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Shanta Devarajan's blog

Commodity prices and African economies

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Once again, commodity prices are on the rise

Unlike in 2008, when oil importers and exporters experienced symmetric shocks (one negative, the other positive), this time it appears as if both oil exporters and some oil importers in Africa are experiencing positive shocks. 

The reason is probably that, along with oil prices, other minerals such as gold and copper, cotton, and cocoa prices are also up—so even an oil importer may have on net a favorable terms of trade shock.  In addition, although some world food prices are rising, most food is domestically produced and not traded, so the negative effect of that may also be muted.  Of course, the situation may change if oil prices rise even further.

The following summary table, taken from the complete data set prepared by my colleague Cristina Savescu, gives the ten countries with the biggest positive and negative terms of trade shocks between December 2009 and December 2010, as a share of 2009 GDP.  

Terms of trade change December 2009-December 2010 as a percent of 2009 GDP:

Water, water everywhere…

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On a panel at Water Week, I suggested that most of the problems with urban water come from the same source: mis-pricing of water. 

Water is a private good (if I drink a glass of water, you can’t drink it).  Private goods should be priced at their marginal cost.  Because poor people, like everybody else, need water for life, but they may not be able to afford it, governments typically subsidize water—i.e. price below marginal cost.  A subsidy means that somebody other than the consumer is paying the utility to deliver water.  In many countries, this somebody is a politician, who then uses the power associated with the subsidy for political patronage.   Water pipes go to neighborhoods of the politician’s choosing (which may not be where the poor live).   Meanwhile, poor people, because they need water, buy it from water vendors at 5-16 times the meter rate. 

What caused the HIV epidemic in Africa?

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Damien’s earlier post called into question one commonly-held view of the cause of the spread of HIV in Africa, namely male promiscuity. 

A paper by Pauline Leclerc and others (hat tip to Mark Gersovitz) seems to show that there is even greater uncertainty.  Leclerc and co-authors tried to simulate the dynamics of the epidemic in Zambia but found that the parameters needed to fit epidemiological models were beyond what the data would allow. 

In short, thirty years later, it appears as if we still don’t know what caused the disease to spread the way it did on the continent.  Perhaps there is no single set of causes, and that the evolution of the disease is different in different parts of Africa.  Perhaps we should move beyond epidemiological models and look to other disciplines for the answers. 

At any rate, to fight the epidemic effectively, we need to know how and why it became an epidemic.

Seven steps to structural transformation

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My colleagues Justin Lin and Celestin Monga have proposed a six-step plan for identifying industries that could help developing countries industrialize. 

The first step in the plan is to find countries that have a per-capita income that is roughly double yours and have a similar endowment, and observe what they are producing.  These industries would then serve as the basis for possible government intervention to either protect or create, depending on the country’s situation.

However, the six-step plan seems to gloss over the fact that countries, even seemingly successful ones, produce certain goods for political rather than economic reasons. 

Evaluating Millennium Villages Revisited

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Although the members of the Millennium Village Project were unavailable (but have offered to hold a follow-up seminar in January), we held a seminar on the Clemens-Demombynes  paper to discuss different approaches to evaluating rural development programs.

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