Against aggregative theories of growth

Abhijit Banerjee and Esther Duflo make the case against aggregative theories of economic growth:

The premise of the aggregative approach to growth was that markets function well enough within countries that we can largely ignore the fact that there is inefficiency and unequal access to resources within an economy when we are interested in dynamics at the country level. The evidence suggests that this is not true: The cross-country differences in marginal products or technology that we want to explain are of the same order of magnitude as the differences we observe within each economy. A theory of cross-country differences has to based on an understanding and an acknowledgment of the reasons why rates of returns vary so much within each country.

Missing markets and charging immigrants

Gary Becker wants to charge immigrants $50,000 to enter the United States. He thinks that letting a large number of immigrants come at that price would be preferable to the current quota, which effectively sets the price to infinity for some immigrants.

The crazy thing is that the international labor market is so distorted that migrant laborers are estimated to gain something like $10,000 – $17,000 annually (Lant Pritchett, Let Their People Come), so many might be willing to pay $50,000. But for this proposal to have any credibility, we’d need loans so that immigrants could purchase this massive increase in lifetime earnings. And what would impoverished immigrants pledge as collateral on the loan? This missing market seems crucial, and Becker’s offhand comments (“along the lines of student loans. There would be some role of government because there would have to be some enforcement provision”) aren’t very convincing.

Oddly, the only reason to offer such a proposal is to try to buy off public opposition to increased immigration, but Becker admits that it is a political non-starter.

HT: Emmanuel.

Chinese tire tariff reactions

“We may import fewer tyres from China, but this decision is not going to jumpstart moribund domestic tyre production. This is protectionism without the protection. Pure appeasement politics: calculated and cynical.” – Charles Freeman, CSIS

“This is a grave act of trade protectionism. Not only does it violate WTO rules, it contravenes commitments the United States government made at the [April] G20 financial summit.” – Chen Deming, China’s minister of commerce

“Barack Obama does something really stupid.” – Brad DeLong

Obama invokes safeguards against Chinese tires: 35% tariff

The Obama administration will put steep import duties of 35% in the first year on Chinese passenger and light truck tires, responding to what the U.S. International Trade Commission determined to be a surge of Chinese tire exports that has rocked the domestic U.S. tire industry and displaced thousands of jobs, U.S. Trade Representative Ron Kirk announced Friday night.

China’s government responded quickly to the announcement, saying in a statement that it “strongly opposes” what it called “a serious act of trade protectionism.”

Thankfully these safeguards expire in 2013. Meanwhile, keep an eye out to see if a mob mentality develops.

The collapse in world trade: A symposium

International Economy asks the experts: “World trade has been collapsing faster than global GDP – indeed, faster than at any time since the Great Depression. How is this possible?” See the answers (pdf) from Jagdish Bhagwati, Barry Eichengreen, Gary Hufbauer, and others. They discuss commodity prices, the global fragmentation of the supply chain, and trade finance.

Steve Hanke had the shortest answer: “World trade is elastic with respect to global GDP. Accordingly, when global GDP slumps, we should expect an outsized plunge in world trade. Given the disruption in trade finance that has accompanied the Panic of 2008, we should also expect the current trade plunge to be more pronounced than usual. No surprises here.”

HT: Emmanuel

Climate protectionism

The latest South Centre Bulletin:

This issue focuses on a new and dangerous trend – the rise of trade and technology protectionism, in the name of climate change. New laws pending in the United States Congress contain trade measures linked to emissions that cause climate change, that are targeted at imports coming from developing countries. The laws also hinder technology transfer to developing countries as they prevent the relaxation of intellectual property rules. The new climate protectionism is causing controversy at the UN’s climate talks, and is also likely to be taken up at the WTO. The South Bulletin has 6 articles on this issue, explaining how the US laws work and their effects on developing countries, as well as reporting on how the developing countries took up the issue in the recent climate talks in Bonn.

The articles are on:

  • The rise of climate protectionism
  • Threat to block South’s exports on climate grounds
  • India, G77 propose text against trade protection in Copenhagen Draft
  • Analysis of the trade measures in the US climate bill
  • Competitiveness, trade and climate change linkages: Developing countries’ perspectives
  • Climate-technology protectionism and IPRs

    • A randomized experiment with firms

    We’re used to seeing randomized controlled trials in education, finance, and health interventions. Nick Bloom and his co-authors have performed a randomized experiment on firms. They selected 16 garment firms in India and provided the 8 treatment firms with extensive management consulting by Accenture and 8 control firms with very light consulting. The preliminary evidence from a pilot program shows lots of room for management improvement.