August 2009

Proposals aiming to boost innovative climate change solutions often include some form of publicly-supported global venture capital (VC) fund.  The rationale for such a fund is that government funding is generally available for R&D and private financing is available for the commercialization of mature technologies; but funding is unavailable for entrepreneurial activities—such as proof-of-concept, piloting, firm-building, and marketing—that happen between these two stages. Given this situation, a global climate change VC fund could have a decidedly stimulating effect. Of course, it would also be important for governments not to put all their eggs in this basket, since the VC instrument could quickly reach its limits.

The financing gap is particularly severe for climate change mitigation and adaptation technologies for a number of reasons. Not only is the market for these technologies still at a very early stage of development but it is also driven by regulation. Both of these factors represent significant risks for investors. In addition, low carbon technologies tend to be more capital-intensive and require much more start-up financing than other typical VC investment sectors like information technology. The funding gap is particularly deep in the developing world, which presents a riskier business environment and a more fragmented market for investors.

Several VC-style climate-change funds have recently been launched. The Carbon Trust, established by the British government, already invests in clean-technology firms based in the UK.  In partnership with the Qatar Investment Authority, the Carbon Trust plans to set up a £250 million fund called the Qatar-UK Clean Technology Investment Fund, to be supported by both governments. The fund will primarily invest in the UK, but also to some extent in continental Europe and the Gulf Region. This will be the first major publicly-supported climate change VC fund of its size involving more than one country.

"When real people argue about politics with friends and associates, they probably will not formulate new arguments or articulate reasons entirely by themselves as deliberative theory advocates.  After all, even those pundits who argue as 'professionals' are mostly rehashing preexisting political arguments.  But citizens do need to be skilled at picking among these competing arguments, and at circulating them among themselves, trying them out in informal conversation and discarding those that do not ring true.  The marketplace of ideas will not work properly if political elites are the only ones involved."

                  - Diana C. Mutz (2006, pp. 149-150)
                    Hearing the Other Side:
                    Deliberative versus Participatory Democracy   

Photo credit: The Brookings Institution

According to The Financial Times, the U.S. government’s Recovery Accountability and Transparency Board plans to launch in October what the FT calls “the most complex government website in history." The Recovery Board, an independent body headed by Chairman Earl Devaney, is tasked to oversee the outflow of the US $787 billion stimulus package to jumpstart the ailing economy, and the state-of the-art website is intended to engage citizens in tracking the use of taxpayer money.

What caught my attention is the premise behind this initiative—that citizens know best what is happening in their own communities. In an effort to rein in waste, fraud, and abuse of stimulus funds, the Recovery Board is putting into practice the principles of accountability and transparency through partnership with citizens. The Board understands that to carry out its mandate successfully, it needs to equip citizens with information so that they can help the Board do its job. As Mr. Devaney explains, “The website will unleash a million citizen IGs [inspectors-general].”

Climate change in the news (Aug 24- 28, 2009)

With its massive talent-base, a unique ability to attract its best and brightest students to the engineering discipline, and the presence of some of the world’s leading companies, India has an enormous potential to modernize its economy through engineering education and technology.

However, I think the potential is not fully exploited. The majority of new engineers in India are superb at rote memorization useful to pass paper exams. Many students, however, are less skilled at solving real-life problems with creativity. Also they lack communication and team skills in order to succeed in a demanding international setting.

Photo © iStockphoto.com

Floods, earthquakes and hurricanes cause significant loss of life and destruction of property in many countries. The incidence of such disasters has increased in recent years. There is a growing consensus, however, that being better prepared against natural disasters can be equally or more effective than immediate aid and relief.

Several studies have shown that migrants send additional remittances after severe shocks. However, there is little evidence of whether and how they help households prepare for natural disasters (see paper for more details). In a recent paper for a forthcoming World Bank-UN assessment of the economics of disaster risk reduction, we analyze cross-country macroeconomic data as well as a number of household surveys to examine the "ex-post" response of remittances to natural disasters and their contribution to "ex-ante" preparedness. 

An excellent special issue of the New York Times magazine on Women and Development  had an article on the “daughter deficit”—the phenomenon, observed in India and China, of many fewer girls than boys being born, and surviving to age 5.  Up to now, I had been thinking of this as an Asian phenomenon, associated with cultural values in India and China.  But the finding by my colleagues Jed Friedman and Norbert Schady, reported in this blog , that in Africa the mortality rate from a drop in income is about twice as high for girls as for boys, makes me think that the daughter deficit (or “son preference”) may be coming to Africa. 

On this blog we've seen several posts on the merits of new media in governance - I'm specifically referring to posts from my colleague Fumiko Nagano, from Silvio Waisboard, and from Kristina Klinkforth. All three authors are very careful, or outright dismissive, when it comes to the abilities of new information technology, specifically social networking sites, to aid the empowerment of citizens and to support democracy. Based on research, common sense (and my own addiction to Facebook) I want to challenge my colleagues by saying: On the web, it's all about efficacy and voice.

A recent paper by my colleagues Humberto Lopez and Luis Serven entitled “Too Poor to Grow” asks whether, controlling for other factors, countries with higher poverty rates grow more slowly.  Their answer is “yes”.  The implication is that countries with high poverty may be caught in a poverty trap—they grow more slowly, so poverty rates stay high or even increase, which means they grow even more slowly, and so on. 

The idea echoes the one in Martin Ravallion’s post on this blog about why poverty rates are not converging. 

The two papers got me thinking about the large number (20) of fragile states in Africa.   These states have lower per-capita incomes and growth rates than non-fragile states.  More importantly, many of them have remained fragile states for a long time. 

Could it be that these countries are caught in a low-level equilibrium trap?  And if so, should aid policy—which treats them as worse-performing versions of non-fragile states—be adjusted to take into account the possibility that these countries are “stuck” in low growth, high poverty and poor governance?
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UPDATE: August 27, 2009:

Thanks to all who are taking the time to share their views on this post. Many of you seem to think that education can offer a way out of this vicious cycle. Some don't see hope for Africa until corruption can be successfully tackled. A few others advocate for more individual responsibility.  I was particularly impressed by the story David Kamulegeya shared with us (see the comment titled "it is about the attitude that people have about themselves") in which he describes his own experience navigating out of poverty.

Today we launch a new look for the AfricaCan blog.

The enhancements include links that are easier to spot. Also, we have added a list of guest bloggers and a blog roll listing some of the sites I regularly visit. You can find them on the menu on the right.

Over the next few weeks, we will continue to fine-tune the blog to ensure we have the platform necessary to best serve our community of readers. 

In the meantime, let me take this opportunity to thank you all for sharing your views about how Africa can end poverty.

Most growth analysis has been primarily a macroeconomic subject with particular emphasis on contribution of capital, education adjusted labor, and total factor productivity to output growth (see Collins and Bosworth 1996, Hu and Khan, 1997, Sarel 1997, Sala-i-Martin 2000, Hall and Jones, 1999, Easterly and Levine 2001). Importance of macroeconomic policies as represented by budget deficits, exchange rate premia, inflation, trade openness and inflow of foreign Investment etc are tagged on in the growth analysis at a macroeconomic level. A few studies have invoked ethnic differences and other exogenous factors to understand cross country differences in total productivity growth and per capita incomes. 

In trying to understand the rapid output growth of East Asian ‘miracle’ countries, Krugman (1994), Young (1995), and others were engaged in an interesting debate on whether capital accumulation or total factor productivity growth best explained the high and sustained output growth of these countries. Their conclusion that capital accumulation was most important was based on macroeconomic data analysis in a factors of production approach to sources of growth. Others have found that the growth of output is strongly correlated with productivity growth in developed and developing economies as reported by Kehoe and Prescott (2002) and Solimano and Soto (2004), and this co-movement appears to be stronger the longer is the time period considered.