PSD Blog - The World Bank Group

Franksgiving - one more lesson from the Great Depression

Faced with the scale of the current financial crisis, many economists have turned to the Great Depression to look for policy lessons. Tyler Cowen, a professor at George Mason University, shared his thoughts on the topic recently in the New York Times. His take? The New Deal Didn’t Always Work, Either. Faced with an unprecedented crisis, Roosevelt experimented with a mix of policies, and some worked and some did not.

Here's one of the (now long-forgotten) policies that did not work: Franksgiving. Nowadays, the U.S. celebrates the holiday of Thanksgiving on the fourth Thursday of November. It wasn't always that way, though. Traditionally, Americans celebrated Thanksgiving on the last Thursday of November. Every few years, there are five Thursdays in the month of November, and 1939 was one of those years. Unfortunately for retailers, this meant that the Christmas shopping season would be very short.

The hidden side of globalization

In debates over globalization, much attention is given to so-called 'North-South' relationships. Often, data on 'South-South' exchanges it too limited to say much. A new paper on Global Migration of the Highly Skilled by Theo Dunnewijk of United Nations University helps shed some new light on 'South-South' brain drain/brain strain/brain circulation (Hat tip: Giulio Quaggiotto). Previous datasets had overlooked diasporas of highly skilled workers in these countries:

• South Africa originating in Zimbabwe, Botswana, Namibia and Lesotho;
• Russia from Kazakhstan, Ukraine and Belarus;
• Ukraine, from Brunei Darussalam;
• Czechoslovakia (former) from Iran;
• Malaysia from China and India;
• Latvia from Israel;
• Romania from Moldova;
• Jordan from Palestine Autonomous Region;
• Tajikistan from Uzbekistan;
• Bulgaria from Greece

Is this brain drain, brain strain, or brain circulation? Dunnewijk doesn't tell us - a topic for another paper, perhaps.

East African Securities Market

Kainvestor, a blogger who follows the Kenyan market, says it looks like East Africa is stepping back from regional financial integration:

It seems we are reversing on the pledge of having an East African Securities Market any time soon. Although Kenya firms such as KCB Group are...in the process of cross-listing, joining others like KQ and Jubilee Insurance which have already done so, our partners in regional bourse integration seem to have sinister ideas of the same process.

My question for Kainvestor - how much of this has been driven by the financial crisis, if at all?

Leasing in Mongolia gets a jump start

What does it take to get the leasing sector off the ground? In IFC's experience, the first thing to take care of is legislation that makes leasing feasible. Tax treatment, customs regulations, and the ability to reclaim equipment all have a big influence on whether leasing companies will make it or not.

This is important for Mongolia. Although commodity prices are depressed right now, there is a huge amount of wealth in the ground. Getting it out will require a lot of equipment, everything from excavators to drills to vehicles, and more. And it's not only mining companies that will need equipment—the many Mongolian businesses that provide goods and services to the mining industry will need equipment too. These businesses will be an important part of mining-led economic growth in Mongolia.

How to defeat witchcraft

If you're a fan of Monty Python and the Holy Grail, you'll know how. Since a witch burns, she must be made of wood, and since wood floats and ducks also float, logically a witch will weigh the same as a duck (or something like that). And if you have no idea what I'm talking about, this video clip from the absurd 1975 film should clear it up:

While witchcraft might seem to be the stuff of medieval legend, it is actually a tricky sociological - and, as it turns out, economic - question in some developing countries. Last week Raymond Fisman, a rising star at Colombia Business School, came to the World Bank to speak about his new book Economic Gangsters (coauthored with Edward Miguel). One of the stories from the book that Fisman related concerned witch killing, which is apparently not an uncommon phenomenon in some countries, Tanzania in particular.   

Health vs. wealth

The Economist reports this week on new research on the relationship between Health and Wealth. The long and the short of it is that improvements in health don't necessarily lead to higher incomes, as counterintuitive as that sounds at first. (As always, the causation may be running the opposite direction - higher incomes lead to better health.) In one of the papers, researchers from MIT looked at the impact of medical advancements like penicillin that improved health in developing countries but clearly were not the result of improved incomes in developing countries. They found that income per head dropped despite improvements in life expectancy.

According to the Economist, the researchers offered this explanation:

The reason was that increased life expectancy led to a higher population using a limited stock of things like land and capital, thus depressing income per person. Over time, reduced fertility, more investment and the entrepreneurial benefits of having more people could reverse some of this, but the data suggested that reductions in fertility in particular took a long time.

Crunch time for microfinance - final thoughts

CGAP ran a virtual conference last week on microfinance and the financial crisis. (See their website for details and an earlier post on the first round of emails from the conference.) There was a ton of interest in this topic, reflected in the extraordinary volume of communication from all over the globe. To make things easy for you, I pored over the emails to bring you more highlights from the first half of the conference, which focused on MFIs and their clients:

Daniel Mensah from Ghana:

I am a member of the credit union movement in Ghana, West Africa. At a recent meeting of some of the credit union executives, it was reported that the number of members taking loans or withdrawing their savings is going up. Among the many reasons given was that the financial crisis has reduced the inflow of remittances from citizens/relations abroad and so many members now have to fall on their savings or take loans.

Congratulations to Slovakia!

A press release just yesterday announced that the Slovak Republic graduated from borrower status with the World Bank. The announcement is a welcome bright note in this dark economic environment. It is worthwhile to remember that not very long ago, Madeleine Albright referred to Slovakia as "the black hole of Europe." Just a decade later, Slovakia has seen impressive achievements in economic reform and growth in incomes.

Ján Počiatek, Minister of Finance of the Slovak Republic, had this to say:

Over the past 15 years, the World Bank has assisted us with complex reforms by providing financial, technical and know-how assistance, which was very important to us...Going forward, we would be interested in continuing technical cooperation with the World Bank, especially in human resources and institutional strengthening.

Congrats to Slovakia!

Easterly channels Lenin

Well, sort of. Bill Easterly reviews Paul Collier's The Bottom Billion in the most recent New York Review of Books. As Easterly points out, Lenin argued that the capitalist powers would divide up the globe between them; Easterly himself comments on the increasingly intertwined ventures of foreign aid and military intervention. I'll just let the inimitable professor speak for himself:

International aid organizations have also begun linking military intervention to fighting poverty. The World Bank was among the first when it suggested in a prominent 2003 report, Breaking the Conflict Trap, that aid combined with military action "could avert untold suffering, spur poverty reduction, and help to protect people around the world from...drug-trafficking, disease, and terrorism." The report suggested that such combined action could halve the probability of a civil war breaking out in a poor country from precisely 44 percent to 22 percent.

Entrepreneurship - the key to prosperity?

Following the G20 summit this weekend, the leaders of the world's largest economies issued a statement explaining how they intend to remake the world's economic architecture. On the very first page of the statement you'll run across the following:

Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction.

It might be tempting to treat this merely as empty rhetoric, but I think it's worthwhile to look at what the data actually shows about these relationships. The most recent data from the World Bank Group Entrepreneurship Survey - which covers 100 countries - indicates a very strong (and statistically significant) relationship between entre- preneurship and economic well-being. (Entrepreneurship is measured by the entry density rate of limited liability companies and economic well-being is measured by GDP per capita.)