# Acemoglu, Johnson, and Robinson (2001) according to Tim Harford

In a review of Economic Gangsters, Tim Harford dedicates four paragraphs to describing AJR’s “The Colonial Origins of Comparative Development: An Empirical Investigation”  (AER, 2001). An objection and a compliment:

• Harford uses language like “Acemoglu’s study” and “Acemoglu observes.” But he’s not describing Acemoglu’s large body of work; he’s just talking about one particular paper coauthored with two other economists. Such presentation of the research is rather unfair to Simon Johnson and James Robinson.
• Instrumental variables are quite difficult to explain to non-economist audiences, but I think that Harford’s summary does a good job of communicating that colonial history is an instrument rather than “the root of the variance in income levels around the world” (though AJR’s paper itself may blur that distinction). His narrative emphasises that institutions shape economic growth and appropriately confines the discussion of settler mortality to its effect on institutions.

# Food prices still 60% higher than 18 months ago

The FT says that the food crisis isn’t over.

This video from February documents how Zimbabweans turned to digging up gold from rivers once shops no longer accepted the government’s currency. A tin of grain cost .1 grams of gold (approximately $3). Inflation has begun to subside as Zimbabwe’s government now allows shops to quote prices in foreign currencies, notably the US dollar. # Where does Dambisa Moyo get her poverty rate data? Columbia’s John McArthur says that Dambisa Moyo has claimed that “in the 1970s 10 percent of the population [in Africa] was living in dire poverty. That number is now over 70 percent.” She’s been quoted by Bloomberg as saying that Africa’s “poverty rate doubled between 1981 and 2002.” Niall Ferguson’s foreword to her book says “between 1970 and 1998, when aid flows to Africa were at their peak, the poverty rate in Africa actually rose from 11 per cent to a staggering 66 per cent.” (One review subsequently misquoted this as 1970-78.) World Bank numbers (from Shaohua Chen and Martin Ravallion) say the African poverty rate was 50% in both 1981 and 2005 (the rate rose during the 1980s and fell in more recent years). That contrasts starkly with the Bloomberg quotation. I’m having trouble finding any estimates of the poverty rate prior to 1981. Please leave suggestions in the comments. But if Africa’s poverty rate jumped from 10% to 50% during the 1970s, that would be a story worth a book of its own. Counting the poor is not an easy task, but at first glance, something appears seriously wrong with Moyo’s poverty statistics. # 30 years of World Development Reports Here’s an interesting book description: Since 1978, the World Bank’s annual World Development Report (WDR) has provided in-depth analysis and policy recommendations on a specific and important aspect of international development from agriculture, the role of the state, economic growth, and labor to infrastructure, health, the environment, and poverty. In the process, it has become a highly influential publication that is consulted by international organizations, national governments, scholars, and civil society networks to inform their decision-making processes. In this essay, Shahid Yusuf examines the last 30 years of development economics, viewed through the WDRs. The essay begins with a brief background on the circumstances of newly independent developing countries and summarizes some of the main strands of the emerging field of development economics. It then provides a sweeping examination of the coverage of the WDRs, reflecting on the key development themes synthesized by these reports and assessing how the research they present has contributed to policy making and development thought. The book then looks ahead and points to some of the big challenges that the World Bank may explore through future WDRs. The essay is followed by five commentaries, each written by a distinguished economist or development practitioner, which further explore this terrain from different perspectives. Together, the contents of this volume provide an extraordinary and remarkably compact tour of development economics through, around, and beyond the WDR. It will be invaluable to anyone interested in the evolution of development economics over the past three decades as well as for students, scholars, and policy makers in the field of development. What would you be willing to pay for the text? Amazon.com would like$18.72. But, as far as I can tell, you can read the whole thing online in a beautiful viewer for free, courtesy of issuu. The commentators are Angus Deaton, Kemal Dervis, Bill Easterly, Takatoshi Ito, and Joe Stiglitz.

Out this week is Dead Aid by Zambian economist and former World Bank consultant Dambisa Moyo. She’s hawking a tough sell – not merely arguing that aid has had negligible impact on average, Moyo is pressing the case that aid has been “an unmitigated political, economic, and humanitarian disaster“:

The aid money pouring into Africa, she says, underwrites brutal and corrupt regimes; it stifles investment; and it leads to higher rates of poverty — all of which, in turn, creates a demand for yet more aid. Africa, Ms. Moyo notes, seems hopelessly trapped in this spiral, and she wants to see it break free. Over the past 30 years, she says, the most aid-dependent countries in Africa have experienced economic contraction averaging 0.2% a year. [WSJ book review]

The Wall Street Journal published an excerpt (the book’s preface) this morning, but that passage doesn’t even begin to make the anti-aid argument. But Bill Easterly is excited about the book, so it’s probably worth a closer look.

Update: See this (negative) review. Thanks to Luis Enrique in the comments for the pointer.

# Bill Easterly on Peter Singer's new book

Two weeks ago, I suggested that Peter Singer erred by suggesting that “economic development is impeded more by a lack of appropriate motivation than a lack of appropriate knowledge and incentives.” I predicted that he’d be due some grief from Bill Easterly. Such is the power of Trade Diversion that that has now come to pass in the pages of the Wall Street Journal:

Suppose you see a small child drowning in a pond. If you save him you will ruin your expensive suit. Do you save him? Of course you do. Now think about the world’s extremely poor children who are going to die unless you give enough to a charity designed to help them, such as Unicef or Oxfam. Do you save them? Not often enough. In “The Life You Can Save,” Peter Singer argues that the two situations are ethically equivalent. Such immediacy is compassionate and inspirational — you want to give more after reading Mr. Singer.

Unfortunately, there are several differences between these two situations. The most important is that you know exactly what to do to save the child, whereas it is not at all clear that you (or anyone else) knows exactly what to do to save the lives of poor children or how to get them out of extreme poverty. Another difference is that you are the one acting directly to save the drowning child, whereas there are multiple intermediaries between you and the poor child — an international charity, an official aid agency, a government, a local aid worker.

The full review goes into more details, but Easterly’s argument is simply that Singer doesn’t address these two problems adequately to compellingly show that greater giving is a moral obligation akin to saving a drowning child.

# Motivating development assistance

Well-known philosopher Peter Singer has a new book coming out next month titled The Life You Can Save: Acting Now To End World Poverty. He wants everyone to feel morally obligated to donate at least five percent of their income to promoting global poverty reduction. You can read an excerpt here. The book cites Jeff Sachs early to argue that extreme poverty could be “virtually eliminated” within a few decades.

While I am glad to see Singer make a strong case that developed country citizens ought to be more concerned with global poverty, I suspect that I will find the book frustrating on the whole. I am uncomfortable with those who think that economic development is impeded more by a lack of appropriate motivation than a lack of appropriate knowledge and incentives. Given the emphasis of the book’s introduction, I suspect that Peter Singer will be due some grief from Bill Easterly.

# Export-led growth and development as diversification

There are few exceptions to the essential initiating role of a successful export sector in the early stages of accelerated growth of market economies. The reason is that the domestic market has been small and scattered… An expanding external market has provided the means for an increase in the size of the domestic market, growth in money income, and the spread of specialization and division of labor…

Why does one area remain tied to a single export staple while another diversifies its productions and becomes an urbanized, industrialized economy? Regions or nations which remain tied to a single export commodity almost inevitably fail to achieve sustained expansion. Not only will there be a slowing down in the rate of growth of the export good or service which adversely affects development, but the fact that the ecnomy remains tied to a single industry will mean that specialization and division of labor outside that industry are limited.

A new essay synthesizing the ideas of Johnson, Ostry, and Subramanian with Carrère, Strauss-Kahn, and Cadot? Not exactly. That passage comes the opening pages of Douglass C. North’s The Economic Growth of the United States, 1790-1860, written in 1961.

# Easterly on the intellectual costs of economic recession

William Easterly warns that the global crisis may have long-lasting, damaging effects through scholarly and policy choices:

[T]he risk of a backlash against individual freedom is far more dangerous than the direct damage to poor countries caused by a global recession, falling commodity prices, or shrinking capital flows. We’re already seeing this dangerous trend in Latin America…

A spreading fire of statism would find plenty of kindling already stacked in the Middle East, the former Soviet Union, Africa, and Asia. And there are many Western “development” experts who would eagerly fan the flames with their woolly, paternalistic thinking.

To Jeffrey Sachs, perhaps the foremost of these experts, the crash is an opportunity to gain support for the hopelessly utopian Millennium Development Goals of reducing poverty, achieving gender equality, and improving the general state of the planet through a centrally planned, government-led Big Push…

[A]fter a long and scary Great Depression, democratic capitalism did survive. And the U.S. economy returned to exactly the same long-run trend path it was on before the Depression.

We also know that, for another important part of the world, democratic capitalism did not hold up so well. In many ways, that failure stemmed from a misguided overreaction on the part of a new, influential field of economics that was highly skeptical of capitalism, was deeply traumatized by economic calamity, and considered much of the world “underdeveloped.” Born in the aftermath of the Depression, “development economics” grew on a foundation of bizarre misconceptions and dangerous assumptions…

First, seeing Depression-style unemployment in every part of the world led these economists to assume that poor countries simply had too many people who were literally producing nothing… Second, these thinkers lost faith in bottom-up economic development that was “spontaneous, as in the classical capitalist pattern” (as a later history put it), preferring instead development “consciously achieved through state planning.”… Third, these economists grew to believe that the most important factor in reducing poverty was the amount of money invested in the tools to do so. After all, if there were simply too many people, they reasoned, the binding constraint on growth must be the lack of physical equipment… Fourth, the collapse of international trade during the Depression made development economists skeptical about trade as an engine of growth.