) excessive reserves in surplus countries and huge US fiscal and current account deficits, (ii) expansionary monetary policies in the OECD, and (iii) complex and flawed financial innovation in the developed countries.

Six ways the financial crisis will affect the developing countries:

  • lower demand for exports: In Bangladesh, orders for ready-made garments from Europe and the US dropped 7 per cent in September. In Kenya, the cut flower industry is suffering as European customers are hit by the crisis
  • fall in portfolio and direct foreign investment: Investors shy away from markets that are perceived to be riskier. The Ethiopian Electric Power Corporation has indicated that its investment plans will be severely affected due to the crisis
  • falls in exchange rate: The sudden withdrawal of foreign capital from several developing countries has caused dramatic falls in their exchange rate. Companies and governments with substantial foreign currency denominated debts may contract or even collapse as a result
  • rising risk premiums and interest rates for developing countries on global capital markets
  • decline in remittances from workers in recession affected countries
  • foreign aid decline: Richer countries will reduce aid as governments reassess their fiscal priorities during a downturn. This could have particularly negative consequences for Africa
  •  

    It is a great compilation but the policy recommendations are kind of shallow! They propose increase in aid flows, enhancing social protection, and restructuring IFIs. It is incredibly difficult to do all of these at this time, especially when the major donor economies are in distress. I think rather than depending on foreign aid perennially, they should focus on streamlining governance and accountability, ease business restrictions and create a more investor-friendly climate so that domestic entrepreneurs become active in the economy. It does not make sense to prescribe policies that were/are the same  as before and during the financial crisis.

    The dynamics has changed drastically and the developing countries should heed it and flow with it. Though aid is vital for the developing economies to sustain health care, development and education expenses, it should not be seen as an elixir to all the problems.

    Wednesday, February 4, 2009

    Development and Protectionism

    There has been quite a buzz about global financial crisis and protectionism. Some economists and analysts fear that recent event could lead to more red tapes in international trade and globalization. This has also ignited debate on industrial policy and if this is good or bad.

    Easterly termed Rodrik as “the intellectual protector of protectionist” for consistently doubting the promised benefits of trade (assault on the Washington Consensus) and favoring some form of state intervention to solve co-ordination externalities and promote ‘self-discovery’.

    Green pours in thoughts (in favor of Rodrik):

    ‘As economies developed and became more complex, and industries achieved international competitiveness, the costs and benefits of state intervention in both agriculture and industry shifted, and governments started to reduce their role and open up the economy. Exactly the same sequence had previously been adopted by rich countries at an earlier stage of development. Deregulation and liberalisation are thus better seen as the outcomes of successful development, rather than as initial conditions.'

    In other words, it is not double standards, but history that leads to the argument that protectionism makes more sense in developing countries than in rich ones. This was the historical basis for the growing emphasis by developing countries on the need to retain ‘policy space’ in trade and investment agreements.

    Sequencing of reforms is extermely important and the same set of reforms successful in one country might not be effective in another. Also, how can one forget the role played by MITI during Japan’s take off. State intervention aimed at taking care of coordination failures and information externalities does work in the process of development. This is not about whether state intervention is good or bad- it is about if it works in some countries, especially the developing ones. The application of the same set of policies (under the Washington Consensus) in Sub-Saharan Africa have left them in a bad shape than they were before!

    This reminds me these paragraphs from Stiglitz’s book Frontiers of Development Economics:

    Market-enhancing can take many forms- from indirect rule-making that affects incentives, to direct government interventions that structure markets...The general principle is that government action can facilitate private sector coordination and provide the necessary incentives to the private sector by creating “contingent rents”- returns in excess of the competitive market, provided certain conditions are fulfilled (as for patents or export subsidies based on targets) (pp34-35).

    The sequencing of reforms- that is, whether regulatory politics precede or follow privatization-matters. In one sequence, the result may be a competitive or regulated industry, where the benefits of privatization in terms of lower consumer prices are realized. In the other sequence, one may end up with an unregulated monopoly, which, to be sure, may be more efficient than it was as a public sector producer but which may be more efficient not only in producing goods but also in exploiting consumers(pp419).

    Here is Rodrik on industrial policy:

    Industrial policy an be viewed as a “coordination device” to stimulate socially profitable investments, In particular, the socialization of investment risk through implicit bailout guarantees my be economically beneficial despite the obvious moral hazard risk it poses (pp27).

    …a credible, sustained real exchange rate depreciation may constitute the most effective industrial policy there is (pp48).

    Strategies that emphasize industrial policy are appropriate when private returns are depressed not by the government’s errors of commission (what it does), but its errors of omission (what it fails to do) (pp84)… Industrial policy will work when private returns are low because of informational and coordination failures (pp95).

    Tuesday, February 3, 2009

    Climate change and scientific paper from developing countries

    Here is an interesting article:

    To investigate the impact of temperature on innovation the team assessed the number and quality of scientific papers published from 1980–2003.

    Poor countries produced fewer scientific papers in hot years — a rise of one degree Celsius was associated with a nine per cent drop in the number of papers published.

    This suggests that higher temperatures impede innovation and that over time this could widen the gap between rich and poor countries.

    The study also found that a temperature rise of one degree Celsius correlated with a 1.1 per cent decrease in economic growth in the same year.

    Full article here.


    Monday, February 2, 2009

    Open Budget Index 2008

    The Open Budget Initiative published Open Budget Index 2008, which evaluates the quantity and type of information available to the public in a country’s budget documents. According to the report France, New Zealand, South Africa, the UK, and the US provide extensive information about annual budget to the public. The average score for 85 countries surveyed is 39 (out of 100= extensive information). Countries like China, Cambodia, DRC, Nicaragua, Sudan, Saudi Arabia, and Nigeria have poor index value, which shows that they provide scant or no budget information to the public. This alone shows how accountable are these governments their people! The report notes that in Nepal, Kenya, Sri Lanka, and Croatia the process became much transparent due to pressure from the civil society. The role of civil society in this process is very important, especially in the developing countries.

    Key findings:

    • 80 Percent of Governments Don’t Account for Spending

    • The worst performers tend to be low-income countries and often depend heavily on revenues from foreign aid or oil and gas exports.
    • Many poor performers have weak democratic institutions or are governed by autocratic regimes.
    • Almost all countries publish the annual budget after it is approved by the legislature.  However, in China, Equatorial Guinea, Saudi Arabia, and Sudan, the approved budget is not published, completely preventing the public from monitoring its implementation.
    • Most countries provide much less information during the drafting, execution, and auditing stages of the budget process.  This prevents the public from having input on overarching policies and priorities, improving value for money and curbing corruption.
    • In many countries the supreme audit institutions do not have sufficient independence or funding to fulfill their mandate, and often there are no mechanisms in place to track whether the executive follows up on audit recommendations.
    • In Croatia, Kenya, Nepal, and Sri Lanka, significant improvements either were influenced by the activities of civil society groups or have created opportunities for greater civil society interventions. Important improvements in budget transparency were also documented in Bulgaria, Egypt, Georgia, and Papua New Guinea.

    Sunday, February 1, 2009

    Computer and Competition: From $100 laptop to $10 laptop

    First, Nicholas Negroponte started the OLPC program that made headlines around the globe. It was initially projected to cost around $100 but costs now shoot up to $200. Then, Intel came up with its own low-cost computer “Classmate” seeing a large untapped market in the developing countries. Then came other low cost laptops in the range of $200-400. Competition is brewing up pretty fast. ‘Self-discovery’ (information externality) is in action!

    Now, Indian investors and the government are all geared up to introduce a laptop for $10 for education purposes. The government is subsiding $10 on each laptop. If this project kicks in real good in the beginning, then the OLPC project, which is already facing stiff competition and deficient demand, might be…

    The $10 laptop will be equipped with 2 GB of memory, WiFi, fixed Ethernet, expandable memory, and consume just 2 watts of power.

    The unveiling of the laptop will occur at the government's launch of the National Mission on Education through Information and Technology, held next Tuesday in Tirupati. The Indian government is working with publishers to provide e-content on educational subjects which will be available free of cost. The government is also considering a plan to subsidize internet connections for schools.

    Currently, the government is consulting with different production agencies, and hopes to make the computers commercially available in the next six months.

    Fyi, here is one-egg-per-child (OEPC) in Uganda!


    Update: Oops! This seems to cost $100, not $10:

    Early reports of the cheap laptop suggested that it would cost only 500 rupees (£7). However, this could be a mistranslation, because transcripts of the speech, in which it was unveiled, mentioned it costing $10 (£7) but this was later corrected to $100 (£70).

    Even if the finished device costs $100, it will significantly undercut other low cost laptops aimed at the developing world, such as the One Laptop Per Child's XO machine and the Intel Classmate.

    Originally, the XO was intended to cost $100 but the finished version ended up costing about $188 (£131).