US vs Brazil on cotton

Peter Gallagher calls out the US once again for disrespecting the WTO. This time, Robert Zoellick is threatening to penalize Brazil for its opposition to cotton subsidies (which it has expressed by seeking a WTO ruling) by revoking trade preferences. What good can the WTO dispute settlement mechanism be when the world’s most powerful player won’t work with the body?

Friedman’s Gas Tax

I just caught (what was probably a rerun of) Thomas Friedman on MSNBC with Tim Russert discussing The World Is Flat. In one segment, Friedman argued that the US government ought to impose a gasoline tax so as to spur investments in alternative energy technologies, because he thinks that the 21st century will be “green” and if American corporations don’t develop the technology, then companies in India or China will.

A few questions:

If Friedman has a foresight that others lack, then why is he asking for a governmental mandate instead offering venture capital to alternative energy entrepreneurs?

How does Mr. Friedman know that the national welfare gains from having green inventions produced in Detroit instead of Mumbai will outweigh the welfare losses of the gas tax?

Why is Friedman afraid of other nations’ companies producing inventions in highly profitable industries? Does he believe in national competitiveness?

Genetic Diversity as Comparative Advantage

It’s always fascinating to spot new comparative advantages:

In the race to attract global drug companies seeking a suitable destination to do clinical research, India could well pip its dragon competitor. And the India-advantage literally lies in its genes.

The country has a heterogeneous mix of people, unlike China’s homogenous population and this could tip the balance in favour of India, said Mr Swapan Bhattacharya who heads TCG Lifesciences.

Several gene types such as Caucasians, Mogoloids and Australoids can be found in India, explained an industry representative. So if a company is looking for different gene pools in a single location, India stands to gain. [Hindu Business Line]

Recall that ethnic fragmentation has also been found to be detrimental to economic growth.

World Investment Report Wrap-Up

After three years of decline, global foreign direct investment increased this year, with developing nations gaining a forty percent surge in FDI, according to a UNCTAD’s World Investment Report 2005. China, Hong Kong, Brazil, Mexico and Singapore were the top developing FDI recipients, unsurprisingly. While India is gaining, it still lags far behind. UNCTAD thinks that Africa could do a lot more to attract FDI. And this is an odd headline: “Malaysia warms to extraterrestrial investment.”

Who you won’t see at the WTO this year

Ukraine cannot join the World Trade Organization (WTO) in 2005, the country’s acting economic minister said Tuesday. Sergei Terekhin said, “We have pessimistic forecasts regarding Ukraine’s accession to the WTO this year.” [Novosti]

In a tough warning to anti-globalization protesters, Secretary for Security Ambrose Lee vowed to bar known troublemakers from entering Hong Kong during the World Trade Organization’s meeting in December, sparking fears that authorities are compiling a blacklist of WTO opponents. [The Standard]

Investment Liberalization in India

While trade barriers have fallen over time, barriers to foreign investment remain significant in countries like India and China. That’s why I was happy to read this story:

NEW DELHI – The Indian government looks all set to open up the retail sector beginning with food and a proposal in this regard is expected to go before the Cabinet by next month. The proposal is to allow up to 26 per cent FDI for first two years and subsequently increase it after seeing the results to 49 per cent and then to 74 after three years, official sources said. Commerce Minister Kamal Nath had said on Monday that Government was readying a discussion paper on the issue.

In recent weeks, I’ve been more optimistic about India’s development prospects than those of China. India seems to be opening faster; for example, foreigners may hold a 74% stake in Indian banks, while China currently limits foreign investors to 20%. Moreover, a recent article in Foreign Affairs points to a problem that is most obvious in China:

Conventional wisdom has long assumed that economic liberalization undermines repressive regimes. Recent events, however, suggest that savvy autocrats have learned how to cut the cord between growth and freedom, enjoying the benefits of the former without the risks of the latter.

Another sign of improvement in regards to FDI in India:

At least one Indian communist leader has found the courage to shed his party’s anachronistic mistrust of global capitalism. Buddhadev Bhattacharya, the Marxist chief minister of West Bengal Province, badly wants the Indonesian tycoon Anthony Salim’s $10 billion industrial township project to come to his region. [IHT]

Here’s more on Asian FDI trends.

Simplistic graphs in the BBC debate on foreign aid

It’s fine to defend the conclusion that development aid does not help, and may in fact hurt, economic growth, but oversimplified graphs aren’t much help, as Jim rightly complains.

However, I think the oversimplification is partially a result of cramming one side of an extensive development economics debate into a one thousand word article. In his 30-page policy brief on the subject of aid and development, Fredrik Erixon includes the caveat that “these figures alone do not overthrow the idea of aid.” He then develops his argument by referring to econometric work by William Easterly and Peter Boone (which Jim criticizes elsewhere).

The oversimplification problem is common in articles on development written for laypersons. For example, the accompanying article by Jeff Sachs, which defends aid as useful, features a graph that is equally misleading.

Obviously government health expenditure is correlated with a number of other features that are important determinants of infant morality, and this graphic provides little useful guidance to the policy issues in questions.

Import Denial as Investment Promotion

Here’s a sick way to attract foreign direct investment:

Among the reasons for selecting Brazil as the location for the plant, Lenti said import duties on IT products stand at nearly 85% and vendors have a hard time penetrating the market without local manufacturing processes. “The Brazilian market represents 40% of Latin America and it is one of the markets with the highest projections. Brazil was a must,” he said.

By 2006, the company expects to be producing enough to export products from Brazil, particularly to Argentina, which is part of the Mercosur Southern Cone trade bloc. ViewSonic would enjoy more tax benefits by importing from Brazil rather than from Asia, Lenti said. [BNAmericas]