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I like to read Jeff Sachs for his alternative viewpoints. He often writes about investment and has recently argued that the problem with both free-market and Keynesian economics is that they misunderstand the nature of modern investment. Both schools believe that investment is led by the private sector, either because taxes and regulations are low (in the free-market model) or because aggregate demand is high (in the Keynesian model).
In Sachs’ alternative view, private-sector investment today depends on investment by the public sector. But investment into what? What types of capital should we be accumulating?read more...»
Globalisation ebbs and flows. There has been remembrance of the events of a century ago, when a rising tide of globalisation suffered a colossal retreat. Many observers watching the aftermath of the world crash of 2008 feared the same. Suddenly the headlines about the world becoming ‘flatter’ and more interconnected gave way to talk of fragmented financial markets, stalled trade talks and growing popular nationalism. Some economists have predicted another era of “deglobalisation”.read more...»
One of the jobs of an economist is to ask this question daily. What else might these resources have been spent on? This concept is known as opportunity cost.
Perhaps the mission can be justified in cost/benefit terms. But maybe it shouldn’t have to.read more...»
The poor countries should catch up with the richer ones, in theory, at least. And between 1988 and 2008, global inequality, as measured by the distribution of income between rich and poor countries, has narrowed, according to the World Bank. But within each country, there has been widening inequality in many poor places.read more...»
Just this week Ben Christopher has blogged that China poised to pass US as world’s biggest economy. It’s an interesting question of measurement, and there’s a long running debate about When will China ‘overtake’ America?
It will be many years yet before China really catches up on a per capita basis, of course. Rather depressingly, I have been wondering if the great catch-up is slowing down. From around 2000 to 2008 poor countries made galloping progress, but they seem to have hit headwinds. Will China also suffer this fate?read more...»
The world's economic order is changing. I struggle with labels for groups of countries. Have you heard of the BRICs, NICs, Next 11, CIVETS, MINTS, LEDCs, MEDCs and the Tigers? Sometimes I feel most comfortable talking about rich countries, poor countries and middle income countries (and when I do, I'm careful to differentiate between economic growth and economic development).
In the years when several large economies appeared to be catching up with the richer nations, the label emerging markets seemed to fit. Those stuck in poverty were then the submerging markets.
I heard a new one (to me) today - a frontier market - it was in an online quiz.read more...»
In 2015, the UN's Millennium Development Goals are expiring and the international community will set new goals. This is a hugely important exercise, so I'm drawn to the discussions as part of the Copenhagen Consensus -
"Effective investments for today’s children are fundamental for a better and more equitable world in the future. The Copenhagen Consensus Centre brings a simple but compelling logic to this endeavor: if we want to make sure that this world is realized for our children, let’s focus on the investments that will generate the most good”.
- Richard Morgan, UNICEF Senior Advisor on the Post-2015 Development Agendaread more...»
One optimistic observation in economics is that poor countries should be able to catch up with the richer ones, since it’s easier to grow from a low level of GDP to a higher one. This observation was made by Nobel-winner Robert Solow in 1956, and is based on the idea that low income countries are poor because their workers have access to less capital. This capital shortage (i.e. insufficient infrastructure) implies that the return on investment should be high, so capital should flow from rich countries to poor ones, leading the two worlds to converge on similar levels of productivity and income.
Furthermore, in this theory, growth in rich countries is driven by new technology which, once developed, could be adopted by poorer economies too. Indeed, the poor could potentially learn from the mistakes made by the rich, and leapfrog directly to more productive ways of doing things.
And so it seemed. From the late 1990s to 2008, poor countries were catching up fast. But that catch up seems to have slowed down (see chart above).read more...»
The Economist have posted a terrific video that takes a tour along the Pearl River in China. As the scenery rolls by, the narrator comments on the extent to which the journey through the surroundings reflects a journey through China's recent economic development.read more...»
Have a read of this fascinating article from the Guardian about the fall in prices for mink fur in China. It struck me that, not only does the article give you several traditional causes of a slump in demand (let's all draw the diagram!) but comes up with a brand new cause of a shift that I've not seen before!
The article suggests that the shift in demand is caused by a warmer than expected winter (tick, weather conditions) and that an increase in the number of educated Chinese people are choosing not to use mink for ethical reasons (tick, change in tastes). It also says that demand has dropped as the Chinese government are clamping down on corporate corruption preventing Chinese directors from accepting luxury goods in return for favourable business decisions - which of our Economics Teacher categories does that fit in?
PS. Look out for the fantastic activity 'Demand Street', which challenges students to work out what change in demand factor is being demonstrated, showcased at this year's Wow Economics Teacher CPD event fro Tutor2u.
In Economics, saving offers something of a puzzle. From some viewpoints, savings are a leakage from the circular flow of income, reducing multiplier effects. And if we all saved - in a determined effort to repay our debts (which sounds like a great idea) – the level of aggregate demand (AD) and economic activity would take a serious hit. This is the famous paradox of thrift.
Yet economies do need saving as a fund for business investment. The Harrod-Domar model is used in development economics to explain an economy's growth rate in terms of the level of saving and productivity of capital (see above). But many economies have a savings gap.
Yet I’ve been reading that adults in developing countries are half as likely to have an account at a formal financial institution as those in the rich world. Only 18% of people in the Middle East and north Africa do, compared with 89% in high-income countries. This makes saving even harder. So economists would like the world’s poorest to save more. That would help them to pay for big or unexpected expenses, such as school fees or medical treatment. It could also boost investment and thus accelerate economic growth.read more...»
The overall rate of infant mortality has been halved in the past two decades.
That's the good news. But Unicef' s latest figures estimate every day 17,000 under-fives die - 6.3 million a year - from largely preventable causes. Most of the deaths happen in the first hours or weeks following birth.read more...»
The growth vrs the environment debate is great for opening a thoughtful discussion about the net benefits of economic growth. Some participants take what might be described as a Kuznets Curve approach to the issue. That might be simply summarised as things get worse to begin with, but after a while they start to improve (OK, I’m simplifying a bit here). In environmental terms, you might illustrate this with the Peak Stuff idea. For several years now, the UK economy’s total consumption of physical resources has been falling. In the past, growth made our economy more and more damaging to the environment. But future growth might have far less of an impact, and even contribute to significant environmental improvements.
What about tropical forests, which observers in the last decades of the 20th century noted were under severe threat? The Economist newspaper seems to take an optimistic view. Future growth may have far less worrying consequences for tropical forests.read more...»
This west African health crisis is a tragedy. It could be an issue that stimulates an economics discussion. According to James Surowiecki in The New Yorker there are no real tools to stop the deadly Ebola outbreak in West Africa. The lack of treatment is disturbing. But given the way drug development is funded, it’s also predictable.read more...»
Will the best place to live - as identified by the Economist newspaper - be found in the country with the highest GDP per capita?read more...»
Download this engaging teaching resource to test student awareness of the international competitiveness rankings!
You may have already seen Geoff's blog on the newly released International Competitiveness Index. The World Economic Forum annually release its table of competitiveness using a variety of data measures including economic performance, quality of education and labour efficiency. The UK has moved up to 9th in the World.read more...»
According to The Economist there is a long history of efforts to distinguish products that have been made more ethically than others. In the late 18th century, anti-slavery campaigners urged British consumers to boycott sugar from the West Indies in favour of supplies from India. Today’s fair-trade movement took off in the 1960s, mostly in religious organisations that wanted to help the poor, whom they saw as losers in the global trading system. Fair Trade is a really important issue for discussion.read more...»
At the end of last term all our year 12's were set the task of writing a short article about a different developing country. They were tasked with covering:
- Key information- e.g. GDP, HDI, Gini coefficient, indicators of level of poverty/development
- What factors are limiting growth & development in this country
- How is the government and other stakeholders trying to promote growth & development in this country
- How successful have they been so far?
I have collated all these articles together into an e-book which teachers and students studying development economics should find very useful to make use of as part of the course.read more...»
Western Union and MoneyGram dominate the money transfer industry and the high level of fees that these companies has been heavily criticised in recent years. This is an important article given the huge scale of remittance transfers in the world economy to relatively poor countries such as India, the Philippines and many sub Saharan African nations.
Click here for an info graphic on remittances produced by the World Bank: http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/E...
Here is a really excellent blog on the issue of growth divergence - Simon Taylor contrasts the historical growth records of the United States versus Argentina and then South Korea against Ghana. The accompanying charts reveal starkly the widening gap in GDP per capita between each pair of countries over the very long term.
I will be following Simon Taylor's blog as the new school year comes into focus http://www.simontaylorsblog.com
Tata Group, perhaps best known in the UK for its ownership of Jaguar Land Rover (JLR) and Corus, has set out ambitious plans to invest $35bn in capital spending over the next three years as part of its vision for the next 10 years.read more...»
This is an absolutely outstanding article to use when introducing development economics to a level students. The work of Hausmann and Hidalgo on complexity and economic development is becoming more widely recognised and used in schools. Hausmann's article here in Project Syndicate emphasises the importance of building capabilities within an economy to promote the growth of higher value added industries. Here is the link to the article: https://www.project-syndicate.org/commentary/ricar...
The Russian central bank has raised their main policy interest rate by 0.5% to a new level of 8% in a bid to control inflationary pressures in the Russian economy.read more...»
Each year the Human Development Report published by the United Nations gives a special focus on a particular issue related to development. In 2014 that issue is vulnerability.
To quote from the opening of the report:
"Real progress on human development, then, is not only a matter of enlarging people’s critical choices and their ability to be educated, be healthy, have a reasonable standard of living and feel safe. It is also a matter of how secure these achievements are and whether conditions are sufficient for sustained human development. An account of progress in human development is incomplete without exploring and assessing vulnerability."read more...»
According to The Economist, the great commodity boom caused by the industrialisation of China and India provided an unprecedented boost to the terms of trade (defined as the ratio of the price of its exports to that of its imports). Yet now the commodities boom may be running out of steam, these countries face a challenge.read more...»
The Philippines has enjoyed a period of rapid economic growth in recent years and attracted increasing attention as one of the fast-growing economies of South East Asia. Can this growth be sustained? What are the risks, challenges and the constraints facing the country? And how can the benefits of growth contribution to a transformation of economic and human development? This blog provides links to some useful resources:read more...»
Data on export patterns for goods from countries around the world provide a fascinating window on the degrees of complexity that nations have achieved. There is growing interest in the significance of knowledge capital or know-how in lifting productivity, competitiveness and improving trade performance for economies at different stages of development. Below is my selection of countries.
There then follows links to videos from Cesar Hidalgo and Riccardo Hausman on their theory of productive knowledge - and in particular how it is acquired at the level of the individual, the level of organizations, and cities, regions, countries and societies.read more...»
In these short interviews with the Financial Times, economist Gerard Lyons highlights some of the key drivers of the global economy and he paints a fairly positive picture of the prospects for developed countries in an ever-changing world economy. In the second interview, Gerard Lyons, 'The Consolations of Economics' author, discusses with John Authers whether the system is safely retuned, and whether it can boldly go into a universe of greater growth opportunities.
Observer review (3 August 2014): http://www.theguardian.com/books/2014/aug/03/conso...
Independent review (July 2014): http://www.independent.co.uk/arts-entertainment/bo...
Evening Standard: http://www.standard.co.uk/comment/gerard-lyons-lon...read more...»
Now that England have made their rationally-predicted (but irrationally-disappointing) exit from the World Cup, who else are we to support? As economists, we need a rational basis on which to make that choice, from a rapidly declining set of options. Help is at hand, in the form of a new index supplied by an economist at Yale University. In a paper published last week in the New York Times, Dean Karlan suggests that we should root for the outcome that will produce the largest aggregate increase in happiness.read more...»
With World Bank Group support, millions of Rwandans are on their way to integrating to regional power and transport networks, boosting their agricultural productivity, and delivering results for their families. This is a short info graphic video from the World Bank together with some related links to useful resources on the Rwandan economy.read more...»
I am often writing blogs on the debate over the limitations of GDP as a measure of economic and social progress, most recently with coverage of the Social Progress Index. Here’s another approach, the Good Country Index. It's a deceptively simple concept, yet quite powerful.read more...»
Christine Lagarde is Managing Director of the International Monetary Fund. She was appointed in July 2011. This blog links to the 2014 Amartya Sen lecture given at the LSE in the summer of 2014 on the topic of empowerment and in particular how women can build capacity and capabilities in countries seeking durable development - see also this blog from Mrs Lagarde in September 2013: http://blog-imfdirect.imf.org/2013/09/23/lagarde-w...read more...»
This new short video from the World bank looks at the economic benefits that flow from investment in an improved road network in Senegalread more...»
Although Indonesia has experienced significant growth and development, not everyone has benefitted. This short video from the World Bank offers a personal story. Followed by up a July 2014 blog from BBC Global Business on the rise of the wealth elite in Indonesia.read more...»
The varied nature of Economics means there are so many (sometimes it can seem too many) themes to explore. And priorities change. Sometimes the main issue is production (making more stuff – and how the value of that is measured). Sometimes it’s exchange (looking at how markets work). Yet distribution (often overlooked, especially when economies are booming) seems the hottest topic at the moment. Inequality tops the bestseller lists.
Here are a few tips and links for using the topic as an intro to A2 economics, great for macro, with scope for analysis and evaluation of UK government policy and approaches to development economics.read more...»
Here is a selection of development data for Cambodia put into context with a selection of other Asian countries, drawing on published data from the Asian Development Bank. This blog will be added to shortly with summary notes on the economy and links to other useful resourcesread more...»
Drawing on data from the 2013 Human Development Report, here are the 24 countries in the 2014 World Cup ranked according to the Human Development Scoresread more...»
This question gives students a superb opportunity to explore the debate surrounding economic growth in in the leading advanced nations of the global economy. It ties in well with research into the effects of globalisation and the legacy from the financial crisis. I have put together some reading and short video clips that might be relevant to the discussion:
Secular stagnation: (or .... growth pessimism!)
"Secular stagnation refers to the idea that the normal, self-restorative properties of the economy might not be sufficient to allow sustained full employment along with financial stability without extraordinary expansionary policies. The idea was put forth first by Alvin Hansen in the late 1930s." (Source: http://www.washingtonpost.com/blogs/wonkblog/wp/20...)
One common interpretation is that - if we are in an age of secular stagnation - and this is an idea that might just be wrong! Maintaining demand often requires extensive periods of ultra loose monetary policy which in turn can create fresh bubbles in property and equity markets.
Is the secular stagnation argument too pessimistic? Can advanced economies rev up the engine of growth once more perhaps by using structural reforms to boost their competitiveness and drive new investment?read more...»
Here is the recording of Geoff's webinar for A2 Econ students which focused on key aspects of the international & global economy, including a focus towards the end on development economics.read more...»
You’ll often hear it said that Britain, or the world, is ‘overpopulated’, but that’s a very hard concept to pin down. Hostility to migrants into the UK is high, yet economists often argue we need more immigrants.
One Labour MP, Stella Creasy, has stirred controversy by saying “talk to Nigel Farage not just about the immigrants who come here and create jobs, but the immigrants who come here and create skills and create opportunities for people and create new ideas for people. There are now more people over the age of 65 than under the age of 16 in Britain. So unless women like me have a lot of children very quickly our ability to sustain our economy (and) to sustain our public services will come under threat”.
So do extra people add to the economy or subtract from it? I’ve put together a few links and ideas.read more...»
The first title in the list of six available to RES entrants is a challenging one!
Promoting growth and fighting poverty should be the priority in the developing world, not reducing greenhouse gases.” Do you agree?read more...»
This blog entry will feature frequently updated revision resources on economic growth trade and development aspects for a range of sub Saharan African countriesread more...»
Mozambique has discovered large amounts of natural gas - can the extraction of this act as a catalyst for economic growth and development or will Mozambique be added to the long list of countries who have experienced a natural resource curse?
Manuel Chang, Mozambique's minister of finance, says economic growth is only part of the story of a country's development. He tells Javier Blas of the Financial Times how his nation plans to make the most of its vast natural resources.
Manufacturing output in the African continent accounts for less than 2% of global manufacturing production.read more...»
I am really grateful to Bob Denham from Econ Films who has shared with us this newly launched video from the International Growth Centre. It focuses on the competitive challenges facing Pakistan's football manufacturing sector as it loses market share to countries such as China and Indonesia. Footballs in Pakistan are still made mainly by hand, stitching together hexagons and pentagons - a process that leads to a lot of waste and higher unit costs and which then affects the profitability of businesses in what is already a low-margin sector.
Could a team of economists find better ways of cutting the patterns for footballs and then align the incentives of workers and owners? This is a fascinating short video which captures many aspects of the Unit 4 development economics course. Enjoy!read more...»
Guinea has agreed a huge new capital investment framework with a number of transnational partners including Rio Tinto and Chinalco to develop one of the world's biggest iron ore assets. This is a project that may double the country's GDP not least because as well as mining the iron ore, there is a proposal to seek funding to construct a 650km railway and a deep-water port to transport the rocks and minerals.
It is one of those examples that comes along every once in a while that prompts both students and teachers to re-visit the economics of large scale foreign direct investment projects. Is this nation building of the old style? Or is the proposed investment framework one that could be genuinely transformative for one of the world's poorest countries?
- Forecast of 45,000 new jobs created across the entire project
- State of Guinea will retain 15% of any proceeds from the mine
- In exchange, the joint venture with Rio Tinto / Chinalco will enjoy eight years' tax free operations in the country
- Production at the Simandou mine is expected to start within five years
- It will be Africa's biggest mine
Here is a short interview in which it is argued that China will increasingly focus on the quality of growth rather than the quantity. A Chinese slowdown may affect countries that have exported to China more than China itself.read more...»
This short World Bank info-video looks at what $1 buys in China. In China, over 98 million people live on less than 6.3 yuan ($1) per day.read more...»
It is a staggering statistics, but around 3 billion people in the world cook and heat their homes using open fires and simple stoves burning biomass (wood, animal dung and crop waste) and coal. Over 4 million people die prematurely from illness attributable to the household air pollution from cooking with solid fuels. And more than 50% of premature deaths among children under 5 are due to pneumonia caused by particulate matter (soot) inhaled from household air pollution. This short World Bank video looks at the subsidies available to stove manufacturers under the Clean Stove Initiative.read more...»
There has been huge interest in the new book by Thomas Piketty entitled "Capital in the 21st Century". This blog entry will link to some reviews, news articles and short videos on Piketty's ideas and policy prescriptions. In "Capital," French economist Thomas Piketty explores how wealth and the income derived from it magnifies the problems of inequality. At the heart of it is a simple equation R > G - the rate of return on capital is higher than the rate of economic growth. Naturally there is a fierce debate about the data and his methodology!
Recent news articles:
Are we living in the second gilded age? (Linda Yueh, BBC)
Review of "Capitalism in the Twenty First Century"(The Independent)read more...»
Here are some resources on the newly created Pacific Alliance which - in the short run - has achieved significant tariff reductions but which in the long run seeks to create a new economic community / single market in the region.read more...»