The World Bank’s conference on “The State of Economics, the State of the World” was an opportunity to take stock of the emergence of new paradigms for understanding economic development. Following Ken Arrow’s talk on the history of the neoclassical model and Shanta Devarajan’s comments on this model’s centrality in the Bank’s work, I had the opportunity to discuss two paradigms of how individuals make decisions that have recently emerged in economics, drawing on psychology, sociology, and anthropology.
Indeed, we in development, and governments that we work with, invest millions of dollars in behavior campaigns. However, many of these campaigns are unconvincing, lack inspiring narratives, and are communicated through outmoded and uninteresting outlets such as billboards and leaflets. Research shows that traditional mass media interventions are often ineffective in promoting behavior change, especially in the long run (Grilli et al 2002, Vidanapathirana et al 2005).
As many middle-income countries are moving towards embracing cash transfers with or without co-responsibilities attached (and the recent hype of handing cash directly to the poor), there is an important wave of programs that provide “cash plus” intervention.
International trade has undergone a radical transformation in the past decades as production processes have fragmented along cross-border value chains. The Brazilian economy has remained on the fringes of this production revolution, maintaining a very high density of local supply chains. This article calls attention to the rising opportunity costs incurred by such option taken by the country.
Moving Tectonic Plates under the Global Economic Geography
In recent decades, international trade has gone through a revolution, with the wide extension of the organization of production in the form of cross-border value chains. This extension was a result of the reduction of tariff and non-tariff barriers, the incorporation of large swaths of workers in the global market economy in Asia and Central Europe, and technological innovations that allowed modularization and geographic distribution of production stages in a growing universe of activities. International trade has grown faster than world GDP and, within the former, the sales of intermediate products has risen faster than the sale of final goods.
Over the last few years, Brazil’s growth has significantly decelerated. Accompanying this slowdown, a change in commentary on Brazil’s economic future has emerged, and is reflected in a recent ratings downgrade of Brazilian sovereign paper and an overall much-bleaker growth outlook both for the near and medium term.
In a new 'Economic Premise' note, Philip Schellekens and I examine three contributing factors to this change in sentiment: macroeconomic management, the external environment, and microeconomic fundamentals. Among these, we argue that the relative lack of progress on the microeconomic reform agenda has been far more detrimental to the growth outlook than either the credibility cost of recent macroeconomic management or the negative influence of a less supportive external environment.
Three years from the deadline for reaching the Millennium Development Goals, two-thirds of countries will not reach MDGs 4 and 5 (child and maternal mortality, respectively). And now the second food price rise in three years is a wake-up call for the development community.
In this context, the Global Monitoring Report 2012: Food Prices, Nutrition, and the Millennium Development Goals examines some of the possible consequences of food price increases, such as a rise in poverty and undernourishment1. Households cope through a variety of mechanisms, including: eating less nutritious diets and then less food; making more household members work (women and children); and not seeking health care when ill. The most vulnerable (the poor, children, and pregnant women) bear the brunt of these adverse impacts. Moreover, as countries seek to maintain food prices, some increase food price subsidies and cut into other services.
As surprising as it may seem, there is a deep dark secret at the core of the System of National Accounts (SNA) – the accounts used by Finance ministries worldwide to measure economic performance. The numbers don’t add up. We can see this in the table below, showing the net worth of Brazil and its composition in 2005. The final two lines in the table report a measure of Brazil’s net national income and the implicit rate of return on wealth (the ratio of income to net worth). The return to Brazil’s produced and natural capital is over 18%! As good economists, we should all be investing our pension funds in Brazil. Why? Because financial market data tell us that the long run real rate of return across the broad range of assets averages only about 5% a year.
|Table – Net worth and net national
Income (NNI) in Brazil, 2005, $million
|Net financial assets||-117,221|
|Implicit rate of return||18.2%|
|Source: The Changing Wealth of Nations
World Bank (2011)