PSD Blog - The World Bank Group

Is protectionism on the rise?

The World Trade Organization (WTO) released its flagship Annual Report (2009) on the 22nd of July. Each year, the annual report focuses on a topic of special interest to the global trading community. It didn’t require much guessing to figure out that this year’s report would have something to do with the ongoing financial crisis and its impact on trade. But precisely which aspect of the financial crisis is most important for trade policy today?

The WTO has identified increased protectionism as the biggest danger. In a nutshell, under recessionary pressures, a country is tempted to erect higher trade barriers to shift demand from foreign-made to home-made goods, thereby stimulating its own economy. The problem here is that when all countries resort to protectionism, global welfare is lower (gains from trade are lost) and the recessionary pressures intensify.

Retailing in India: Setting the priorities

The retail and wholesale sector in India is among the biggest in the country, yet it receives little attention from policy makers and researchers. The sector accounts for about 14% of India’s GDP and over a quarter of the value added in all services sectors. It is the second largest employer (after agriculture), providing over 10% of all formal jobs in the country. The sector has also shown strong growth in recent years, with an average annual growth rate of 7.3% over the 1990s (and with some predicting continued strong growth over the next few years). These numbers tell the story in the formal sector. But an estimated 95% of the sector’s activity takes place in the informal sector that is not accounted for in the official figures.

Crazy. Crazy. Crazy. Obvious.

That's Harvard Professor Lant Pritchett in the Atlantic describing the process it takes to get new game-changing ideas adopted by the mainstream. In this case, he's talking about the adoption of a global guest-worker program that would increase the labor supply in rich countries by three percent by handing out temporary visas to workers from poor countries.

I think it's a great idea, but the important question is which stage of "Crazy" we are at. Before the financial crisis, I might have said we're at the middle "Crazy", but unfortunately these things don't work in a linear fashion. We just might be back to "Crazy" number one. 

Revisiting the ABCDEs of East Asian development

Editor's Note: Swarnim Waglé is a consultant with the Investing Across Borders indicators project of the World Bank Group.

Ha-Joon Chang, a teacher at the University of Cambridge in England, describes himself as a “heterodox” economist and has been a long-time critic of the World Bank and the IMF. A few weeks ago, he was invited to be a keynote speaker at the recent 2009 Annual Bank Conference on Development Economics (ABCDE) in Seoul, where he revived an old debate on industrial policy that many might have considered settled had the latest economic crisis not struck.

Privatization: Soft budgets vs. soft price regulations

Public sector firms face a “soft budget” constraint in the sense that the government can bail them out for the losses they incur. Hence, managers can follow their own interest or favor special interest groups without worrying much about the costs of such actions. In short, soft budgets tend to promote corruption.

One solution to this soft budget driven corruption is privatization with a firm pre-commitment on the part of the government to not bail out the firm in the future. So, we should expect greater satisfaction with privatization among consumers in countries that are more corrupt. According to a recent study by Martimort and Straub (2009), quite the opposite is happening in Latin America. Consumer dissatisfaction with privatization efforts over the last two decades has increased, and especially so in countries that are more corrupt or where corruption has increased over time (see figure below the jump).

Mongolian Cashmere: Softer than a baby’s bottom

Before I came to Mongolia, I thought the softest thing in the world was the rear end of a baby. But that was before I visited the Gobi Cashmere factory, where I saw the production process from smelly goat hair to high-quality clothes. It’s hard to believe that the scraggy goats you see in the countryside are the source of Mongolia’s fabulous cashmere products, but it’s true. Somehow, the tough conditions of Mongolia lead to incredible, wearable softness.

Mongolia is the second largest producer of raw cashmere, after China. Estimates vary, but Mongolia produces about 20 percent of global supply. China produces about 70 percent. The rest comes from Afghanistan, Iran, India, Pakistan and Central Asia. In spite of this, Mongolia hasn’t succeeded—at least not yet—in branding its top-quality cashmere.

PPPs in India

In a recent post, Filip talked about the role of EPEC in promoting Public-Private Partnerships (PPPs) in the EU. Filip’s post highlighted some of the problems facing PPPs, such as a lack of adequate finance and insufficient capacity within the public sector to define, manage and/or implement its PPP policies and programs in accordance with market best practice. The EU is not the only one facing these kinds of challenges. Below, I report on the problems faced by PPPs in India, suggesting that the concerns raised by Filip have a broader implication for developing countries.

The Non Sequitur Award

I've long been entertained by the awards that Andrew Sullivan hands out on the Daily Dish. (If you don't follow Andrew, you can get a sense of what I'm talking about with this recent example.) I've been thinking it might be a good idea to dish out awards for the economics and development world as well. My first nominee is Myron Scholes of Long-Term Capital Management fame for a recent quote in the Economist discussing the efficient markets hypothesis:

To say something has failed you have to have something to replace it, and so far we don’t have a new paradigm to replace efficient markets.

If my car breaks down, I don't need a new one to know that the old one is broken. The Non Sequitur Award will be given for the best non sequitur or illogical statement in the world of economics. Any other nominees?

Crime, security and corruption in Africa

In previous posts, I discussed the crime and security situation for firms in Latin America and the Eastern Europe and Central Asia (ECA) region. I have begun rolling data from the Enterprise Surveys for 21 countries in Africa, and the initial results suggest that crime imposes  as heavy a burden on firms in Africa as in Latin America. On average, losses due to crime and security expenses average about 2.7% of the annual sales of a firm in Africa. The corresponding figures for Latin America and ECA are 2.7% and 1.9%, respectively.

Is there more crime in low-income countries?

One might think that firms in low-income countries suffer more crime-related problems than those higher up the development ladder. Low income levels, higher unemployment and the haphazard development of urban centers in low-income countries might contribute positively to crime. Consequently, losses due to crime and expenses on security incurred by firms may be higher in these countries.