With Nong Zhu
Migrant workers have been contributing to one-sixth of China’s GDP growth since the mid 1980s. The impact of rural migrants’ contribution is best seen in cities during the Chinese New Year, when they return to reunite with their families, leaving behind a massive urban labor shortage. This happens every year despite urban families and restaurant owners offering high bonuses.
There is a consensus that migration has contributed to increased rural income, but views differ on its impact on rural inequality. My view is that rural households with higher incomes are not more likely than poorer households to participate in migration or benefit disproportionately from it. Adding to my recent blog in People Move, I would like to discuss the reasons behind this.
With Nong Zhu
With sluggish growth in advanced economies, much investment money is heading south to more favorable climates. And while capital flows can provide greater opportunities for emerging and developing economies to pursue economic development and growth, capital inflows can also pose some serious policy challenges for macroeconomic management and financial sector supervision. Recently, large capital inflows in some middle-income countries have placed undue upward pressure on their currencies, adversely affecting macroeconomic and financial system stability as well as export competitiveness in a number of these countries. Furthermore, the pro-cyclical nature of global capital flows to emerging and developing economics can serve to aggravate these risks.
The English cartoonist Ashleigh Brilliant once offered the following piece of advice to strategists of all sorts who are concerned with their reputation: “To be sure of hitting the target, shoot first, and call whatever you hit the target…” With little time and fewer resources than elsewhere to battle the burning issues of poverty, insecurity and sociopolitical instability, economists and policymakers in developing countries may not be in the position to benefit from such cynical wisdom. Rather than listening to Ashleigh Brilliant, they should always keep in mind the constraints they face and the urgency of the situation in poor countries, and reflect on the maxim that recommends to “always aim before shooting.
A policy and research domain where there is a serious deficit of strategic thinking and prioritization is that of evaluation, which is traditionally defined as the systematic assessment of the worth or merit of some project, program or policy. The importance of evaluation cannot be underestimated: first, in a world where ideas compete constantly for funding, it is essential to ensure that value for money is at the core of public policy. Second, only by assessing the pertinence and efficiency of development initiatives can we get a full picture of their outcomes, and ensure accountability. Third and perhaps even more importantly, evaluation helps define the criteria for decision-making on new initiatives, and chart the course of future action. It highlights what works and what does not. It is therefore not surprising that evaluation has become a hot area of research and policy.
With a view to assessing the practical implications of the Growth Identification and Facilitation framework (GIFF) (*for more on this, see the bottom of this post) in a concrete country case, Justin Yifu Lin and I are preparing a draft paper applying the framework to Nigeria. The paper (which is expected to be published shortly) identifies as appropriate comparator countries for Nigeria: China, Vietnam, India and Indonesia. The key sectors that are identified by the paper are TV receivers, motorcycles and motor vehicle parts, fertilizers, tires, vegetable oil, meat, meat products and poultry, leather, palm oil and rice, telecommunications, wholesale and retail and construction. Our key recommendation for Nigeria is to address power shortages in a targeted manner through Independent Power Plants located in industrial zones, as well as create other enabling conditions, e.g. through subsidized access to finance and promotion of research and development (agriculture). In the area of trade policy, the government could pre-commit to reducing tariffs over a period of years and at the same time to creating a set of enabling conditions that would obviate the need for tariff protection. That way, significant incentives would be in place for the private sector to lobby the relevant government agencies to keep up their commitment to addressing these constraints. Before finalizing the paper, I visited Nigeria to meet with a range of industries that had been identified by the paper as possible target sectors and better understanding their business prospects and constraints, as well as meet with senior government officials to gauge their reaction to the proposed framework.
Development is about big systemic changes, complex tradeoffs, political choices and how the fruits of growth are channeled for the greater good. It is also about broadening opportunities – a goal that if neglected can result in frustrated citizens and tumult as we have seen in the North Africa and Middle East.
These were some of the many messages I took away from the ABCDE conference just held in Paris.
It is not surprising that trade policy -- as it relates to economic growth – has not figured prominently in the development agendas of least developed countries (LDCs). This is mostly due to the fact that key issues, such as health, clean water, conflict and war have dominated attention and driven debate and discussion– and rightly so.
But what about trade as an engine of growth to help drive down poverty – to help address broader development goals?
The good news story on trade and the LDCs is often ignored. Bad news stories and editorials (along with blog posts in on-line media) sell newspapers and make for splashy television and video clips on YouTube. This is what dominates the stories and headlines.
A quiet revolution is needed to help pull people out of poverty in many developing countries, since it will be well nigh impossible to replicate export-led success stories like we’ve seen in parts of Asia. Also, even though policies, politics, and corruption are knotty issues that often block progress, there is scope for tweaking institutions at the margins in ways that will improve the status of poor people. These were some of the takeaways I gleaned from the Development Economics lecture yesterday by Esther Duflo, MIT Economics Profession and co-founder of the JPAL Poverty Lab.
Duflo’s lecture was a refreshing mix of pragmatism and idealism. Clearly full of passion for her job and blessed with extraordinary energy, this young economist travels tirelessly to learn what’s happening at the coal face of development and she approaches her task with rigor as well as a sense of mission.
The potential for expanding the industrial sectors of African countries is substantial – this was a message I delivered on a recent trip to Italy, Tanzania, Mozambique and Malawi. This can happen through an improved understanding of the mechanics of economic transformation as well as by focusing on how such countries can follow their comparative advantage in natural resources and labor supply.
During my site visits and meetings with the private sector for the African segments of my trip, I became more convinced than ever of the strong untapped potential for private sector-led industrialization. Yet that can only happen when the government plays a facilitating role, such as by overcoming information asymmetries, coordination failures and externalities associated with first-mover actions. In Tanzania, initial experiments with industrial parks look promising, as do agricultural development projects and rural transport initiatives currently under way. In the case of industrial parks, it’s important to have a one-stop shop for registration and other administrative obligations, adequate electricity and water supply, and good transport/logistics links.
It's important to have an international forum where leading thinkers can exchange ideas about how to reduce poverty and how to promote growth in low income countries. I'm delighted that, since its inauguration 22 years ago, the Annual Bank Conference on Development Economics (ABCDE) has served this purpose by connecting leading thinkers, practitioners, and students. Now more than ever, we need active and constructive debate about job creation, reducing inequality, empowering women, and improving our approaches to human capital formation and training youth. TheDevelopment Economics Vice Presidency that I lead is enthusiastic in its continued support for this forum.
For people to benefit from development and escape poverty, they need to broaden their opportunities. That's why we chose 'Broadening Opportunities for Development' as our overall theme for this year's conference happening from May 30-June 1 in Paris.
One is always grateful to see attention paid to the quality and quantity of household data available to study poverty. It is a subject dear to my heart and to my colleagues in the Living Standards Measurement Study (LSMS ) in the World Bank. In sub-Saharan Africa, as a recent Global Dashboard post titled “What do we really know about poverty and inequality?” by Claire Melamed points out, there is still a dearth of data, even after years of government effort and international support. But there are data -- in some countries lots of data -- so it’s worth highlighting what is there. Today I wanted to add some nuance to the discussion of income and assets raised by Claire and, probably more importantly, steer people to some new data that will, we hope, excite the most blasé of you out there.