It is becoming common wisdom that developing countries are doing well while the rich world is stuck in long-overdue austerity. Barring another subprime crisis (this time, in public debt), the locomotives of global growth are about to “switch over.” How come? Will this hold?
Advances in Development Economics
The labor market has the unenviable task of not only absorbing the additional workers entering the labor force each year (as a result of population growth) but also dealing with the unemployed workers as economies. The Keynesian view of unemployment is due to lack of aggregate demand while the neoclassical view is that when prices and wages adjust unemployment will come down significantly. In more and more developing countries, long-term unemployment (workers unemployed for over six months) is spilling over into structural unemployment, which the ILO in its several publications underscores as the mismatch between the skills of the unemployed and the demand for skills in the labor markets.
This structural unemployment may arise due to automation in the work place (e.g. need for higher and higher computer skills), rigidities in the labor market, such as high costs of training or in the case of US de-industrialization as manufacturing jobs are continuously lost to
Global GDP growth and as well as GDP growth in each of the regions were lower in 2009 compared to 2007. More specifically, specifically, negative growth rates were observed during 2009 in developed countries & European Union, Central and SE Europe & CIS countries and to a lesser extent in LAC, while the growth rates for East Asia, South Asia, Middle East, North Africa and Sub-Saharan Africa were positive in 2009 but lower than in 2007.
Reflecting this, all regions experienced higher unemployment rates, with the highest being in the developed economies & EU, Central and SE Europe & CIS and LAC economies, which again all had negative GDP growth rates in 2009. The ILO estimates that the global crisis has led to 34 million more unemployed and the World Bank estimates that about 60 million people may have been pushed into poverty.
Greedy speculators in housing and private bankers, financial innovation and failure of risk models, regulators and credit rating agencies were all deservedly blamed for the recent financial crisis. Behind this all is public policy that worsened the problems.
Development is about welfare enhancing transformation through economic, social, political, and technological progress. Transformation is predicated on per capita income growth but development is also about progress in reduction of poverty and inequality, individual capabilities, access to social services, and quality of life. Both growth and development are also predicated on distributive politics of how a society is able to deal with vested interests and social conflicts.
During past sixty years, growth spurts have occurred in most countries but generally outcomes have fallen short of expectations. Developed economies have averaged growth rates of 2.4 percent during 1990 and 2008 while developing economies have collectively increased their GDP by an average of 4.7 percent over the same period. For low and middle income countries, physical capital is the
We took advantage of the recent ABCDE conference in Stockholm during May 31-June 2, 2010 to hold side discussions with 15 high-profile academics and researchers. We were expecting that they would tell us that economic development thinking should be revisited in the light of the crisis, but surprisingly, the responses were that likely no.
Trade theory has always been lagging behind reality. From Ricardo ‘s (1817) explanation of trade based on relative productivity/technology differences among nations, it took over a century for Eli Heckscher and Bertil Ohlin (1933) to formalize a model that would explain inter- industry trade patterns based on a countries ’natural resources or factor endowments.
The global financial and economic crisis of 2008 has brought an urgency to focus on shorter-term policy issues related to managing bubbles, analyzing current development paradigms, and drawing out policy lessons for future action, particularly lessons learned during the past two years. At the same, longer-term development challenges also must be addressed to avoid the mistakes of 1970s and 1980s when managing stabilization issues dominated economic policy making and development economics was pushed aside for a while. For example, with the exception of East Asian countries and more recently India, why are African, Eastern European and Central Asian, and other South Asian countries unable to sustain high growth rates for more than five to seven years? What are the policy implications of demographic changes and climate change? There is a need for policy discussion on frontier topics such as rethinking globalization in trade, finance, and labor; new economic geography; green growth; and inclusive, balanced, and sustainable growth.
The 15th-century Florentine Niccolo Machiavelli is said to be the first to state, “Never waste the opportunities offered by a good crisis.” During a crisis, countries experiment with policies and learn a lot in a hurry. This overview shares this learning on early policy responses to the current economic crisis, focusing particularly on specific issues that are of interest to policy makers and practitioners in the developing countries. The overview is a compilation of notes that staff members of the World Bank Institute have used during global dialogues and international seminars and conferences since October 2008.
What brought the world to the edge of an abyss in September 2008? After quickly recovering from the Asian crisis of 1997-98, world economic growth accelerated during the period 2000-07. However, in hindsight, there was a ‘perfect storm’ in the making as US and European housing defaults began to pile up beginning in late 2006, oil prices doubled in a few months during late 2007 and early 2008, while rice, wheat, and corn prices jumped by 40-50% during the same period.
(All credits go to SECOM for this information)
President Luiz Inácio Lula da Silva announces US$ 526 billion in public and private investments over 2011-2014
Yesterday, Brazil launched phase two of the Growth Acceleration Program (PAC 2), announcing estimated investments of US$ 526 billion (R$ 958.9 billion) for the period from 2011 to 2014. PAC 2 includes new investment projects for the periods 2011 to 2014 and post-2014, as well as projects initiated during PAC 1 with activities that will conclude after 2010. For the period following 2014, the estimated investment is US$ 346.4 billion (R$ 631.6 billion). The two periods combined reach an amount of US$ 872.3 billion (R$ 1.59 trillion).
PAC is a strategic investment program that combines management initiatives and public works. In its first phase, launched in 2007, the program called for investments of US$ 349 billion (R$ 638 billion), of which 63.3% has been applied.
Similar to the first phase of the program, PAC 2 focuses on investments in the areas of logistics, energy and social development, organized under six major initiatives: Better Cities (urban infrastructure); Bringing Citizenship to the Community (safety and social inclusion); My House, My Life (housing); Water and Light for All (sanitation and access to electricity); Energy (renewable energy, oil and gas); and Transportation (highways, railways, airports).
“I consider PAC 2 as a portfolio of projects that the next administration can build from rather than starting from scratch, as there is no time to lose,” said President Luiz Inácio Lula da Silva during the announcement of the program.
PAC 2 Initiative in Detail...