Sub-Saharan Africa (SSA) is home to the world’s poorest countries. The region’s geographical disadvantages are often viewed as an important deterrent to its economic development. A country’s geography directly affects economic development through its effect on disease burden, agricultural productivity or the availability of natural resources. However, the new economic geography (NEG) literature, initiated by Krugman (1991), highlights another mechanism through which geography affects prosperity.
Political intervention in credit markets, often with telling consequences, seems to be ubiquitous, regardless of the stage of development of the financial system. It has been well documented that in emerging markets, cozy ties between banks and politicians, as well as state ownership of banks, give rise to a great deal of political influence in credit extension and capital allocation. The recent financial crises in U.S. and the Eurozone have demonstrated that even advanced financial systems are not immune to political intervention.
The crisis in Greece and the Eurozone has escalated as depositors flee banks in fear not only of the consequences of sovereign default but also of Greece abandoning the Euro. Unfortunately, this development makes the crisis much deeper and more difficult to manage. As we (along with Eduardo Levy Yeyati) highlighted in a VoxEU piece in June 2011, the main risk of the Greek debt crisis was its potential spillover to the banking sector.
Former Soviet Union leader Joseph Stalin and famous Irish writer Oscar Wilde had very little in common. Yet they agreed on one thing: the importance of ideas in human life. The former once said: “Ideas are more powerful than guns. We would not let our enemies have guns, why should we let them have ideas?” The latter boldly wrote that “An idea that is not dangerous is unworthy of being called an idea at all.” My colleagues who serve as regional chief economists at the Bank -- Shanta Devarajan, Kalpana Kochhar, Indermit Gill -- also agree with me that ideas drive various societal transformations. Nevertheless, they disagree with me on several points, as highlighted in their joint post on Africa Can. We all want to generate and channel the best knowledge on development to policymakers around the world who have been struggling for centuries—if not millennia—to lift their people out of poverty.
Reducing poverty and climbing the ladder to prosperity aren’t easy: From 1950-2008, only 28 economies in the world have reduced their gaps with US by 10 percent or more. Among those 28 economies, only 12 are non-European and non-oil exporters. Such a small number is sobering: It means that most countries have been trapped in middle-income or low-income status. As development economists, we must find a way to help them improve their performance so that our dream of “a world free of poverty” can be realized and they can close the gap with the high-income countries.
Like all fields of socio-economic measurement, there is scope for debate on how best to assess development progress. There is often much to be learnt from such debate.
But the debates are not always politically neutral. Some observers chose only to look critically at data and methods when the results diverge from their political priors. And some try to undermine evidence that does not fit their priors by questioning the motives of those producing that evidence. A generous interpretation might construe this as some “postmodern” approach to data, but on closer inspection it often looks more like a debating ploy to make up for weak substantive arguments.
These few words from the ‘The Face of Female Farming’ aptly capture some of the roles and responsibilities of women in our society. Yesterday, the world celebrated the 101th year of International Women’s Day. Today, we continue to celebrate and honor women and girls worldwide by highlighting some interesting work and articles produced by the World Bank in the field of gender over the past year.
In an article on a Brookings website, Laurence Chandy and Homi Kharas chide the World Bank for three so-called “contradictions” in its global poverty numbers, including the Bank’s latest update. Let me look more closely at these “contradictions” in turn.
First, Chandy and Kharas chide the Bank’s team for assuming that North Korea has the same poverty rate as China. I wish Chandy and Kharas good luck in trying to measure poverty in a place like North Korea, with almost no credible data of any sort to work with. I could offer a guess that 80% of North Korea’s population is poor today—roughly the same as China before it embarked on its reform effort in 1978. This would add slightly less than 1 percentage point to our estimate of the “$1.25 a day” poverty rate for East Asia in 2008.
It’s not every day that jumping monkeys and George Clooney are discussed in the context of a framework for development economics. But that’s exactly what happened on March 6 when Justin Yifu Lin presented his book, ‘New Structural Economics: A framework for Rethinking Development Policy’, with Regional Chief Economist for Africa Shanta Devarajan moderating and Harvard Professor Ricardo Hausmann providing a lively counterpoint as discussant. Justin made an impassioned case for how industrial structure is endogenous to endowment structure, arguing that following comparative advantage and involving the state as a facilitator can be the ticket to income growth and poverty reduction. Hausmann argued that comparative advantage is not determined by an economy’s broad endowment of factors, but by what you know how to do. He also argued that imitation (for example, if George Clooney wears a brand of cologne, other men would wear it too) and moving preferentially towards nearby goods (the jumping monkey analogy) are powerful drivers of innovation and success in industry. Watch the video to get the full narrative or download the Powerpoints here.
While there is now a consensus that institutions and history matter for understanding development outcomes, the development policy community has largely failed to take the third (seemingly logical) step, which is to recognize that historians—and the discipline they represent—might matter. Historians hardly speak with a single voice or from a unified perspective, but at best their absence from policy discussions leads to lost opportunities to enrich the quality of scholarship and expand the range of policy responses; at worst it results in partisans erroneously or selectively invoking ‘history’ in support of their cause, or to claims (as one of us heard in a recent meeting) that “the history of the Middle East is largely a black box” merely because the methods historians deploy are not always those preferred by economists. Needless to say, it is almost impossible to imagine the reverse situation, namely a prominent policy issue in which there was a consensus that economics matters but that economists were somehow not consulted.
Over the last ten years or so, interest in multidimensional poverty analysis has really taken off - not only among academics, but also in the broader policy debate. No one seems to dispute that deprivations exist in multiple domains, and are often correlated. Looking at deprivations in health, education and other dimensions of well-being can complement the fundamental measurement of income and consumption-based poverty, illustrated by the World Bank poverty update announced yesterday. But agreement at this conceptual level clashes with often vociferous disagreement about how best to measure these deprivations.