Global food consumption turns a corner…

As someone concerned with poverty reduction, I expected this headline to be good news: “Overweight now outnumber under-fed around the world.”

Instead, we learn that massive government intervention is needed:

To combat this, governments need to adjust domestic policy to allow control over the price of food which could then in turn impact on people’s diets, the annual conference of the International Association of Agricultural Economists has been told…

As the “burden of obesity” shifted from the rich to the poor, Professor Popkin suggested that governments should design economic strategies to influence the national diet.

However, he said, such policies used to control people’s diets would need to be carefully examined.

“A central issue affecting the world’s public health is the need to shift the relative prices of a range of foods to encourage healthier, less energy-dense and more nutrient-dense foods.

I imagine that there will be numerous unintended consequences of extensive, diet-conscious price controls on food.

CGD’s CDI

The CGD has released the Commitment to Development Index 2006. It “rates 21 rich countries on how much they help poor countries build prosperity, good government, and security.” Each rich country gets scores in seven policy areas: trade, aid, security, investment, migration, environment, and technology. Note that the United States does well in the trade rankings, but much worse in regards to migration.

Does aid hurt growth driven by labor-intensive exports?

Interesting paper from last year by Rajan and Subramanian that I didn’t encounter until today:

We examine one of the most important and intriguing puzzles in economics: why it is so hard to find a robust effect of aid on the long-term growth of poor countries, even those with good
policies. We look for a possible offset to the beneficial effects of aid, using a methodology that exploits both cross-country and within-country variation. We find that aid inflows have systematic adverse effects on a country’s competitiveness, as reflected in the lower relative growth rate of labor intensive and exporting industries, as well as a lower growth rate of the manufacturing sector as a whole. We provide evidence suggesting that the channel for these effects is the real exchange rate overvaluation caused by aid inflows. By contrast, private-toprivate flows like remittances do not seem to create these adverse effects, a finding for which
we offer an explanation…

We find strong evidence consistent with aid undermining the competitiveness of the labor-intensive (or alternatively traditional exporting) sectors. In particular, in countries that receive more aid, labor-intensive (or traditional exporting) sectors grow slower relative to capital-intensive (or non-exporting) sectors. As a result of the reduced competitiveness, employment growth in these sectors is slower, and these sectors account for a lower relative share of the economy in countries that get more aid.

We also provide evidence that the channel through which aid works is by inducing overvaluation of the real exchange rate. We demonstrate this by showing that: (i) aid and overvaluation are positively correlated across countries and that overvaluation is correlated with the exogenous components of aid, suggesting that aid does cause overvaluation; (ii) the exogenous (aid-related) component of overvaluation induces the same relative pattern of growth of the labor-intensive and exportable sectors in countries as does the exogenous component of aid; 2 and (iii) the independent effect of aid is attenuated in the presence of overvaluation.

Rodrik: Doha failure “hardly a disaster”

If you’re frustrated by the Doha round’s failure, you might seek solace in this November 2005 piece (.doc) by Professor Dani Rodrik. He argued that the “development round” was oversold:

Talk to World Bank and World Trade Organization officials, and you will get hugely inflated claims about the benefits that the Doha round would bring. These officials often make it sound as if the livelihood of hundreds of millions of poor people in developing nations hangs in the balance…

It would be hard to identify any poor country whose development prospects are seriously blocked by restrictions on market access abroad. Any country with a sensible development strategy has the opportunity to grow its economy, with assistance from trade.

He also warned:

Indeed the only serious risk of “failure” is that the rich countries would take their own rhetoric seriously and react in unproductive ways that prove self-fulfilling. The United States, in particular, could intensify its pursuit of bilateral deals where it is able to impose increasingly inappropriate policy priorities on smaller nations.

These excerpts may make Rodrik sound like Arvind Pangariya, but reading the full article will correct that impression.

Unpaid NGO internships

Jim points to an article criticizing the prevalence of unpaid internships as the entry-level positions at UK international development NGOs. Is this also common in the States? I would be very surprised to hear of “multilingual PhD graduates competing against each other for an unpaid NGO position.”

Goldberg on Subsidies

Sallie James of Cato thinks that this Jonah Goldberg op-ed on farm subsidies is “excellent.” I disagree.

First, he writes: “Subsidies combined with trade barriers (another term for subsidy) prop up the price of food for consumers at home and hurt farmers abroad.”

No, subsidy and trade barrier are not synonmous. That’s the whole point of the amber box distinction. Moreover, subsidies don’t “prop up” prices like a tariff or quota.

Then suddenly the distinction is relevant again: “Our farm subsidies alone — forget trade barriers — cost developing countries $24 billion every year, according to the National Center for Policy Analysis.”

The NCPA study from which that number comes is two pages in length, and I have no idea how the $24b figure is calculated. Maybe they took that number from a widely quoted 2003 study by the International Food Policy Research Institute. It says: “Protectionism and subsidies by industrialized nations cost developing countries about US$24 billion annually in lost agricultural and agro-industrial income.” Oops, looks like those trade barriers count too.

I’m glad that Goldberg opposes subsidies, but that doesn’t make his arguments sound.

The trade balance, the current account balance, and other definitions

I saw Don Boudreaux speak about statistics yesterday. He used the trade deficit as an example of a frequently misunderstood statistic. Unfortunately, I feel his discussion may have done more to muddle the issue than clarify it. Correctly understanding the details of the trade deficit should be of interest to both those who did and did not attend the particular lecture in question.

Boudreaux made three statements that I felt were either incorrect or incomplete:

1. The trade balance measures the value of merchandise goods exported minus the value of merchandise goods imported. The current account balance includes net exports of services.
2. The inclusion of services meaningfully alters the size of the trade deficit. [Update: I was likely mistaken in interpreting this as an implication of Prof. Boudreaux’s remarks. See his comment below.]
3. Media sources frequently report the trade balance without properly recognizing its components and relative significance.

My thoughts on each of these claims follow. Please email me (link on right sidebar) if I have made an error.

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