Category Archives: Development

China's product quality

Via David Altig, a WSJ piece that’s skeptical of China’s ability to ascend the product quality ladder:

China’s industries are composed of hundreds of thousands of tiny factories and farms — plus traders, brokers, haulers and agents, all of whom take control of the goods and materials but add little value to the product. With every additional player in the chain, the cost, risk and time grow. Effective quality control in this environment is difficult… As the product recalls demonstrate, China can barely make low-value goods reliably, much less higher-value ones. The problems are structural, not the result of a few bad apples…

To compete head-to-head with the American economy, China will have to revolutionize the very way its industries are organized. It must shake out the thousands of low-value middlemen and integrate the tiny factories into larger, more competitive companies. It must train a workforce in modern technology and business practices. And, it must instill transparency and a uniform rule of law. Such an effort could span generations.

These observations complement more scholarly work in weakening Dani Rodrik’s argument that China’s export profile is unusually sophisticated.

Aid & Growth

Dani Rodrik says that the Rajan & Subramanian paper (pdf) on the impact of foreign aid (now forthcoming in the REStat) is “most comprehensive analysis to date of the cross-national evidence on the effect of aid and growth.” The verdict? There is little evidence that aid significantly impacts growth.

Motivations for development

Paul Collier argues against the emotional approach to development taken by some activists and NGOs:

To date policy towards the bottom billion has been driven predominantly by guilt: America’s guilt about slavery, Europe’s guilt about colonialism. Unfortunately, guilt is an appallingly bad basis for action. It leads into the headless heart: the belief that we should ‘atone’ by charity. But its worst effects are within the bottom billion: these small societies lack the intellectual scale to free themselves from our mental models…

Guilt has seldom been an effective driver of change: in the rich countries we are likely to get far more impetus from the tried and tested psychology of enlightened self-interest. A world in which the bottom billion continue to diverge from the rest of mankind bequeaths to our children a legacy of insecurity for which their pampered lives will make them ill-prepared.

Africa's image

William Easterly writes in the LA Times:

Today, as I sip my Rwandan gourmet coffee and wear my Nigerian shirt here in New York, and as European men eat fresh Ghanaian pineapple for breakfast and bring Kenyan flowers home to their wives, I wonder what it will take for Western consumers to learn even more about the products of self-sufficient, hardworking, dignified Africans. Perhaps they should spend less time consuming Africa disaster stereotypes from television and Vanity Fair.

Last summer, Shreya Shah wrote:

With better media coverage, the United States and the world would realize that there is more to Africa than death, disease, disaster, and despair. The promotion and visibility of a brighter Africa within society-at-large will play a significant role in creating cultural pride, encourage good business practice and sound investment in African businesses.

Africa's image

William Easterly writes in the LA Times:

Today, as I sip my Rwandan gourmet coffee and wear my Nigerian shirt here in New York, and as European men eat fresh Ghanaian pineapple for breakfast and bring Kenyan flowers home to their wives, I wonder what it will take for Western consumers to learn even more about the products of self-sufficient, hardworking, dignified Africans. Perhaps they should spend less time consuming Africa disaster stereotypes from television and Vanity Fair.

Last summer, Shreya Shah wrote:

With better media coverage, the United States and the world would realize that there is more to Africa than death, disease, disaster, and despair. The promotion and visibility of a brighter Africa within society-at-large will play a significant role in creating cultural pride, encourage good business practice and sound investment in African businesses.

Africa’s image

William Easterly writes in the LA Times:

Today, as I sip my Rwandan gourmet coffee and wear my Nigerian shirt here in New York, and as European men eat fresh Ghanaian pineapple for breakfast and bring Kenyan flowers home to their wives, I wonder what it will take for Western consumers to learn even more about the products of self-sufficient, hardworking, dignified Africans. Perhaps they should spend less time consuming Africa disaster stereotypes from television and Vanity Fair.

Last summer, Shreya Shah wrote:

With better media coverage, the United States and the world would realize that there is more to Africa than death, disease, disaster, and despair. The promotion and visibility of a brighter Africa within society-at-large will play a significant role in creating cultural pride, encourage good business practice and sound investment in African businesses.

The IMF and WB in Africa

Ha-Joon Chang has a new book promoting protectionism, titled Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. In an article in this month’s issue of Prospect magazine (hat tip to Pablo), he writes:

As for Africa, its per capita income grew relatively slowly even in the 1960s and the 1970s (1-2 per cent a year). But since the 1980s, the region has seen a fall in living standards. There are, of course, many reasons for this failure, but it is nonetheless a damning indictment of the neoliberal orthodoxy, because most of the African economies have been practically run by the IMF and the World Bank over the past quarter of a century.

While I agree that the IMF and the World Bank haven’t done a great job, I think it’s wrong to portray them as the caretakers of Africa and the institutions responsible for its disappointing growth rates. They’ve never had that much power, and I’ve never seen another academic suggest it. Research on African economic performance has focused on institutions and geography. As Paul Collier summarizes (pdf):

Africa’s growth failure has attracted competing explanations. During the 1980s the World Bank diagnosed the problem as inappropriate economic policies, Berg (1981) offering the
first clear statement of this position. Bates (1981) was the first to explain these dysfunctional policy choices in terms of the interests of powerful groups, notably the taxation of export agriculture. During the 1990s the limited response to reform induced a broader search for explanations (Collier and Gunning, 1999, 1999a). Recently three further explanations have gained currency: institutions (Acemoglu et al., 2001), leadership (Jones and Olken, 2005), and geography (Sachs, 2003).

Is there any academic research that concurs with Chang in blaming the IMF and World Bank for Africa’s disappointing growth?

Schools of thought

People in the first group have names like Bono, Angelina Jolie, Bob Geldof, Bill Gates, John Edwards, and Jeffrey Sachs. People in the second group have names like Abhijit Banerjee, Tim Besley, Francesco Caselli, Esther Duflo, Lant Pritchett, and Mark Rosenzweig. Guess which point of view gets the bulk of media coverage and of public attention.

Dani Rodrik describes two schools of thought in development economics, and it’s not the hackneyed market vs. state or Sachs vs Easterly dichotomies.

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.

African Growth Prospects

Johnson, Ostry & Subramanian – “The Prospects for Sustained Growth in Africa: Benchmarking the Constraints” – NBER & IMF working paper, March 2007

I saw Simon Johnson present an early version of this paper — it’s very interesting.

IMF blurb:

Africa is experiencing its strongest growth in years. But for those who view Africa’s prospects through the perspective of the “deep” determinants of development—geography, institutions, and history—the outlook still seems somewhat bleak. The paper tries to assess Africa’s prospects by comparing Africa today with countries that were similarly weak in the past—in terms of their institutional development—and yet managed to escape from poverty.

The authors say the data suggest that these deep indicators, especially for a group of “promising” countries, are not much worse in Africa today than they were in much of East Asia in the early 1960s or in Vietnam and China around 1980. There are inherited institutional weaknesses in Africa—and internal conflict and social fragmentation remain concerns—but the East Asian experience demonstrates that some institutional weaknesses can be fixed. So the good news for countries seeking to escape their current poverty trap is that breaking away from their institutional legacy is possible because it has been done by others.

Creating a stronger and more dynamic manufacturing export sector is likely to be one of the keys to sustaining growth. To achieve this, though, reducing direct regulatory costs for exporters and avoiding real exchange rate overvaluation will be essential. And on these scores, the authors see risks going forward that were less of an issue for the East Asian escapees: commodity-based growth and sizable aid inflows that partly underpin the positive prognosis for Africa may impede institutional development and make it harder to avoid real exchange rate overvaluation. Sub-Saharan Africa’s escape from poverty, although certainly possible, may be more challenging than it was for East Asia.