The much awaited UN report proposing new post-2015 development goals was released last Thursday. Goal one is to end poverty by 2030. While the development community is receptive to the report’s focus on sustainably ending poverty, some are asking why inequality isn’t included. To know more on what’s in and what’s out, read the post by Claire Melamed here.
Related to development goals, Lucy Martinez Sullivan, Executive Director of 1,000 Days, has a post titled 'Leaning in on Ending Malnutrition' on Huffington Post, citing the stark reality that 3 million young lives are lost each year to a condition that is completely preventable.
- weekly roundup
In an earlier post, we highlighted a feature of the global pattern of investment in recent times: that since 2000, developing countries have gradually increased their share of global investment, moving from around 20 percent through much of the second half of the last century, to around 46 percent by 2010. The rapidity of this rise notwithstanding, the natural question is whether this trend will continue into the future.
Answering this question---on changing patterns of global investment---is one of the main concerns of the most recent edition of the Global Development Horizons report, entitled Capital for the Future. In order to frame the question, the report considers how different countries will distinguish themselves in the global economy and, consequently, how by doing so they will provide investment opportunities that would attract financing from the pool of global saving.
Evocative of the freewheeling talks in Athens’ open spaces by Socrates and Plato, last week’s Festival Economia Trento in Italy explored themes related to ‘Sovereignty in Conflict’, covering the Euro-zone debt crisis, global manufacturing chains, a new and more somber wave of globalization, welfare and social citizenship and a range of other topics.
Fluttering banners with the faces of Michael Spence, James Mirrlees and others lined the cobbled streets and media stages as well as giant video screens populated the piazzas lined by renaissance buildings and historic chapels, with the Italian alps serving as a picturesque backdrop. Performances at the Teatro Sociale in the evening provided extra color. Click here to watch a brief video interview with Kaushik in Trento.
The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.
One thing financial markets are good at is innovating and creating new instruments that meet the ever-evolving needs of investors and economic agents managing their risks (such as national or subnational governments). In the mid-1990s, after hurricane Andrew and the Northridge earthquake in the United States, it became increasingly clear that some risks were too big to insure with existing instruments. This matters most to governments and insurers who have to pick up the pieces after a natural disaster as the frequency and cost of natural hazards have been increasing over the past few decades.
In the aftermath of a natural disaster, governments have to shift budgetary resources away from new investments for development to relief and reconstruction efforts. For insurance companies, catastrophic events can put pressure on their financial viability. One way to relieve the pressure is to transfer such risks to capital markets. That is how catastrophe bonds (cat-bonds) were born, as financial instruments to further disperse the risk of natural disasters more broadly and use the risk-taking capacity of institutional investors worldwide.
There is a continuing controversy over what constitutes energy poverty and whether it is synonymous with income poverty or lack of access to electricity. Several approaches are used to define and measure energy poverty, taking into account both demand and supply of alternative energy sources, including biomass, LPG, and electricity. But as yet, no consensus has emerged for measuring and monitoring energy poverty and explaining why and how it differs from income poverty.
Like income poverty, energy poverty may be defined by the minimum energy consumption needed to sustain lives. But unlike income poverty—based on the concept of a poverty line defined by the minimum consumption of food and non-food items necessary to sustain a livelihood—energy poverty lacks a well-established energy poverty line to determine the minimum amount of energy needed for living. Current indicators used by such organizations as the World Bank and the International Energy Agency (IEA) measure energy poverty indicators as outputs (e.g., lack of electricity connections) rather than outcomes (e.g., electricity consumption and associated welfare gains).
My previous blog ended with a question about the usefulness of anticipating the long-term future if that future is highly uncertain. Ever since the 1982 article on “Trends and random walks in macroeconomic time series” by Nelson and Plosser, there has been a debate about the long-term statistical properties of GDP and other macroeconomic variables. Nelson and Plosser could not reject the hypothesis of a random walk (with drift), which means that random shocks have a permanent impact on the level of GDP and that the uncertainty interval around forecasts becomes wider and wider with every year you try to peek farther into the future. The message seems to be: If next year’s world is already very uncertain, don’t even bother forecasting the world in 2030.
Others found that “macroeconomic time series are best construed as stationary fluctuations around a deterministic trend function”, if you allow for a few structural breaks in the trend. The consequences for long-term forecasting are huge because, in this case, random shocks are transitory, there is mean reversion, and it is in fact easier to analyze long-term trends than short-term fluctuations.
The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.To know more and share your feedback click here.
Who should be responsible for managing risk?
Sometimes those given the responsibility have the least capacity. People are generally capable of dealing with certain small risks. But they are inherently ill equipped to confront large idiosyncratic risks (household head falling ill), systemic risks that affect many people at the same time (natural disasters), or multiple risks occurring either simultaneously or sequentially (low harvest due to droughts followed by food insecurity due to a food price increase). To manage these different types of risks, people need support from other socioeconomic systems.
If the responsibility needs to be shared, who should share it?
Too often the first response to shared responsibility is to turn to the government for support. Government support, however, could require additional resources, possibly through increased taxes to ensure fiscal sustainability. Increased taxes could be burdensome for the economy and leave fewer resources for self-reliance (self-protection and self-insurance), which could be the most effective actions to manage some risks.
Moreover, government support can distort incentives, causing those affected by risk to take less responsibility for managing it (a situation known as moral hazard). For instance, some U.S. homeowners in disaster-prone areas do not buy disaster insurance knowing they can count on government aid if their home is destroyed. Hence approaches to sharing responsibility must ensure that risk takers or those exposed to risk retain some “skin in the game.”
- WDR 2014
Three new Policy Research Working papers, a Project Syndicate piece by Ken Rogoff, and an Eduardo Porter column in the New York Times, titled ‘A Keynesian Victory, but Austerity Stands Firm,’ made for an interesting week.
A working paper published this week by Milanovic Branko uses multiple techniques to gauge how close measured inequality is to the maximum inequality that can exist in a given society. Looking at historical data tracing back several centuries, Branko finds that inequality in colonies was pushed almost to its maximum. Branko also looks beyond inequality as measured by income inequality to inequality in social terms.
Harry de Gorter, Dusan Drabik and Govinda Timilsina have a working paper on the relationship between volatility in crude oil prices, biodiesel and oilseeds (soy beans and canola). They find that higher crude oil prices increase biodiesel prices if biofuels benefit from a fuel tax exemption, but lower them when a blending mandate is imposed. When both canola and soybeans are used to produce biodiesel, an increase in the crude oil prices lead to higher canola prices, but the effect on soybean prices is ambiguous.
The following blog post is an excerpt from my commencement address delivered at the Diploma Ceremony of Fordham University, held in New York on May 19, 2013
The first rule of reason is honesty. There are situations in life where kindness and concern for others make us hold back on certain kinds of speech. That is as it should be. Speech can hurt as much as physical violence. If the latter is wrong, so must be the former. But to ourselves, in our minds, we should practice the utmost honesty. Honesty in thought may be inconvenient but in the long-run it helps.
Consider what we are often told—that if there is a will, there is a way; with sufficient determination, we can achieve anything. But to believe in this you have to suspend reason. And my advice is don’t. There are things in life which through sufficient determination you can achieve; but there are also things which no matter how hard you try, you will never get. It is best to see this clearly and realistically and then make your own choices rationally. You will make better decisions.