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]

Visa Restrictions

The global liberalization of factor movements is a messy, selective and uneven process. Capital might be flowing more freely than persons:

A study of global visa regimes has signalled that governments will have to reconcile their push for democracy, free trade and open-market globalisation with the increasingly restrictive and inequitable visa curbs on free movement of people. The study says that visa restrictions have created a system that ”is one of highly unequal access to foreign spaces, reinforcing existing inequalities”.

When it comes to enjoying visa-free travel to foreign countries, passport holders from rich nations form an exclusive club of 25 countries facing the fewest restrictions for going abroad, according to the research conducted by Dr Eric Neumayer, a geographer from the London School of Economics. [Bangkok Post]

New Sachs Article

Jeff Sachs has an article titled “Can Extreme Poverty Be Eliminated?” in the latest issue of Scientific American. Much of its content will be familiar to those who have followed Sachs’ work over the last year or so. This is the paragraph that I found most intriguing:

A new kind of development economics needs to emerge, one that is better grounded in science–a “clinical economics” akin to modern medicine. Today’s medical professionals understand that disease results from a vast array of interacting factors and conditions: pathogens, nutrition, environment, aging, individual and population genetics, lifestyle. They also know that one key to proper treatment is the ability to make an individualized diagnosis of the source of illness. Likewise, development economists need better diagnostic skills to recognize that economic pathologies have a wide variety of causes, including many outside the traditional ken of economic practice.

Rules of origin as a constraint upon development

Paul Brenton and Takako Ikezuki note ways in which rules of origin can hamper economic development in a working paper from April 2004:

Strict rules of origin are viewed by some as a mechanism for encouraging the development of integrated production structures within developing countries to maximize the impact on employment and to ensure that it is not just low value-added activities that are undertaken in the developing countries. However, there is no evidence that strict rules of origin over the past 30 years have done anything to stimulate the development of integrated production structures in developing countries. In fact such arguments have become redundant in the light of technological changes and global trade liberalization that have led to the fragmentation of production processes and the development of global networks of sourcing.

Strict rules of origin act to constrain the ability of firms to integrate into these global and regional production networks and in effect act to dampen the location of any value-added activities. In the modern world economy, flexibility in the sourcing of inputs is a key element in international competitiveness. In the clothing industry, for example, modern analyses show that the key to moving up the value chain is to shift from simple assembly toward design and ultimately production of own label products. Limitations on the sourcing of materials will be a constraint rather than a stimulus to higher value-added activities.

Thus, it is more than likely that the imposition of restrictive rules of origin rather than stimulating economic development raises costs of production by constraining access to cheap inputs and undermines the ability of firms to compete in overseas markets. It is also no coincidence that restrictive rules of origin act to protect U.S. clothing producers and stimulate demand for U.S. made fabrics. It is perhaps ironic that whilst technical assistance and advice to many of the countries in the region is stressing the importance of access to low cost imported inputs and the need to remove logistical and bureaucratic barriers for competitiveness and growth of exports, the rules of origin that will be imposed under AGOA on clothing products in 2004 will act in exactly the opposite way. They will constrain access to low-cost imported inputs and will raise bureaucratic barriers to exports.

Trade’s future: Marinara, Alfredo, or Szechuan?

The spaghetti bowl is getting quite thick. The follow partners are moving towards preferential trade agreements: Australia-Malaysia, Jordan-Russia, Chile-China, India-GCC, Thailand-Japan, Egypt-USA.

But while regionalism seems to be driving multilateralism into obsolescence, unilateral trade liberalization by China might overtake them both, argues Razeen Sally.

“The image I’d ask you to bear in mind is of China assuming the role that Britain had in the second half of the 19th century — in other words, China as the unilateral engine of freer trade that sets up competitive and emulative effects not least in the neighbourhood of South and Southeast Asia,” Sally told a conference organised by Beijing University and the LSE.

Excellent news, if it comes true. I’ve long preferred Chinese food to Italian.

Markets on the retreat in Asia

India: “Calling himself a liberal in social philosophy, the Prime Minister, Dr Manmohan Singh, today said Marxism captures two very important aspects for the progress of a nation… These insights of Marxism must guide any development policy design, the Prime Minister said.”

Vietnam: “Pham Chi Lan, senior advisor to the Research Commission, a socio-economic think-tank advising the Prime Minister, was objecting to some analysts’ suggestion that the government would soon let world prices determine domestic fuel prices… ‘I think we cannot do that as fuel is a very sensitive product, with a great bearing on the economy,” she said. “It needs government supervision.’”