Thursday, 30 April 2009

Emerging Great Lakes market for waterproof structures and related equipment

Demobilisation and repatriation continues apace in the Great Lakes region, as reported on the IRIN UN news website here. There are obvious requirements for materials and homes for the people involved, as well as for internally displaced people who often live in poor quality housing. Here is a report describing shortages among individuals and organisations.

It looks like an opportunity for an entrepreneur to seize the market. Labour will be in abundance and therefore cheap (albeit requiring training), and there may be a short term burst of economic growth that often follows the end of conflict. Profits could be higher still during the period as they are residuals equalling income minus costs (profits were found to be very high even during the Burundian conflict in a UNIDO report, for those companies that survived). Recent trade agreements open up economies throughout the region. For an entrepreneur able to undercut international prices (and the cost of getting heavy equipment to the region is not trivial), they could capture much of the market.

Potential entrepreneurs may wish to familiarise themselves with the designs of their leading international competitors here, here, and here (searches for waterproof tents - searching gives designs for other equipment).

Sunday, 26 April 2009

Is growth due to productivity improvement or factor accumulation?

There is an empirical debate whether developing country growth is mainly caused by productivity improvement or factor accumululation. Some of the evidence, theory, and opinions are given in the document here (for example in Table 1 on page 8).

Here is a small theoretical argument why the contributions of both are likely to be of comparable magnitude. It is not complicated but I haven't seen it from anyone else. Suppose output = A.K where A is productivity and K is capital (possibly aggregated across physical and human and other capitals), and A + a.K = b is a budget constraint where a and b are constants. Suppose also that capital suppliers and productivity suppliers are paid roughly the amount they contribute to growth. Then a equals one since A and K are symmetric in the production function so A and K must cost the same. Then output = A.(b - A), and maximising gives A = b/2 (= K). Taking differences over time, the growth contributions of productivity growth and factor accumulation should be the same.

The argument works if the country pays for their productivity improvements. But even if they don't (in the absence of IPRs for example), the costs of technology transfer can be considerable (a famous estimate from the 1970s due to Teece is over half the cost of innovating in the first place if I recall correctly). So even in this case, the costs are comparable to those of renting, and the contribution of productivity improvements will not be far higher.

Pandemic influenza threat

There have been outbreaks of influenza in Mexico, followed by occurrences of the same form of the disease in the United States and reported cases in New Zealand and the United Kingdom. The World Health Organization has been reporting on the possible early stages of a pandemic here.

Thursday, 23 April 2009

Does information freedom matter for growth?

In theory, information freedom should be important for growth. If someone wants to take advantage of the best available opportunities in a market, they have to know about them before they mobilise resources. Transparency in government procedures should also encourage investment.

I ran some quick tests on whether information freedom matters in the form of press freedom. I graphed average annual gdp per capita growth in the period 1994-9 against the Reporters Without Borders press freedom index for countries in 2008 (available here). The mismatch in dates weakens the causal links from the index to growth - I assumed that the current index is highly correlated with the index in the past. The mismatch was accepted in order to maximise the available data points. I could put in many cautions about my use of the RSF index, but won't for brevity.

Here is the graph for African countries, with a trend line:

and here is the one for world countries:

It looks like more press freedom is associated with increased growth. There might be causality in either direction. The weak is link, but that is often the outcome of quick correlations between growth and its determinants. For example, here is the African growth-savings graph from 1994-9:

and here is the world graph:

Stronger links tend to be hidden in the data and require digging to show them.

Monday, 20 April 2009

Burundian economist murdered

Ernest Manirumva, the Burundi economist, was stabbed to death in his home on 9th April. He had been active in civil society and government groups investigating corruption and public funds. The background to his death, reportedly with files taken and following threats (described here), raises questions about official involvement.

IMF reforms its conditionality

The IMF has announced reforms in its lending practices, reported on their website here. Rigid conditionality will be replaced with a more open approach where continued funding depends on a country's success in meeting agreed objectives rather than strict conditions set before lending. The idea is to give countries more freedom to decide their own policies; one could give the further justification that country governments are better placed to assess individual conditions than an international body. The IMF report also points out that the approach avoids the market receiving clear signals of failure if rigid conditionality is not met.

The approach has been used by some bilateral donors in the last ten years.

Thursday, 16 April 2009

Testing, testing (for HIV and H5N1)

My attention was drawn to two reports on testing for major diseases. One is on HIV, using state-of-the-art nanotechnology and applied around the edge of the Bwindi Impenetrable Forest, described here. The second report is on a new rapid test for the H5N1 influenza virus, described here. There is a little more detail here. Biologists and chemists will probably understand the direction that the research followed, even if the description is terse.

With the HIV test, I wonder if there is any technology spillover to the local population. The nanotechnology looks like it would require a high education and capital to develop, so it may not lead to production spillovers among the public. The Bwindi hospital itself probably concentrates the highest scientific expertise in that part of Africa, so the medical personnel, when they move on to city hospitals or into private companies, may act to transfer knowledge of operation or production.

Explaining empirical research

Consolidation of academic results in empirical economics is important. Within many parts of economics, applied papers often throw up contradictory results. For example, one paper may find that countries can copy technology innovated in another country, while another paper may find that they cannot.

Sometimes the difference can be explained by known theory - technology adoption may be the result of different levels of education and physical capital in the absorbing countries, for example - but other times the differences in results are not so easily explained. They may arise because of different data quality, estimation methodologies, researcher accuracy, or a host of other factors.

It is easy to state that "paper 1 finds something, paper 2 finds something else, and we find something that agrees with paper 1". Consolidating and explaining differences in the papers' results is more valuable because it reduces the uncertainty about all the results, not just collecting a further piece of evidence. The extra understanding can form the basis of comprehensive theorising at all stages of analysis. It is more difficult, but a great outcome of literature review.

Consumer heterogeneity and network size as trade benefits

Heterogeneity in countries' technology can lead to benefits from trade. Trade exposes countries to new technologies devised abroad, and they can adopt them to improve the quality of the goods they manufacture or make them cheaper. There is some doubt about countries' ability to adopt technologies from distant countries if they merely see the end product as the way the technology works may not be obvious or it may not be viable in the countries' circumstances.

Heterogeneity in consumer preferences could lead more directly to similar benefits. For example, it may be that a consumer in one country wants a good that is only made in a second country, and in the second country no-one wants the good. This argument is from traditional trade theory (where productive heterogeneity is emphasised usually). Consumer heterogeneity can be combined with technology transfer to get a situation where if trade occurs, technology is transferred and only then could the second country manufacture the first country's wanted good. Traditional trade theory has been criticised as although short-term outcomes can be optimal for all countries involved, in the long run a country may have been specialised in a commodity that does not offer good development possibilities, for example cash crops in a declining or volatile market with little learning for the workers involved.

A third benefit of trade could arise through network size effects. The argument is related to the one for heterogeneity of consumer preferences. A larger market increases the chance of consumer heterogeneity hugely. It also allows for specialisation and economies of scale in production. On the negative side, there is the possibility that the expanded market will mean that domestic consumers will be able to purchase all goods cheaper internationally than domestically. Classical comparative advantage would argue that this is not a problem; the domestic producers make goods in which they are relatively less disadvantaged, sell it cheaply internationally, and buy internationally the goods in which domestic production is heavily disadvantaged, so gaining over purely domestic production. There are some problems with reaching the final benefits if there are inflexibilities in price as the argument breaks down, or if domestic bankruptcies creates big social difficulties, these being omitted from the argument.

I find a helpful way of thinking about these effects is the island economy approach, where someone is alone on an island and producing for themselves, then someone else arrives and trade between them is possible. A successful trade policy gets the benefits of trade while avoiding the disadvantages as far as possible.

Sunday, 12 April 2009

OECD patents and applications online

European and US patents and applications are available online here (EU) and here (US). The patents give information on how new European and US inventions are constructed and on what previous ideas they are based. A few examples are

a multi function tape measure here,

a glare reducing hood for a laptop computer here,

and a mosquito net for use with a hammock here.

Inventors and entrepreneurs use patents and applications to keep up with innovations in technologically leading countries and to develop their own new products from them, citing the original products in patent applications.

How Hutu's a Tutsi?

There has been violence in eastern DR Congo between Hutu ethnic groups and Tutsi groups in the last decade, transferred from previous conflicts in Rwanda. Burundi has suffered similar conflicts along the same lines. Since the ethnic identification is so important in these conflicts, it is worth considering how meaningful it is by looking at whether a Hutu has substantially different ancestors from a Tutsi.

One legend or myth of the Tutsis' migration is that they arrived in Central Africa after the Hutu, coming from the Horn of Africa around 1600. I do not know if this is correct or not; for the purposes here its relevance is only that it gives two initial disjoint groups: Hutus numbering p people and Tutsis numbering q people. If the initial groups are not as clear cut as the origin story implies, then the mixture today of ethnic groups is even greater than the following results already imply.

Suppose that a person in either ethnic group reproduces in their own group with a high probability, say 0.8 at every generation, and being a Hutu or Tutsi means having only ancestors from this group. Then the probability of someone today with Rwandan or Burundian ancestry having exclusively Hutu or Tutsi ancestors is the probability that their father reproduced with someone from the same ethnic group times the probability that their paternal grandfather did the same times the probability that their paternal great grandfather did the same and so on back to 1600, or 16 generations assuming reproduction at age 25. The probability is 0.8^(16-1) = 3.5 percent, which is pretty small.

The 0.8 probability is unrealistically high because as the number of people who are ethnically of a single heritage declines over time, the chances of someone from this group meeting someone else from this group declines. Moreover, the percentage implies a deliberate process of reproductive selection from the exclusive group, which will be subject to increasing error over time due to uncertainties over heritage and the unreliability of identification on physical characteristics (a former leader of Burundi established his Tutsiness by virtue of the shape of his father's nose, if I remember one account correctly, with his own features being suspiciously Hutu). Finally, people often prefer partners with some physical differences from themselves, presumably out of their ethnic group.

So suppose that, at least after the initial few generations, partners are selected at random from the population. Then after n generations, the number of ancestors from the initial groups is 2^(n-1) (2 parents, 2*2 grandparents, 2*2*2 great grandparents, and so on). The probability of having r Hutu ancestors is from the binomial distribution, equalling C(2^(n-1), r)*(p/(p+q))^r*(q/(p+q))^(2^(n-1)-r). The probability of no Hutu ancestors is (q/(p+q))^(2^(n-1)). Taking (q/(p+q)) as 0.1, and n as 15, it equals 0.00000000000000000000000000000000...000000001 percent where the ... denotes 30000 zeroes. The chance of having no Tutsi ancestors is similarly miniscule.

From the properties of the binomial distribution, the expected number of Hutu ancestors is (p/(p+q))*2^(n-1). The standard deviation of the distribution is the square root of (p/(p+q))*(q/(p+q))*2^(n-1). The binomial distribution can be approximated by the normal distribution to calculate likely bounds for the number of Hutu ancestors. It is in the region of [(p/(p+q))*2^(n-1)-3*square root of (p/(p+q))*(q/(p+q))*2^(n-1), (p/(p+q))*2^(n-1)+3*square root of (p/(p+q))*(q/(p+q))*2^(n-1)] with 99 percent probability. As the square root of 2^(n-1) grows more slowly than 2^(n-1) itself, the ratio [Hutu ancestors of one person today / Hutu ancestors of another person today] is close to one. In other words, the leader of the Hutu militias in eastern DR Congo has a similar number of Hutu and Tutsi ancestors to the leader of the Tutsi armies.

So what explains the ethnic identification? It may be socially invented in recent years, or it may be the result of arbitrary allocation in response to physical characteristics in the last few family generations.

I think these sums are OK. The huge difference between 0.8 and the 2^(n-1) calculations arises because the 0.8 selection implies that people are willing to work very hard to select within their own ethnic group, and accept possible inbreeding.

Thursday, 9 April 2009

Guernica tapestry in London

The Guernica tapestry, based on Picasso's painting, is on public display here in London at the moment. It is being loaned from the United Nations building in New York during renovation. The tapestry's profile increased in 2003 when it was covered over around the time of a war debate; accounts differ on whether it was covered at the behest of the party seeking conflict or to improve television pictures of the debate (briefly described here). Whichever reason is true, it is apt that a painting of war horrors, unwanted at the time of conflict, should be shared more widely than before.

Picasso's work appeals to me because of its high intellectual content. I have no art training, so find it difficult to appreciate why a painting is great when I am told it has a high visual beauty or because it contains great detail in its contents or allegories. Beauty is highly subjective and I want definitions (no doubt showing personal inadequacy in aesthetics, but I still want them). Great detail is contained in a photograph and detailed allegories could be produced by most people with a little briefing.

In Picasso's work, there is detailed reference and commentary on past traditions, academic in the analysis. There are theories of perception presented in the layouts, examining sight which I had taken for granted, and anticipating later scientific approaches to perception I think. The symbolism is dense and admits multiple interpretations in a way similar to philosophy and which I enjoy enormously.

Some analyses of the Guernica painting are given here. I hope to see the tapestry in London, and it may come to your country if the UN allows it.

Do leaders maximise their personal income when in power?

National leaders are able to a greater or lesser extent to influence the amount they are paid. If they are principally self-serving, they will attempt to increase their salaries and other remuneration as much as possible. The exact level of influence that they can exert will depend on the strength of oversight by independent bodies, how much power is concentrated in the executive compared with the legislature, how accountable they are to the public, and how concerned people are about their activities. Thus, the effect of their own activities could show up as a small increase in their wages.

Assessing whether leaders are income maximising is difficult because self-servingness is a hidden quality. We do have two probable correlated quantities, although the correlation may be weak: the level of wages and the leader's political attitudes. Assuming that the major shared influence is self-servingness and that other shared influences have smaller joint effects, we can determine using this instrumental variable approach whether self-servingness is revealed through an effect on their wages.

There is a problem with quantifying political attitudes to calculate such a relation. Informally inspecting some of the most publicised low leader incomes suggests that a strong socialist background may be significant. According to public figures (to be taken cautiously) the leader of Bolivia earned $21,600 in 2007 (here) and the leader of Russia earned $81,000. By comparison, the rich country leaders were paid $200,000 and over, rising to $2 million in Singapore. In Africa, former left-leaning leaders in Burkina Faso and Tanzania both famously were reported to have restricted governmental incomes and benefits.

The cases of Russia and Bolivia are particularly notable because they are resource-rich petroleum exporters, so government officials have unusual potential to enrich themselves. Their leaders' incomes may be underreported, although neither has been reported to own vast material assets as far as I am aware. There is thus evidence that personal attitudes may exert an influence on how much leaders get paid, and that it is not inevitable that they will act to enrich themselves.

Sunday, 5 April 2009

Applications for MA Economic and Governmental Reform at the University of Westminster

Here's another reminder about applying and getting funded for the MA Economic and Governmental Reform at the University of Westminster, starting in September.

I teach economics on a Master's course at the University of Westminster in London. The course title is MA Economic and Governmental Reform, and runs from September to September. We are presently recruiting for next year's course.

The course requirements are listed on its website (linked here), although there is some flexibility. Unavoidable ones are:

1. Reasonable English (or things won't make sense)
2. A first degree with some relevance to the topic, or a degree and relevant work experience
3. A job, or potential job, in government (people from NGOs have historically also performed well)
4. Willingness to work hard (or things will not be enjoyable)

African applicants are most welcome and have good performance records. Information on the course and obtaining funding is on the website. The course, like most in the UK, is expensive (£10,000), so students usually have applied for scholarships first. Early application is recommended.

G20 agree large increases to Africa's funding available through IFIs

The G20 group of the world's largest economies have agreed to increase available funding for African states. The increase comes as part of a wider capital expansion for the international financial institutions. The details are in their pdf document here.

The funding will be available through various IMF and African Development Bank routes. The document also says that the review of IMF quotas (and hence voting rights) will be accelerated.

A new reason to be careful when the IMF and WB turn up

Here is the first line of an article from Science Daily:

"A study using functional magnetic resonance imaging (fMRI) shows that expert advice may shut down areas of the brain responsible for decision-making processes, particularly when individuals are trying to evaluate a situation where risk is involved."

The article is here.

Thursday, 2 April 2009

World Bank growth estimates have large downwards revision

The World Bank has published its revised estimates of world growth here (then the forecast link for the country tables). Its 2009 estimates have dropped 2.6 percent in five months to a global contraction of 1.7 percent. Sub-Saharan Africa is projected to grow 2.4 percent. The richer countries are predicted to really decline: the US down 2.4 percent, the Euro area down 2.7 percent, and Japan down 5.3 percent.

Increased Chinese influence at the IMF

The IMF is looking for increased funding; its managing director has said here that funds should be at least doubled, with potentially more required. China is probably going to be a major source of finance. How the resulting influence will affect IMF lending practices is unclear. On one hand, the IMF may start lending more to countries with whom China has close foreign policy relations; on the other, there may be the UN security council outcome, where IMF lending to either Western or Chinese clients is subject to veto by the other parties. A third possibility is that much of the lending and conditionalities will not change, as the IMF is influenced in large part by current academic understanding and fashions of development policies. The 1980s Washington Consensus policies did not happen solely because they were perceived by donors to be in their own interests, but also because they had been academic standard in the previous decade (as always, by the time they were implemented, intellectuals had proposed better models).

G20: adjusting propensities to save

The French and German leaders at the G20 summit have called for more financial regulation coordinated globally here; the US president in a news conference with the UK leader was more concerned with the importance of other countries increasing their purchasing power and not relying on his country as the major buyer of goods.

The proposals are different, but one of the major aims is the same for all the leaders. They are concerned with resolving the world's current financial and economic problems. In fact, if we can anticipate the main arguments a little, even the analysis is similar. What underlies the problems is the distribution of purchasing power within and across countries. More financial regulation, if applied uniformly across countries, would presumably lead to more restrained borrowing and higher investment in the US, UK, and other high spenders, while increasing the expenditure in high investment countries such as East Asia. Countries already taking a balanced course on expenditure - that is, countries like France and Germany - would not have to adjust much. By contrast, increased expenditure in countries outside the US and other high spenders would increase demand worldwide while decreasing the availability of funds to US consumers, so increasing their own saving by the market mechanism. The work here would be done by countries outside of the high spenders, primarily.

A third mechanism of adjustment, one which is not proposed by these three countries as far as I know but which has influential academic support, has some elements of both approaches and some entirely distinct ones. It may be considered regulation through the market, allowing banks to go bankrupt so that they adjust their lending practices through fear of the market consequences. Then available funds will reduce in the high spending countries, and their consumers will increase their propensities to save. The approach is attractive in that it does not punish consumers excessively in any country relative to risky, profitable banks, and combines some of the advantages of the other two adjustment procedures, as well as being implementable at a domestic level without international agreements. One problem is that the periodic, genuine bankruptcy of banks is likely to lead to disruption in the real economy.

What I think leaders would really like to do is directly persuade the public in their own and other countries to adjust their spending habits towards capital goods or consumer goods, depending on whether their economies are low or high saving ones. Leaders do not generally criticise the general public, though. Imagine the headlines: "UK Prime Minister turns on 'irresponsible small business people in Vietnam'."

So the arguments are about who should do the work to adjust the economy and incur the adjustment costs. It looks like the sort of solution that could be advanced by intelligent problem solving and willingness to reach a mutually beneficial arrangement. The leaders seem to understand the problems, as in the US President's response to a pertinent question at the press conference yesterday of "whether US consumers should spend more to get out of the recession". The answer was slow, roughly being "spend without fear, but your caution is understandable. Spending in education is one thing you should not be afraid of." The answer, by what it doesn't say, expresses a major problem in the world economy today: boosting consumer spending when one country can no longer achieve the goal on its own.

The G20 arrives in London

Leaders of the G20 group of countries have rolled into London for a major summit, with the economic downturn foremost in the discussions. The leaders arrived and met for the first time yesterday. Last night, they converged in the UK Prime Minister’s house at 10 Downing Street, creating a twenty minute procession of the world’s most powerful figures. Sub-Saharan African leaders were South Africa’s Kgalema Motlanthe and Ethiopia’s Meles Zenawi. Away from the politicians, there were large public protests on multiple environmental and social causes in The City (London’s business district). All in all, an entertaining day. Today, Thursday, the leaders are having their formal summit.

It is actually quiet in London at the moment away from the G20 action.