Author Archives: jdingel

Running to the hills

Very interesting work on African geography and development by Nathan Nunn & Diego Puga:

In Africa, between 1400 and 1900, four simultaneous slave trades, across the Atlantic, the Sahara Desert, the Red Sea and the Indian Ocean, led to the forced migration of as many as 18m people. The economies they left behind were devastated: political institutions collapsed, and societies fragmented.

For African people fleeing this slave trade over the centuries, rugged terrain was a positive advantage. Enslavement often took place through raids by one group on another, and hills and mountains provided plenty of lookout posts and hiding places (caves, for example) for those trying to escape. In general, countries with flatter, more passable terrain lost more of their population to the traders.

Today, however, that same geographical ruggedness is an economic handicap, making it expensive to transport goods to port; raising the cost of irrigating and farming the land; and simply making it more expensive to do business… hundreds of years of flight from the slave trade has left the African population disproportionately concentrated in hilly areas…

So the slave trades left a doubly toxic economic legacy in Africa: not only did they devastate the population in many areas, with long-lasting impacts which still persist centuries later; they also left the African population concentrated in areas which make contemporary economic development harder.

From the non-technical column. Technical discussion paper.

Doha dissection

It’s tough to pull off a track stand. The Doha round is falling over, says Simon Evenett:

It was bad enough when the Doha Round of trade negotiations was deadlocked; now there are dangerous signs that what progress has been made is unravelling. Over the past four weeks the leading trading powers have moved backwards from a number of established positions. Either senior trade negotiators are planning an extraordinarily welcome summer surprise or they are positioning themselves for the blame game when the music finally stops.

Evenett is disturbed by this state of affairs, arguing that Doha needs to be completed before the US presidential election in 2008, as trade liberalization never does well on the campaign trail. He says “procrastination is a luxury WTO members cannot afford.”

On the other hand, procrastination looks like the most likely outcome. I doubt any serious progress will be made this summer. And so does Evenett, I suspect, given that most of his column reads more like an autopsy than a prescription to save the patient. Many are already thinking of the aftermath:

[S]talemate looms. Much depends on how the associated media game is played. Maybe a graceful way will be found to conclude the negotiations without an agreement? Maybe senior trade negotiators and WTO officials will argue for continuing the talks after an 18-24 month hiatus? Or will the talks collapse into irreparable acrimony? Much depends on how the major trading powers fancy their chances at the “blame game.” Indeed, I often wonder if the current tactics of some trading nations are aimed at completing the Doha Round or aimed at positioning themselves for the next multilateral trade negotiation.

Read the full piece for a number of insights into the last month or so of trade (non-)negotiations.

[Apologies for mixing bicycling and medical metaphors throughout. I blame Tom Friedman. 🙂 ]

Stiglitz on “the old boy system”

Joe Stiglitz has a few questions for Robert Zoellick:

Presidential appointments to senior posts in America’s government are subject to open hearings. Regardless of whether the old boy system is preserved – but especially if it is – the Bank’s Board should likewise conduct open hearings on Bush’s nominee to succeed Wolfowitz. Here are some of the questions – with some hints at right and wrong answers – that it should ask any proposed candidate for the Bank’s presidency, including Bush’s nominee, Robert Zoellick:

Do you believe that the president of the World Bank should put the interests of developing countries first? Will you press for Europe and America to eliminate their agricultural subsidies? Will you advocate a development round that emphasizes liberalization of labor markets more than capital markets, elimination of non-tariff barriers that keep developing countries’ goods out of advanced industrial countries, and abolition of so-called “escalating tariffs,” which impede development? Will you be open to research even when that research shows that policies of the advanced industrial countries may, at least in some circumstances, not be in the interests of developing countries?…

The old boy system of choosing the head of the World Bank must go. It has done enough damage. But if the advanced industrial countries that control the Bank refuse to stand by their principles, at least they should give a nod to greater transparency. The world should know what it is getting. Open hearings would be a step in the right direction.

Stiglitz on "the old boy system"

Joe Stiglitz has a few questions for Robert Zoellick:

Presidential appointments to senior posts in America’s government are subject to open hearings. Regardless of whether the old boy system is preserved – but especially if it is – the Bank’s Board should likewise conduct open hearings on Bush’s nominee to succeed Wolfowitz. Here are some of the questions – with some hints at right and wrong answers – that it should ask any proposed candidate for the Bank’s presidency, including Bush’s nominee, Robert Zoellick:

Do you believe that the president of the World Bank should put the interests of developing countries first? Will you press for Europe and America to eliminate their agricultural subsidies? Will you advocate a development round that emphasizes liberalization of labor markets more than capital markets, elimination of non-tariff barriers that keep developing countries’ goods out of advanced industrial countries, and abolition of so-called “escalating tariffs,” which impede development? Will you be open to research even when that research shows that policies of the advanced industrial countries may, at least in some circumstances, not be in the interests of developing countries?…

The old boy system of choosing the head of the World Bank must go. It has done enough damage. But if the advanced industrial countries that control the Bank refuse to stand by their principles, at least they should give a nod to greater transparency. The world should know what it is getting. Open hearings would be a step in the right direction.

Globalization and procedural fairness

Dani Rodrik explains globalization anxiety:

There is plenty of evidence that suggests that people are concerned about globalization not (just) because their pocketbooks are adversely affected but because they do not think its outcomes are right or fair. Issues of labor rights, environment, and pharma patents excite people because of the sense that the rules are not right. Economists may struggle with the term, but “fairness” in trade does resonate with most others. People do not seem to mind that technological progress makes the Sergey Brins and Bill Gates’s of the world multi-billionaires—because this kind of inequality seems somehow to fit with people’s moral code of what is acceptable. The inequality you get when a corporation fires a long-term employee to employ an (almost) equally productive Chinese at one-tenth the wage is viewed differently. It is not just about inequality, but also about procedural fairness.

If people oppose greater economic integration not primarily out of concern for the economic and social costs of labor market churn, but rather because they think there is something morally wrong with firing an American employee to hire a foreigner at a lower wage, then I have little sympathy for them. What’s procedurally unjust in (bilateral) employment at will? And why does crossing a national border bring greater scrutiny?

If downsizing and income inequality are tolerated at home, but outsourcing and foreign investment are met with hostility, then “people’s moral code of what is acceptable” strikes me as insufficiently cosmopolitan.

Is Rodrik merely describing the emotions underpinning globalization anxiety, or is he defending the American nation as the relevant moral community? He’s previously said he believes “cosmopolitan considerations should enter our calculus when the gains abroad (or to foreign nationals) are sufficiently large.” We know the gains are large in China.

In considering technological-induced inequality versus outsourcing-induced inequality, I think cosmopolitan considerations are sufficient to demand consistency between the two. If so, then heeding calls to “tinker with the rules of globalization” in response to this brand of public anxiety would amount to yielding to an ignoble instinct.

Selected NBER readings

Having only completed my exams on Wednesday, I haven’t had time to read many papers in the NBER’s latest batch of releases, but here are some abstracts that caught my eye:

NYU’s Jan De Loecker says that previous studies have overestimated the productivity impact of trade liberalization by using sales data as a proxy for output. He models demand explicitly and finds a productivity impact that, while still positive, is smaller than the typical estimates. Ungated pdf.

Torsten Persson & Guido Tabellini estimate the impact of political transitions on growth using semiparametric techniques and are more pessimistic about democratization than other studies. “In particular, we find an average negative effect on growth of leaving democracy on the order of -2 percentage points implying effects on income per capita as large as 45 percent over the 1960-2000 panel.” Ungated pdf.

Jiandong Ju & Shang-Jin Wei: “While financial globalization always improves the welfare of a developed country with a good financial system, its effect is ambiguous for a developing country with an inefficient financial sector/poor corporate governance. However, the net effect for a developing country is more likely to be positive, the stronger its property rights protection. This is consistent with the observation that developed countries are often more enthusiastic about capital account liberalization around the world than many developing countries.” NBER W13148.

Paul R. Bergin, Robert C. Feenstra & Gordon H. Hanson develop a stochastic model of outsourcing to explain fluctuations in value added for outsourcing industries in Mexico. Ungated pdf.

Re-coupling

Agricultural reform in the wrong direction:

Rep. Colin Peterson [D-MN], House Agriculture Committee chairman… has suggested increasing most of the price-linked subsidies, and paying for the increase out of the money currently allocated for direct subsidies that farmers receive regardless of production or market prices… While paying farmers “money for nothing” may be fiscally irresponsible, it is less market distorting than the types of subsidies that Chairman Peterson is proposing to increase.

Peterson’s proposal would cause the US to fall behind the EU in decoupling agricultural subsidies and expose the subsidy programs to further litigation at the WTO’s dispute settlement panel.

Trade & inequality

For more on the topic of compensating globalization’s losers, here’s Paul Krugman:

In 1995 I also believed that the effects of trade on inequality would eventually hit a limit, because at a certain point advanced economies would run out of labour-intensive industries to lose – more formally, that we’d reach a point of complete specialisation, beyond which further growth in trade would have no further effects on wages. What has happened instead is that the limit keeps being pushed out, as trade creates “new” labour-intensive industries through the fragmentation of production…

What all this comes down to is that it’s no longer safe to assert, as we could a dozen years ago, that the effects of trade on income distribution in wealthy countries are fairly minor. There’s now a good case that they are quite big, and getting bigger.

This doesn’t mean that I’m endorsing protectionism. It does mean that free-traders need better answers to the anxieties of those who are likely to end up on the losing side from globalisation.

Full column.

This is a hot topic in the policy world, so if you don’t yet have a dissertation proposal, you might consider it…

Why compensate the losers in trade liberalization?

Julian Sanchez attacks trade protectionism:

Here’s a modest proposal, then: Let’s permit whatever restrictions on trade and globalization people like, but with the “winners” under those rules compensating the “losers” via some sort of special targeted tax. We’ll levy this on the workers and stockholders enriched by whatever form of protection from international competition they want to demand, and cut a check to workers, stockholders, and consumers in other sectors that would have benefited from lower prices or operating costs as a function of trade and outsourcing, in the amount of whatever the benefit to them would have been of less restricted trade…

The key thing to bear in mind here is that there’s nothing morally special about the level of globalization in 2007 or 1990 or 1970 as some kind of special baseline. We talk about “winners” and “losers” relative to some status quo ante where there happened to be a different level and pattern of globalization, but the point of comparison is—from the point of view of justice, if not realpolitik—arbitrary. Which is why compensations from the “winners” to “losers” under protectionism makes as much sense—probably more—than the parallel sort of compensation as globalization increases. The only reason to think otherwise is to suppose we’re specially and permanently entitled to the pattern of holdings we’d have at some particular but arbitrary level and kind of globalization.

Theory aside, given the strength of status quo bias, adjustment assistance or some other form of compensation is politically necessary to make trade liberalization feasible. Paying people to overcome their status quo bias echoes the political necessity of paying people to overcome another bias:

It is tempting to argue… that all changes require adjustment, and that assistance should be provided in a generic fashion… This viewpoint is valid in a cosmopolitan world… However, in the real world, the refusal to accept change – and hence the need to accomodate it and facilitate it through adjustment assistance – is greater when the source of disturbance is foreign… The case for differential adjustment assistance rests on this asymmetry in communities’ attitudes toward change from foreign and domestic sources. [Bhagwati, Protectionism, p.118-9]

Trade adjustment assistance facilitates liberalization by dampening both of these biases. But it might not if the general public knew its effectiveness.