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Food Prices and the Inflation Tax

Eliana Cardoso's picture

Oscar Wilde, suspecting that the relationship between price and value hides reasons that reason itself ignores, observes in the Lady Windermere’s Fan that a cynic is “a man who knows the price of everything and the value of nothing”. The economist will laugh at Wilde’s one-liner. But after a brief moment, she would protest. Theory tells her that value and price is one and the same thing. And she will insist that what matters for South Asians today is the difference between an increase in the price level and an increase in the inflation rate.

The price level increases when there is a supply shock, such as an increase in food and fuel prices. The initial increase in the price level tends to transmit itself to other prices when the economy operates close to capacity. If the price increase is accommodated by monetary policy, the supply shock transforms itself in a spiral of prices and wages and inflation goes up. Monetary authorities do right by not tightening monetary policy in response to the primary impact of supply shocks, but have to be attentive in case the increase in food prices begins to encourage secondary inflationary effects.

DM Finalist Digital Divide Data Keeps on Winning

Tom Grubisich's picture

 

The good news for DM2003 winner Digital Divide Data keeps on coming.

DDD, which trains the disabled, orphans, migrants, and vulnerable women in Cambodia and Laos to become digital operators for overseas clients, has received a US$50,000 grant from the Boeing Co. to advance its socially attuned IT job training and placement in Southeast Asia.

In its most recent quarterly statement, non-profit DDD, whose 650 employees and trainees make it the largest technology company in Cambodia and Laos, reported:

"...we increased earned revenues from clients to US$2.2 million for the year ending June 30, 2009. This was up 50% from the previous year of US$1.5 million.

"For the fourth straight year DDD covered its business costs through earned revenue. We then used generous support from our donors to support our social mission related expenses, particularly the recruiting and training of disadvantaged young people and educational benefits."

Digital Divide Data was founded in 2001 by Jeremy Hockenstein, then a management consultant for McKinsey & Co.  Struck by the "mix of poverty and progress" in Cambodia on a trip to Angkor Wat, Hockenstein saw "the opportunity to make a difference."  He put together a team of friends from his college days (he graduated from Harvard), and they started an IT training program -- modeled after outsourcing operations in India -- whos graduates would do digital work for foreign institutions and companies. Their first contract was digitizing the Harvard Crimson at Hockenstein's alma mater.  The details of DDD's outsourcing work for academic institutions, libraries, and other clients are here

Don’t Blame Mother Nature

Otaviano Canuto's picture

by Otaviano Canuto

As my World Bank colleague Milan Brahmbhatt and I observed in a recent note, primary commodity exports remain crucial for most developing countries. When one takes a simple average across developing countries (i.e. attributing each country an equal weight) for 2003-07, commodities still show up as accounting for over 60 percent of merchandise exports, with half of the group featuring a commodity export dependence of over 70 percent. Chart 1 shows different degrees of primary commodity dependence across regions.


Source: Brahmbhatt & Canuto (2010)

The Dutch Disease has not Infected Bangladesh, not yet any way

Zahid Hussain's picture

The Netherlands’ discovery of large natural gas deposits in the North Sea in the 1960s had serious repercussions on important segments of its economy, as the Dutch guilder became stronger, making Dutch non-oil exports less competitive. This has come to be known as "Dutch disease" or “resource curse.” Although generally associated with a natural resource discovery, it can arise from any large inflow of foreign currency--foreign assistance, foreign direct investment and remittances, among others. A surge in remittances can be expected to result in appreciation of the currency in the receiving country with all its attendant consequences of crowding out exports, crowding in imports, and induce movement of resources into the production of non-traded goods.

Bangladesh has experienced a remittance boom since FY01—with annual flows rising from $1.9 billion to $9.7 billion in FY09—growing at a compounded annual rate of 22.6 percent for eight years and still counting! As a result, remittance has now reached nearly 11 percent of GDP and is now the single largest source of foreign exchange earnings.

Changing Development Paradigms

Raj Nallari's picture

This global crisis in not only about financial market failures but also government failures in several countries as reflected in failure to contain the housing bubbles and credit booms, bad regulations, and lack of supervision and enforcement). Both in advanced and developing countries, there are second thoughts on open markets, private ownership of nationally ‘strategic’ industries (autos, banks), and movement of transnational financial and industrial firms, and migrant labor. Trade and financial protection is on the increase as countries that have been less reliant on exports and foreign capital are weathering the storm better. In this semi-open global environment, would export-led growth strategy be combined with industrial policies to protect domestic industries, and/or emphasize resource-dependent growth, where possible?

Before we respond to these questions, it will be useful to focus on what went wrong in economics in 2007-08. Some economists are re-inventing economics to respond to such a query.

India’s Turn

Eliana Cardoso's picture

An Ideal Husband, the play by Oscar Wilde, tells a story of unrealistic expectations. Lady Chiltern, a woman of strict principles, idolizes her husband, a rising star in politics. Their life is filled with nectar and ambrosia, until the appearance of Mrs. Cheveley. She comes with a letter – one that proves Sir Robert Chiltern’s fortunes were made on the back of privileged information during the construction of the Suez Canal. In exchange for this letter, she seeks support for the construction of a new canal in Argentina.

My top three and Bono's top ten

Shanta Devarajan's picture

For the World Bank's internal website, I was asked to list the three most important developments of the past decade.  To elicit a broader discussion, I am sharing it on this blog.  In a subsequent post, I will list the three most important challenges and opportunities for the coming decade.  One or two of my items are also reflected in Bono's excellent piece in yesterday's New York Times, "Ten for the Next Ten."  Here are my top three:

More and Better Jobs

Eliana Cardoso's picture

Forget the Homo Sapiens and the Homo Economicus. The guy who traces our destiny is the Homo Ludens, the man who plays. Johan Huizinga, a professor of history and linguistics, in his 1938 book, says that art and culture originate from our propensity to dance and have fun. But to enjoy life, play and build a peaceful world, you need a productive job that removes you from the daily struggle of making ends meet.

South Asia is unique in the multiplicity of its challenges and opportunities to generate productive employment. Start counting: many workers are stuck in low productivity agriculture and informal employment; there is low female labor force participation; the skill base is low; the countries in the region struggle with pervasive vulnerability and uncertainty, large economic and social disparities, and persistent conflict and violence.

Yet, there is no work that looks at all these factors in an integrated manner for the region. This is the reason why the World Bank’s first South Asia Region flagship report will focus on More and Better Jobs. This blog will keep readers informed on the progress of the report during next year.

OECD-World Bank Innovation and Growth Book Now Available

Ihssane Loudiyi's picture

Innovation is crucial in long-term economic growth, even more so in the aftermath of the financial and economic crisis. Making innovation-driven growth happen requires action in a wide range of policy areas, from education and science and technology, to product and labor markets and trade. The OECD and the World Bank are joining forces to work more closely on innovation, particularly insofar as this issue is a crucial factor in the success of development policy, notably in middle-income economies.

Innovation: An Un-Level Playing Field for Developing Countries

Tom Grubisich's picture

Innovation has always been crucial to economic growth, and never more so than in this era of globalisation.  But globalisation can create innovation winners and losers.  The new book Innovation and Growth: Chasing a Moving Frontier, published jointly by the Organisation for Economic Co-Operation and Development (OECD) and the World Bank, describes how innovation -- not principally from newer science but the penetration of older, infrastructure-intensive technologies like improved water source and sanitation -- puts developing countries on an un-level playing field compared to developed countries.

A book launch and seminar are being held today from 9:45 a.m. to 12:45 p.m. at the World Bank Main Complex (Room MC2-800).  It will feature the book's editors -- Pier Carlo Padoan, Secretary-General and Chief Economist, OECD; Carlos A. Primo Braga, Director, Poverty Reduction and Economic Management Network (PREM), World Bank; Vandana Chandra, Senior Economist, PREM and Development Economics (DEC), World Bank; and Deniz Eröcal, Coordinator, Enhanced Engagement with Non-Member Economies, OECD.

This blog will have more on this event, but here's an excerpt from the book's Introduction summarizing the innovation dilemma:

"In the past few decades, as the international flows of trade, capital and labour have expanded across the global marketplace, the competitiveness and prosperity of high-income economies has come to rely increasingly on their innovative capability. Unlike OECD countries, developing countries’ competitiveness and prosperity remains largely tied to their endowments of natural resources. Their governments have been less successful in fostering technological innovation. Moreover, low productivity levels continue to constrain their competitiveness in the global market.

 "The unique nature of innovative activity and the growing interconnectedness of the world economy call, however, for greater attention to the interplay of openness and technological innovation not only in OECD countries, but also in developing economies.  Innovation systems increasingly rely on 'open' platforms and collaboration side by side with competition. At the same time, the geography of innovation is being redrawn as economic interdependence grows, emerging economies accumulate immaterial assets, and modern communication networks redefine opportunities for 'leapfrogging.' The experience of the so-called 'BRICs' (Brazil, Russia, India and China) is illustrative in this context.


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