Author Archives: jdingel

Millennium Development Goals: Who's in charge here?

The table in today’s Vox column by Helmut Reisen illustrates the lack of accountability in development assistance — when everyone is responsible, no one is.


Table 1 Unclear institutional assignment to the MDGs

Selected multilaterals working on the Millennium Development Goals
MDG / Thematic area Main multilaterals Other multilaterals with a role
MDG1: Eradicate extreme poverty and hunger UNDP, World Bank, AfDB, AsDB, IFAD, EC, FAO, WFP CGIAR, IADB
MDG 2: Achieve universal primary education World Bank, UNICEF, UNESCO UNFPA, UNRWA
MDG 3: Promote gender equality and empower women UNDP, World Bank, UNIFEM, UNICEF UNFPA
MDG 4: Reduce child mortality WHO, UNFPA, UNICEF World Bank, WFP, UNRWA
MDG 5: Improve maternal health WHO, UNFPA World Bank, WFP
MDG 6: Combat HIV/AIDS, malaria, and other diseases UNAIDS, World Bank, WHO, UNDP, UNFPA, UNICEF UNIFEM
MDG 7: Ensure environmental sustainability UN Habitat, World Bank, AsDB, UNDP CGIAR, UNIDO
MDG 8: Develop a global partnership for development World Bank, EU, UNDP, UNIDO, ILO, UNCTAD UNDP
Human rights OHCHR UNIFEM
Conflicts and humanitarian emergencies UNCHR, OCHA, ECHO, WFP, UNICEF, WHO UNDP

Source: OECD Development Centre, “Financing Development: Whose Ownership?”, Paris, 2008, Chapter 2.

Japan should open up to rice imports

Japan should have long ago slashed its absurdly high rice tariffs. Michiyo Nakamoto reminds us in the FT why liberalization is in Japan’s and others’ interests:

Japan is one of the world’s largest importers of food products. The country that brought the world miso soup, tofu and soya sauce produces only 20 per cent of the soyabeans that go towards making these daily staples.

Japan’s dependence on imported food has grown so much over the years, along with the westernisation of its eating habits, that food self-sufficiency measured by calories consumed has tumbled from 79 per cent in 1960 to 40 per cent today…

Japan has taken a fiercely protectionist stance over rice, imposing tariffs of 778 per cent on imports… it has left the long-term viability of Japan’s rice sector under serious question. The failure to introduce market efficiencies has meant that despite Japan’s high rice prices, rice farming is so unprofitable that few young people are willing to take it on. As a result, more than half of rice farmers are in their 70s and most of them only produce rice part-time.

What is more, only 60 per cent of the land available for use as rice paddies is actually being used and as ageing farmers retire, this proportion is expected to fall. If the situation is left unchecked, Japan’s rice crop could plunge from an annual 8.5m tonnes to about 4m tonnes, says Akio Shibata, director of the Marubeni Research Institute. Mr Shibata worries that even if Japan opened its market to rice imports, it might not be able to procure all the supplies it needs, given recent global trends…

The issue is not just a matter of feeding the Japanese population. As one of the world’s largest food importers, Japan’s lack of food self-sufficiency could have a potentially damaging impact on supplies for other countries with less buying power… As a country that relies so heavily on food imports, Japan needs to play its part in ensuring stability in global food trade.

Building blocks vs stumbling blocks in Latin America

A new discussion paper by Antoni Estevadeordal, Caroline Freund, and Emanuel Ornelas says that regional trade deals amongst Latin American countries have been building blocks for multilateral liberalization — “there is strong evidence that preferences induce a faster decline in external tariffs in free trade areas“.

This contrasts with Nuno Limão’s results for the United States and Europe, where “multilateral tariff reductions in PTA goods were smaller than those in similar goods not imported from PTA partners.”

Do US PTAs pave the way for subsidized exports?

I question Oxfam’s critique of the (yet-to-be-implemented) preferential trade agreement between Peru and United States. Oxfam’s Song of the Sirens report alleges:

According to the agreements signed, Colombia and Peru ‘shall not apply any price band system to agricultural goods imported from the United States’, thereby leaving national producers unprotected and exposed to the mercy of duty-free US imports.
US insistence on the dismantling of the price band system leaves the Andean countries with no alternative means of protection to counteract the effects of US subsidies [emphasis added]. It is also further evidence of double standards in US foreign trade policy. Oxfam believes that, insofar as the USA continues to provide extensive subsidies which lead to unfair trade practices, it should uphold the protection mechanisms used by developing countries to safeguard their most vulnerable domestic sectors.

The agreement’s Chapter 8, Section B:

1. Each Party retains its rights and obligations under the WTO Agreement with regard to the application of antidumping and countervailing duties.

2. No provision of this Agreement, including the provisions of Chapter Twenty-One (Dispute Settlement), shall be construed as imposing any rights or obligations on the Parties with respect to antidumping or countervailing duty measures.

So if the United States wrongly subsidizes agricultural exports, why can’t Peru just impose countervailing duties? As far as I know, CVDs can be applied to anything that isn’t green box. Oxfam’s report doesn’t mention CVDs — surely it should have. Can anyone explain their claim? Are US PTAs really paving the way for subsidized agricultural exports?

Blame game fact check!

After seeing Paul Krugman say that the collapse of Doha is less troublesome than the 2002 steel tariff, Brad DeLong starts the blame game:

I remember Glenn Hubbard, Larry Lindsey, Greg Mankiw, and company all saying that Bush had to impose his steel tariffs in 2002 as a price for getting fast-track authority so that he could successfully complete… the Doha Round.

When and where did they say it? Here’s a WaPo review of how it played out:

R. Glenn Hubbard, then chairman of Bush’s Council of Economic Advisers, drafted detailed analyses against the tariffs, including state-by-state job losses that he forecast for manufacturing…

then-Treasury Secretary Paul H. O’Neill expressed philosophical opposition to tariffs, but he was more interested in opening talks with allies on limiting steel production capacity abroad.

At a crucial meeting of the economic team, tariff opponents said they were abandoned. O’Neill sent his undersecretary for international affairs, John Taylor. Then-Budget Director Mitchell E. Daniels Jr. told Hubbard, who also has since left the administration, that he would back him, but left the meeting before Hubbard’s presentation. And Lawrence Lindsey, the famously opinionated chairman of the White House National Economic Council, decided his role was to facilitate the discussion, not express an opinion.

Perhaps most importantly, former Bush economic advisers said, Robert B. Zoellick, the U.S. trade representative, supported the tariffs, figuring that backing them would win congressional votes to give Bush “fast track” trade negotiation powers.

So we can indict Zoellick. And Lindsey and O’Neill can be blamed for being too passive. In fact, an article in the Sunday Times (“Steeling away,” 10 March 2002) makes it clear that Lindsey was on board:

“Instinctively, I am a free trader. But in the case of steel, the free-trade argument is tough to make. Tariffs are never my first choice, but the second, third and fourth choices weren’t too good either.”

And what about the electoral politics? “I’m sure that never entered the calculus,” says Lindsey, his broad smile giving him away.

Also blame Karl Rove and Commerce Secretary Donald Evans, who fought Hubbard, according to this NYT story.

Greg Mankiw was not in the administration at the time, and Factiva and Google return no relevant results for Mankiw + steel in 2002. When did he say something in support of the steel tariffs?

Blame Rove. Blame Zoellick. Blame Lindsey. Blame Evans. Indeed, Bruce Bartlett blamed them when the tariffs were imposed. But where’s the dirt on Glenn Hubbard and Greg Mankiw?

Naomi Klein loves a binding constraint

Naomi Klein must really dislike international commerce:

Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages… [A footnote? Sheesh, this is the newspaper that employs Tom Friedman, huh?]

“If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars,” said Naomi Klein, the author of The Shock Doctrine: The Rise of Disaster Capitalism. “That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally, and I think that’s great.”

Oil scarcity takes a chunk out of humanity’s production possibilities frontier, and Ms Klein cheers.

[Perhaps Klein is happy because she’s worried about global warming, rather than cheering for the ‘buy local’ movement. In that case, the NYT‘s quotation wasn’t very helpful. But these high oil prices are a symptom of increased demand, not reduced supply, so they are hardly evidence that the world is reducing emissions.]

Regressive US tariffs

Edward Gresser says that US tariffs are disproportionately applied to goods consumed by low-income Americans. Moreover, he says that there aren’t enough low-income Americans working in those industries for the employment benefits to outweigh the consumer costs of “taxing the poor.”

It is only a slight exaggeration to argue that the tariff system has essentially evolved into a tax on clothes and shoes, which generate most of the government’s revenue from tariffs. In 2007, clothes alone accounted for $9.5 billion of the $26 billion in U.S. tariff revenue, shoes added $1.9 billion, luggage and handbags another billion. The cost to the public, magnified by retail markups and sales taxes, is likely about $40 billion a year. It is a burden that disproportionately affects poor and working-class Americans.

Though the tariff system is smaller than other taxes, it is far more regressive. This is because poor people spend a greater share of their income on clothes and shoes than do wealthy or middle-class people. The cheap and simple goods made in poor countries and bought by low-income Americans are subject to far higher tariffs than luxury goods. An acrylic sweater attracts a 32 percent tariff, while a cashmere sweater gets only 4 percent; a polyester bra is tagged with a 17 percent tariff, while one made of silk gets less than three percent; and a cheap stainless steel fork is hit with a 19 percent tariff, while a silver-plated spoon has none at all…

In 1998, high-tariff industries — such as shoes and textiles — employed about 930,000 people in the United States. By 2002, the number had declined to 650,000. Now, with tariff rates unchanged, the figure has dipped to 400,000 U.S. workers. And the highest tariffs are often the least effective. The 48 percent sneaker tariff, for example, falls on a product that has not been made in the United States since the early 1970s. The United States today now finds itself clinging to an antiquated system that hits poor people hardest and protects few if any jobs while stunting growth and discouraging exports from some of the world’s poorest and most vulnerable countries.

Sachs & Warner (1995), again

Defending the $1 trillion estimate of American gains from globalisation he produced with co-authors, Gary Hufbauer writes:

Dani Rodrik took us to task for exaggerating the benefits of globalization. Professor Rodrik long ago established his reputation as a globalization skeptic; today he is the favorite Harvard economist among the backlash crowd. In 1997, Rodrik voiced a critical note in a book published by the Institute for International Economics, Has Globalization Gone Too Far? Two years later, Francisco Rodríguez and Rodrik (1999) [JD: link added] notched their academic guns against Jeffrey Sachs and Andrew Warner (1995), questioning the benefits of liberal trade policy for developing countries. As targets of Rodrik’s latest outburst, we share good company.

Who scored that fight in favor of Sachs & Warner?

Romain Wacziarg & Karen Horn Welch didn’t [UPDATE 1: See Wacziarg’s comments below.]:

Our cross-sectional results confirm recent criticisms of the SW findings by showing that they were sensitive to the chosen openness classification in the 1970-1989 period, and that they no longer hold for the 1990s. In the 1990s, a vast ma jority of the countries in our sample are classified as open, and a simple dichotomous indicator of openness no longer discriminates between slow and fast growing countries. Our findings suggest that researchers should exercise caution when using simple dichotomous policy indicators such as the SW dummy.

Gordon Hanson and Ann Harrison didn’t:

Although these studies typically show a positive relationship between trade reform and productivity growth, most are plagued by serious econometric and data problems. To illustrate the problems with this literature, we examine a popular measure of openness recently introduced by Sachs and Warner (1995). The evidence presented in this paper shows that their measure fails to establish a robust link between more open trade policies and long run growth…

Clearly, however, the Sachs and Warner measure captures many other aspects of openness than pure trade policy… The coefficients on all five factors which were used to construct the Sachs and Warner (“SW”) openness measure are reported in column (2). Out of all the five factors, only one is significant: whether or not the country had a socialist economic system. The results in column (2) seem to suggest that the factor driving statistical significance behind the composite measure is the market structure of the economy, not its trade policy orientation.

Sachs & Warner (1995) has nothing to do with the present Hufbauer et al. vs Rodrik debate, but I don’t think Rodrik did badly in that fight.

UPDATE 1: Romain Wacziarg comments below, noting that his paper actually debunks SW’s measure cross-sectionally but supports the SW dummy and growth relationship in a panel data, fixed effects setting. Admittedly, this boosts Sachs & Warner’s policy conclusion, but I don’t think it vindicates them from Rodrik & Rodriguez’s criticisms. Indeed, Wacziarg & Welch’s write: “We revisited the evidence on the cross-country effects of SW’s simple dichotomous indicator of outward orientation on economic growth, confirming the pitfalls of this indicator first underlined by RR.”

My point is not that the profession scores the debate in favor of Dani Rodrik in terms of policy conclusions (he makes his living as a dissenter), but that Rodriguez and Rodrik were right to argue that Sachs & Warner’s 1995 paper was not econometrically robust. Since no one seems to have refuted RR’s criticisms of the original article, it seems odd for Gary Hufbauer to invoke Sachs & Warner when facing a methodological criticism from Dani Rodrik.

UPDATE 2: Romain Wacziarg writes:

The cross-sectional part surely was fragile, due to the coarseness of the cross-sectional dummy variable. But they [Sachs and Warner] also had a couple of longitudinal regression of the kind
that Karen Welch and I ran more systematically. Those stand up well to the update, and to the Rodriguez and Rodrik critique.

RR did have good points on the methodology, and it’s a good thing to force the profession to work harder. But they also had a substantive point to make about the literature, which was that the growth gains from trade were either zero or not very large. Here I have to part ways with them. I still read the preponderance of the empirical evidence as supportive of large positive effects of openness.

I tend to agree with Prof Wacziarg on the substantive issues, but I’m still less fond of the Sachs & Warner index methodologically. Trade openness is dichotomous, really? Call me an Anderson & Neary kinda guy.