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.

Immigrant Criminals

A new NBER paper shreds an old stereotype, reports Bryan Caplan:

Kristin Butcher and Anne Piehl shows that, despite their demographics, immigrants are drastically less criminal than native-born Americans… [G]iven their demographics, we should expect immigrants to commit crimes at double the native rate. But for some reason(s), demographics yield a massive overprediction; immigrants commit crimes at one-tenth the expected rate given their demographics. Yes, if immigrants acted like otherwise similar natives, they were be ten times as criminal as they actually are.

See Caplan’s post for more commentary and an ungated link to the working paper.

Extrovert regionalism

Tamura Akihiko says Japan is now an “extrovert” in trade policy:

So what is Japan’s proposal and what makes it so special? The goal of CEPEA [Comprehensive Economic Partnership in East Asia] is to create an efficient, mature market-economy area encompassing the 10 member states of Asean, plus Japan, China and South Korea, as well as India, Australia and New Zealand. Or, put another way, the agreement would mirror the current membership of the EAS.

According to Japan’s blueprint, the agreement would, as its name suggests, be a “comprehensive” one both in terms of the sectors covered (trade in manufactured goods, services, investment, etc.) and – perhaps more noteworthy – in terms of how Japan defines its potential FTA/EPA partners. Notably, the decision to include India marks a new departure for Japan into relatively uncharted territory, as Japan looks to include countries that – even though they may not currently constitute a close fit for economic integration – nonetheless display strong signs of evolving into important economic partners in the future…

To uncover the true significance of the plan, we need to compare and contrast the sentiments expressed in CEPEA with the traditional stance that Japan has taken with regard to global economic activities. CEPEA is premised on a different paradigm from previous economic arrangements in the region. Up to now, regionalism in East Asia was driven by nations’ responses to perceived threats from other trade blocs such as the European Union and the North American Free Trade Agreement. As such, trade agreements have tended to be both reactive and exclusive. But CEPEA is different in that its goal is not just to set up a regional trade bloc. Instead, it’s my view that CEPEA is outward-looking in nature and this inherent characteristic will result in spurring other countries – or even regions – to pursue proactively economic integration with East Asia…

I would like to take particular note of this spirit embedded in CEPEA – one which is not discernable in any other bilateral FTA/EPAs engaged by Japan to date – and call it “extrovert regionalism.” This “extrovert” trajectory per se is particularly crucial for Japan – much more than individual trade agreements – because it is this spirit that could tremendously affect the dynamism of the Japanese economy.

Do read the full piece.

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.

Did the US exceed its ag subsidy cap?

The WTO’s DSM is going to heat up a bit:

Brazil lodged its broadest attack against U.S. farm spending with a complaint at the World Trade Organization that may signal the start of a raft of litigation as hopes for an international accord dissolve…

The U.S. stayed below the $19.1 billion a year spending ceiling until 2001. Since then, the U.S. hasn’t provided spending figures to the WTO, Brazil says.

“Available public information indicates that the domestic support that the U.S. provided exceeded its commitment levels,” Brazil’s WTO ambassador, Clodoaldo Hugueney, wrote to his U.S. counterpart, Peter Allgeier.

I’ve seen scholarly work on this subject indicating that US payments have been below the allowed cap, so I do not know if Brazil has a strong case here.

Update: AP reports that the “United States spent only $11 billion on trade-distorting subsidies last year.”

Progress at the IMF?

An editorial (in French) from Wal Fadjri, a Senegalese newspaper, calling for rejection of the EU’s nominee for IMF managing director, Dominique Strauss-Kahn:

As a matter of principle, Africa should challenge the gentleman’s agreement between the U.S. and Europe, whereby the head of the IMF is a European and the head of the World Bank an American. This longstanding divvying-up of these positions-which is no longer justified-is outdated and should simply be abolished. The IMF is not France’s monopoly, even if it has managed it for 32 of its 52 years, and the IMF’s antidemocratic, despotic, medieval, and feudal constitution needs to be amended.

And the IMF is hit with English-language criticism by AEI’s Desmond Lachman:

The need for a serious external evaluation of the IMF and the World Bank would appear all the more pressing now at a time that both of these institutions need to restore their tattered credibility. The IMF is yet to shake off its many missteps during the Asian and Latin American currency crises some ten years ago, while the World Bank is presently reeling from its two years of mismanagement under Paul Wolfowitz’s leadership. And the continued practice of dividing the leadership of the World Bank and the IMF between the Americans and the Europeans has hardly done anything to restore the legitimacy of those institutions, especially among the Asian emerging market economies, whose weight continues to increase in the global economy.

How timely it would be to have an external evaluation of these institutions now on the eve of new management taking charge, when serious questions should be asked as to the correct long-term course that these institutions should be charting.

CGD’s Dennis de Tray is pleasantly surprised to see some progress:

Last Friday the IMF board announced that it would accept nominations… a first and essential step in opening up the process of selecting the IMF leader…

The announcement is a welcome if slightly amazing turn of events. I’ve worked at both the IMF and the World Bank, and came away from my Fund experience thinking this was an institution with an almost pathological aversion to change…

Does this announcement guarantee that the best man or woman will get the job? No, but it is a critical signal that at least some of the world’s leading nations understand that business as usual in the governance of the world’s premier international organizations is just not on.

Strauss-Kahn is still expected to win the post.

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.

Jumping straight to the finish line

I’m merely a student, while Grant Aldonas was US undersecretary of commerce for international trade from 2001-05, but he’s crazy if he thinks this is the way to jump-start Doha:

The answer lies in creating a new structure for the Doha development agenda that would yield real gains in trade, offer real help to the least developed countries and provide a significant incentive for further liberalisation. Towards that end, I would suggest… a “plurilateral” agreement among all WTO members willing to move directly to free trade on a global basis. To participate, members would have to eliminate all barriers to trade in goods and services, including agriculture, and immediately decouple all agricultural subsidies from production. What this would do is create a free trade core within the WTO, provide significant trade benefits to its participants that would ease approval of the overall accord back home and provide a significant incentive for non-participating WTO members to join as soon as they were ready to accept these obligations.

No way.

The other prongs of his plan are also desirable but far from likely to happen. For example, you won’t see a deal to harmonize the various preference schemes for LDCs, because those programs are as much about politics as development.

The other half of the cotton equation

Cotton subsidization is one of the West’s most egregious protectionist offenses, but John Baffes of the World Bank provides some important contextualization:

Cotton subsidies have received considerable attention during the past four years… four cotton-producing countries in West and Central Africa—Benin, Burkina Faso, Mali, and Chad—have requested that the Doha round of negotiations on trade liberalization contain financial compensation for WCA countries for as long as those Western subsidies remain in place. Brazil also brought a case to the World Trade Organization…

Western cotton subsidies should be abolished, but not much attention has been paid to another, perhaps more important, issue. Many African cotton-producing countries, especially in WCA, must reform their cotton sector…

[E]ven if cotton prices increase either as a result of elimination of subsidies or as a result of market forces, it will do no good to poor producers if such an increase is absorbed by bankrupt parastatals, debt-ridden cooperatives, or corrupt public officials unwilling to engage in serious reform efforts… the positive impact of the end of cotton subsidies on the welfare of West African cotton farmers will be limited unless it is accompanied by domestic reforms that should include privatization of the state-owned cotton companies and liberalization of the cotton trade.

Check out the short article, which is Cato’s latest Economic Development Bulletin (pdf), for discussion of six problems in the cotton sector that reformers need to address.