Explanations of development that make me uneasy

Enrico Spolaore & Romain Wacziarg have a new NBER Working Paper called “Long-Term Barriers to Economic Development.”  In it they explore the barriers to technology adoption.  As they write in the abstract, “What obstacles prevent the most productive technologies from spreading to less developed economies from the world’s technological frontier?”

The answer, they argue, has to do with culturally transmitted traits. Empirically, they look at neutral genes (ones that don’t confer any competitive advantage) across populations, which indicate how long certain populations diverged from one another.  This genetic distance is a proxy for “all divergence in traits that are transmitted with variation from one generation to the next over the long run, including divergence in cultural traits.”

So what’s the argument?  Namely that populations that are genetically distinct also have quite different cultural traits.  These traits, in turn, determine how easily societies can adopt innovations on the technological frontier.

This is an interesting argument and I need to read their paper carefully, but I have to admit that explaining differential development with culture makes me uncomfortable and doing so with genetic differences (even if they are “neutral”) makes me even more so.

A new free trade agreement in Latin America

It’s called the Pacific Alliance and its members include Mexico, Colombia, Peru and Chile. Apparently Costa Rica is set to join soon and Panama not that long afterward.  The group has agreed to remove all tariffs on member trade.  An article on the new agreement argues that this  will “encourage free trade between Latin America and the rest of the world.”  

I am all in favor of more free trade, but regional trade alliances are unlikely to foster free trade in the rest of the world.  As Paul Blustein explains wonderfully in Misadventures of the Most Favored Nations, bilateral and regional agreements give member countries less of a stake in the multilateral trading system of the WTO.  Given the trade diversion they may benefit from in the regional groupings, it’s possible they will be less likely, ceteris paribus, to want to move forward with the Doha Round.

I’m not saying that’s a bad thing, only that the idea that this trade agreement will foster free trade in the rest of the world seems doubtful.  Maybe they meant that it will inspire other countries to create their own free trade agreements?

The new pact explains that duties will drop to zero on 92% of the goods and services traded within the group. The remaining tariffs, mostly on agricultural goods, will be slowly phased out until 2030.  Interestingly, the members have “also declared their commitment to implement automatic tax and financial information exchange within the next six months, and it has been agreed that Mexico is to be accepted, probably by the end of this year, as a member of the Latin American Integrated Market, which currently consists of the stock markets of Colombia, Peru and Chile.”

Not everyone is thrilled with the news though.  Evo Morales has claimed that the FTA is “a geopolitical scheme by the United States to oppose the progressive, left-wing governments of Brazil, Argentina, Uruguay, Bolivia, Venezuela and Ecuador.”

presidentes


Welcome to Mugabeland

Zimbabwe is daydreaming about a Disneyland-Africa at Victoria Falls. It actually seems reasonable when you consider that the UN made Zimbabwe the host country for their World Tourism Organization general assembly. Why wouldn’t the Mouse want a piece?

Apparently one of Mugabeland’s major attractions will be a log-ride that washes your money!

Here’s the pithy essence from the BBC:

“We think it should be modelled along the size and the kind of vision that is on Disneyland, including hotels, entertainment parks, restaurants, conferencing facilities. This is the vision and we need people who can run with it.”

Mr Mzembi earlier told Zimbabwe’s official news agency New Ziana that the government wanted to create a free zone with a banking centre “where even people who do not necessarily live in Zimbabwe can open bank accounts” .

He announced the plans at the UN World Tourism Organisation general assembly, which Zimbabwe is co-hosting with Zambia.

C’mon people, sing along with me, “It’s a shitty world after all, it’s a shitty world after all, it’s a shitty, shitty world”

 

 

And I thought I was the hammer

I’m all for high education standards (I have been nicknamed “the hammer” by two separate colleagues over the years), but either the University of Liberia needs to rethink their entrance exam or Liberian high schools need to step up to the challenge.

The BBC reports that the university has lessened its overcrowding problem by not admitting a single student for next year’s class.  According to school authorities, all 25,000 students who took the admission exam failed.  The education minister had this to say about the situation:

“I know there are a lot of weaknesses in the schools but for a whole group of people to take exams and every single one of them to fail, I have my doubts about that,” Ms David-Tarpeh said. “It’s like mass murder.”

I agree that something seems fishy. For example, the university said that the applicants “lacked enthusiasm” and good English skills.  How do you test for enthusiasm and why is that part of the exam?  The fact that they paid $25 to take the test seems to indicate that they have enthusiasm for learning and for investing in their future.

On the other hand, I would question the Education Minister’s equating the situation to a “mass murder.”  That seems like a curious (and terrible) analogy anywhere, but especially the political hell that Liberia has undergone in the last couple of decades.

liberia_university

Life among the liquidity constrained

BBC Africa has a great piece on what it means to be middle class in the Ivory Coast.  The article profiles two Ivorians, Konan Kouassi Vercruysses (age 26) and Kouadio Koffi (age 29), who make between $2 and $20/day, thus falling in the middle class range as defined by the African Development Bank.

Konan “runs a phone booth with his cousin. He works five-hour shifts, six days a week and attends university.”  Kouadio “is a security guard who shares a one-room house with his cousin. He works 12-hour night shifts, six days a week.” Here are their monthly budgets (first column is for Konan and the second for Kouadio).

Earnings $240-$530 $100
Rent (inc water) $80 (for his room and one for his cousin) $33
Transport $20 $2
Electricity $8 $4
Gas (for cooking) $2 $4.40
Internet $3.20
Phone $12 $2
Food $140 (including for his cousin) $50
Clothes $10-$30 $10 (if money available)
Other circa $40 (to his cousin for phone booth work)
Savings Yes (undisclosed – been saving for five months) No

The profiles are often heartbreaking, showing how hard it is to smooth consumption at low levels of income (and with no access to credit markets) and how precarious life can be when sickness or unemployment can spell ruin.

Here are some quotes by Mr. Koffi:

When I wake up in the morning my problems begin, truly, because I have to first find food and then I have to help my cousin. If I had more money I could help more.

I don’t have any savings or any emergency fund. There is nothing in my bank account. Everything I earn goes on rent, bills and food. There’s nothing left for savings.

When you’re sick it is serious because there is no money for the hospital. I find small treatments or drugs from people who sell them on the street.

There are many challenges. I want to see a better life, a better life for me. I want to have a wife and children but what food can I give them? I need money to give them a life and send them to school. I don’t want them to suffer.

h/t to Souleymane Soumahoro

Ms. 25%

The original Mr. 10% is/was Asif Ali Zardari, who earned the title when he was Benazir Bhutto’s husband. He’s now President of Pakistan. I am still not sure how he beat Tommy Suharto or Raul Salinas to win this coveted title.

Anyway, we can now break a glass ceiling and crown a Ms. 10% 25%, in the person of Isabel dos Santos, the daughter of Angola’s President for life, Jose Eduardo dos Santos.

Isabel started in 1999 with a 24.5% stake in a newly formed diamond firm, and soon added a 25% position in the country’s first “private” mobile phone company. Toss in a bank, an oil company and the country’s only cement company, invest the dividends in European firms and viola:

Africa’s only female billionaire.

Yikes!

Perhaps the most striking line in the linked piece is this:  “Angola’s 2010 constitution bars the president from stealing public money”.

It’s remarkable both that a constitution would actually have a specific prohibition of executive thievery and for the implication that before 2010 stealing public money was permissible.

Onions, an issue of public safety

The NY Times had an interesting piece yesterday called  “Rising Onion Prices Tempt Highway Robbers in India“. In India, the price of onions has more than doubled in the last year for reasons that are unclear.  The government blames “greedy wholesalers” that are hoarding onions but that seems unlikely to be the real reason (the chief minister of Delhi articulated this argument and went on to explain that “the rich don’t know anything, it is the poor who are left to suffer.”)

The price rise has led to lots of political maneuvering between the Congress Party and the opposition, the BJP.  The same chief minister promised that their government was on top of the problem “Ours is a sensitive government. Hence, it acted swiftly on taking note of soaring onion prices. Outlets arranged by the city government have been selling onions around 45 rupees per kilogram.”   This was in response to the BJP having opened stalls around the city that sold onions at low prices in an attempt to “embarrass the government.”

I know onions are an important ingredient in a lot of Indian food, but they apparently play a much bigger societal role than I knew.  The article notes that “the chief minister very well knows protesting expensive onions is no cheap political gimmick. It was one of the factors that cost the incumbent B.J.P. state government in Delhi dearly in 1998, when they were voted out of power.”

The authors go on to argue that “the onion price hike seems to be more than a political issue, but an issue of public safety.”
High onion prices are tempting thieves. Trucks transporting onions have been hijacked, onion traders in Delhi have been attacked, and one woman complains that “a bag of onions in my hand has a greater chance of being stolen than a ring or a bracelet.”
Here’s a photo of an onion protest:

onion_protest

 

h/t @tylercowen

Are Leaders to Blame for Slow Growth?

Andrew Mwenda has another excellent article up on the Independent.  He argues that it isn’t helpful to blame Africa’s economic problems on bad leadership.  It may be true that Africa has had a disproportionate share of bad leaders, but this just begs the question of why bad leaders keep rising to the top.  Here are some of his main points:

1. “Sub-Saharan Africa has had many changes of leaders over the last 50 years – in all over 300 presidents. Basic mathematical probability would tell you that if the personalities of these individual presidents were the main explanation for poor performance, out of these 300 leaders Africa would have had a high chance to produce the hero we have been looking for like a Lee Kuan Yew (Singapore), a Park Chung Hee (South Korea) or a Chiang Kai Shek (Taiwan). Yet even after 14 presidents of Nigeria, 10 of Ghana, eight of Uganda, four of Tanzania and Kenya, five in Zambia etc we have not seen this happen.

2. Our leaders don’t come from Asia or Europe. They are products of our societies. Therefore, even if their venality was the driving force behind our poverty and bad politics, there must be unique fissures within our societies that produce such a disproportionate amount of poor leadership.

3. There was as much corruption, dictatorship and nepotism in Indonesia under Suharto as in Nigeria under its various military rulers. Yet the developmental results of the two countries were different. In South Korea two former military rulers were arrested and tried for corruption in the 1990s – Chang Du Hwan and Tae Won Roh and both admitted to accumulating fortunes worth over US$ 600 million while in office. 

4. This tendency to perpetually condemn our political leaders is actually one way we African elites exonerate ourselves of the blame we must share and allows us to carry a holier-than-thou attitude.”

Mwenda consistently has interesting and thought provoking columns on development and comparisons between Africa and Asia.  I’ve been so impressed that I have incorporated a couple of them into my Ph.D. syllabus on economic development.

I’ll take “Things aid workers never say” for $500, Alex

Very funny list here. I especially liked, “economic growth is the only way to lift people out of poverty”

Plus some bonus ones from me:

“The local beer tastes like ass”

“Locals who take a romantic interest in us likely have an ulterior motive”

“My mom brags about me all the time”