As emergency meetings of Heads of State to address the Euro zone crisis have seemingly become recurrent events, the crisis in the Euro zone lingers on stubbornly and might possibly become more serious with borrowing costs for Italy and Spain, reaching unsustainably high levels. As ever bolder proposals proliferate to put an end to the crisis, it is important to look back at the history of the crisis and try to identify its root causes. A working paper by Justin Lin and myself addresses this question and, in particular, the extent to which it was driven by the global financial crisis and by factors internal to Europe, notably the adoption of the common currency.
Attention to the issues of relative poverty and inequality is intensifying amidst today's fragile global economy. While pre-crisis economic growth generally reduced the incidence of absolute poverty, concerns remain about relative deprivation and social exclusion, which don't necessarily decline just because someone moves out of extreme poverty. Given this, it may be time to devise a reasonable global measure of relative poverty, alongside prevailing absolute measures.
Martin Ravallion elucidated on this during a July 10 lecture at Sydney's UTS Business School, titled "A Fresh Look at Poverty: More Relatively-Poor People in a Less Absolutely-Poor World".
Does what economies export matter for development? And, even if it does, can governments improve on the export basket that the market generates through industrial policy? These questions were the topics at the recent launching of Does What you Export Matter: In Search of Empirical Guidelines for Industrial Policy a book I co-authored with Daniel Lederman at the World Bank’s INFOSHOP last week.
A large literature has answered affirmatively to the first question. Certainly, theory suggests that certain goods may have externalities (benefits to society not captured by their price) that may make it possible for governments to improve on the market outcome. But to date, measuring such effects at the level of goods has proven extremely difficult and the economics profession has yet to produce a handbook that would tell policy makers which sectors are most desirable. Instead, we’ve developed some empirical shortcuts or rules of thumb based on characteristics that are thought to be correlated with these externalities. Some schools of thought are best known by their colorful metaphors: natural resources are a “curse”; “high tech” goods promote high levels of human capital and the “knowledge economy;” a “product space” made up of “trees” (goods) from which “monkeys” (entrepreneurs) can more easily jump to other trees fosters growth, to give just three examples.
The book made two broad points.
Work is central to people’s lives and identity. For many, participating in the labor market is important beyond its obvious economic rewards as it also provides a sense of purpose and fulfillment. Conversely, labor deprivation impedes economic growth and leads to a feeling of emptiness and exclusion.
Yet, it is not uncommon to see large differences in attitudes towards employment across social groups. Urban residents, for example, are typically louder in voicing their labor market complaints than rural residents, even though living conditions in rural areas are known to be worse.
This week, amidst fireworks and stultifying Washington heat, five Policy Research Working Papers were published. They cover weakly relative poverty measures, PPPs in electricity generation, carbon emissions, universal health care, financial literacy, and economic analysis of projects in a greenhouse world.
In the recently released Global Economic Prospects June 2012, World Bank experts warned of long period of volatility. Resurgence of the Euro Area tensions had eroded economic gains of first 4 months of 2012, said the report. And as the leaders of the 27 European Nations convened in Brussels yesterday to tackle the crisis, it was labeled as the “last chance” summit. The outcome: Up All Night, But Consensus Finally Reached, says a Time.com story. According to the story, published today, “Yet, despite what were described as tense and grinding negotiations, decisions announced early Friday morning appear to represent important steps towards the survival of the embattled euro zone—and in both the short- and long-term context of the crisis.” This much needed move comes at a crucial point and will hopefully have a positive impact on developing countries. However, a lot remains to be done. Following is a sampling of some interesting research and analysis by World Bank as well as others highlighting issues of current import to global economy and development.
More than ten years ago Ronald Inglehart, of the University of Michigan, and his team at the World Values Survey asked thousands of respondents around the world to rate their views, on a scale of 1 to 10, on whether they felt inequality in their countries should go up or down. The way they phrased the question was that 1 corresponded to full agreement with the statement that “incomes should be made more equal”, whereas 10 stood for “we need larger income differences as incentives for individual effort”.
Excerpt from “Tracking the MDGs,” GMR 2012.
Poverty and hunger remain, but fewer people live in extreme poverty. The proportion of people living on less than $1.25 a day fell from 43.1 percent in 1990 to 22.2 percent in 2008. While the food, fuel, and financial crises over the past four years have worsened the situations of vulnerable populations and slowed the rate of poverty reduction in some countries, global poverty rates kept falling. Between 2005 and 2008 both the poverty rate and the number of people living in extreme poverty fell in all six developing regions, the first time that has happened. Preliminary estimates for 2010 show that the extreme poverty rate fell further, reaching the global target of the MDGs of halving world poverty five years early. Three regions—East Asia and Pacific, Europe and Central Asia,and the Middle East and North Africa—met or exceeded the target by 2008. More