January 2009

“The essential problem is that our models – both risk models and econometric models – as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality.[...] But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response..”   Alan Greenspan, former Governor of the US Federal Reserve, writing in the "Opinion" column of the FTMarch 16 2008.

Journal Articles, Papers, News, and Reports 

World Development Report 2009, the World Bank's annual flagship, has devoted a significant chapter to the migration of people. “Throughout history, mobility has helped people escape the tyranny of poor geography or poor governance,” argues Indermit Gill, the lead author, “...mobile people and products form the cornerstone of inclusive, sustainable globalization.”

The chapter presents an excellent summary of the literature on migration. A new insight it offers is that "while the returns to scale in agriculture are constant, the returns to scale in manufacturing and services are increasing...A policy maker persuaded by the classical view would restrict the movement of labor...In contrast, a policy maker who recognizes the external benefits of human capital would do exactly the opposite, facilitating migration and clustering, particularly of workers with skills."

Although the authors state the opposite, presumably basing their statement on a lack of evidence in the literature, I suppose this argument about increasing returns to scale also applies to the migration of unskilled labor.

In his earlier post on this blog, Ricardo Gazel forecast a 10% decline in Angola’s GDP. This was based on the country’s 2009 budget, which was elaborated before the deepening of the financial crisis and its spillover to the real economy. He now writes:

Since then, OPEC agreed to two production cuts, amounting to a reduction of 244,000 barrels per day or a 13% production cut for Angola. Given the current composition of GDP, if the oil sector shrinks by 13%, the non-oil sector would need to grow at around 22% in order for total GDP to stay flat in 2009. As the non-oil sector depends strongly on public expenditures, and given the dramatic decline in oil revenues expected for 2009, adjustments of the budget are likely to result in a slowdown of the non-oil sector, resulting in a negative growth rate of GDP as a whole in 2009. In nominal terms, with the oil price around $50 a barrel and non-oil sector growing around 10%, GDP would be around 17% lower in 2009 compared to 2008. At $40 a barrel, the decline in nominal GDP comes to 23%.

Journal Articles, Papers, and Reports 

Contributions also made by Sanket

Earlier this week, several countries reported monthly data for December 2008. As shown in figure 1, these data are in line with our expectations for 2008 (outlined in Migration and Development Brief 8). For five Latin American countries together, remittances have remained almost flat. The growth of remittances to all nine countries in figure 1 taken together is exactly the same as that estimated in the brief (19.7 percent versus 20 percent).

Figure 1: Growth of remittances in 2008 for countries that report monthly data

* Actual data for Philippines and Kenya for January-November 2008; Dominican Republic for Jan-September 2008, and staff estimates for remaining months.
Source: Central banks of the respective countries and DECPG Migration and Remittances team.

With a new administration in the White House, different approaches to address the persistent financial crisis are on the table, once more.  Over the last week there's been some talking about the creation of an "aggregator bank" -also called 'bad' bank- that will buy troubled assets with part of the remaining bailout funds (TARP), aiming to take toxicity off financial institutions' balance sheets. 

An aggregator bank that eats all of the junk in the financial sector is expected to finally unfroze credit markets, and gives new life to the idea of a bailout a la Swedish.  However, the Nordic country's experience draws some specific governance lessons that go beyond separating good and bad assets, and that are applicable regardless of the technicalities, features and context that make both cases different.

In low-income countries, road traffic accidents account for 3.7 percent of deaths, twice as high as deaths due to malaria.  Anyone who has traveled in Kenya won’t be surprised to hear that 20 percent of recorded crashes involve matatus, the private buses that careen around the city.  Billy Jack and James Habyarimana have a fascinating impact evaluation where they randomly put posters in matatus encouraging passengers to “heckle and chide” the driver if he is driving too fast or recklessly.  The idea is that the posters solve a collective action problem:  most passengers don’t like being driven dangerously, but individually they’re reluctant to speak up.  Their preliminary results are impressive:  the frequency of road traffic accidents in a 12-month period was one quarter in the treatment group compared with the control group (those without posters).

The Robert S. McNamara Fellowships Program awards fellowships to support innovative and imaginative post-graduate research in areas of socioeconomic development - specifically focusing on issues critical to improving the lives of the most vulnerable in society.

The Program provides support to young researchers from eligible countries working in academic and research institutions preparing a doctoral thesis. Research grants cover residence costs for a 5 to 10 month period in a renowned university or research center. The research must be carried out in a member country of the World Bank other than the applicant's own country, or country of residence at the time of application.

How to apply and contact information.

Deadline to apply is February 28, 2009. If you have any questions please contact directly the Program Office (contact information in the above link).

Good luck to those who apply.

In my 12 years at the International Finance Corporation (IFC), I've been involved with a lot of different projects. Many of them were successful, some were not. But none of them were as satisfying as the Aceh Shrimp Project, which closed last month. If you've ever hit a bull's eye when playing darts, imagine that feeling multiplied by 100. That's what this project felt like.

Aceh is an autonomous province on the northern tip of Sumatra, in Indonesia, with a population of 4.2 million. It has a colorful history of resistance: they gave the Dutch colonists major headaches, and fought against the Indonesian government for three decades. In December 2004 the Tsunami struck, leaving 165,000 people dead or missing in the space of 30 minutes. This led to the biggest reconstruction effort in history, including IFC's work to build up the private sector, funded by AusAID (pdf) through its Australia-Indonesia Partnership for Reconstruction and Development (AIPRD).

Shrimp is a key sector in Aceh, a livelihood for 100,000 people. In the 1990s, Aceh's shrimp sector was slammed by white spot disease, which devastated shrimp harvests.

Last week in Manila, Philippines, I attended an international conference on communication and diasporic communities entitled "Boundaries and Belongings: Transnationalism, Identity, and Communications." Hosted by the Ateneo de Manila University’s Department of Communication, the event featured research on diasporas around the world and the role of communication in their day-to-day lives.  Examples ranged from differences in the use of international and domestic news sources (e.g., newspapers and television news) among local and international students, to the roles of new information and communication technologies, such as blogs and webcams, in helping individuals living abroad maintain a sense of connectedness to their home countries, families, and friends.  As should be expected of an academic conference, both positive and negative arguments were raised regarding access to, use, and effects of these old and new technologies.