PSD Blog - The World Bank Group

China's Venture Capital Markets: Nascent, but growing

Editor's Note: Brian Hoyt is a consultant with the Financial and Private Sector Development Vice Presidency of the World Bank Group.

The World Bank recently held a workshop on Closing the Private Equity Gap that discussed how government policy can nurture the growth and sustainability of emerging market private equity. Venture capital investments play an important role in filling the early stage funding gap, and China is one of the world's largest emerging markets for venture capital (VC).

Last May, the Bank released a report, Promoting Enterprise-Led Innovation in China, which gives an overview of the Chinese VC market, whose investments have grown from $764m to $3.88bn between 2003 and 2007. In order to mantain this growth, the report calls on the Chinese governement to continue building its venture capital infrastructure:

What can Chindia do to cope with the crisis?

One of the oft-cited causes of the financial crisis are the huge macroeconomic imbalances that developed between the United States and a number of emerging markets, particularly China. Neil Gregory, a senior adviser at the World Bank and author of New Industries from New Places, offers China and India some advice on coping with the crisis that should also help deal with these imbalances. From an interview with Neil on China and India's IT markets in India's Financial Express:

Regulating microfinance

In response to Janine's post on mobile money in Mongolia, David Lembo from the zzzeitgeist blog expresses some concern: "One question worth considering - do all these development finance programs (mobile banking, microfinance, crop insurance) get a free pass on regulation because they are seen as helping the poor? I sure hope not..."

It just so happens that he is not alone. Nataliya Mylenko on the CGAP blog discusses the need for consumer protections in microfinance:

Obviously disclosure will not solve all of our problems and prevent future crises. But those pointing to its ineffectiveness, especially coming from countries with no disclosure requirements at all, are wrong. Naturally, lenders will continue to try to make terms less clear and hide charges. Of course every individual on the planet will not educate him or herself about all the intricacies of finance. But regulation leveling the playing field and requiring lenders to tell borrowers in clear language the truth about costs and terms is a must. So is making it clear that it’s an individual’s responsibility to protect his or her financial interest – not the lender’s (contrary to what financial industry advertisements say).

Mongolia’s landscape equals mobile money opportunity

Mongolia is about the size of Alaska and has a population of fewer then 3 million people.  This translates into one of the lowest population densities in the world.  With almost half the population living in Ulaanbaatar, the capital city, and the rest spread out across the country, it may seem that Mongolia is not the ideal landscape for mobile financial services.  Think again!  Because that's what the key players in the market are doing. 

Last month, I had the opportunity to visit Mongolia to assess the mobile banking landscape there, and I came away surprised by what I found—and excited by the possibilities.

What are financial literacy programs good for?

Could they help us save the world from future financial crises? If we are to believe the work of economist Robert Shiller and the larger school of behavioral economics, then the answer is "yes", or at least a partial "yes." Households in OECD countries - particularly the U.S. - overleveraged themselves, placing themselves in a precarious position that turned the popping of the housing bubble in the U.S. into a systemic crisis. In theory financial literacy programs will keep households from getting themselves in over their heads, which should help prevent downturns from turning into crises.

Mongolia's construction sector: still frozen

From our office window, I can see nine cranes hovering over unfinished buildings. None of them are moving, even though it's now well above freezing. In winter, construction stops because of the sub-zero temperatures. But when it warms up, the work starts up again. A year ago, when I first arrived in Ulaanbaatar, there was a ton of construction activity. This year, there's almost nothing. Another visible sign of the crisis.

Even before the crisis, I was astonished by the sheer number of buildings going up. Within spitting distance of our office there are five new office buildings that are nearly complete, and many more throughout the city. Who is going to move into these spaces? There are even more residential buildings being thrown up, including entire sub-districts. But who's going to move into them, if they're ever finished?

Doubling down on higher education

China could very possibly be setting a record this year with the largest number of unemployed recent college graduates in the history of the world. A recent article in International Higher Education reports that in 2009 "close to 2 million graduates may not find jobs." The article goes on: "in a job fair held by Donghua University, more than 30,000 graduates competed for 1,700 positions provided by foreign firms." In 1999 the Chinese government embarked on an ambitious expansion of its higher education system - just in time for a huge number of students to graduate into the current depressed job market.

Top ten signs that the global economic crisis has reached Mongolia

The worldwide press is full of bad economic news about the financial crisis. You'll find plenty of graphs and figures of collapsing commodity prices, depreciating currencies, rising unemployment, and other economic horrors. But what about the impact on the ground? Here are some observable signs of the crisis in Mongolia that I've noticed in the last six months:

Private sector finance in Asia

The Asian Development Bank (ADB) has taken a real interest in private sector finance, releasing a publication earlier this year called Private Sector Finance: Catalyzing Private Investment in the Asia and Pacific Region. The ADB argues that a lot of their work revolves around building confidence:

...financial institutions across Asia are awash with liquidity. This is a situation that evokes an underlying problem—the absence of investor confidence. The absence of investor confidence continues to ail most developing economies, as investors remain wary of risks that abound across the region. This is where the strategic role of ADB lies.

They have their work cut out for them. The Institute of International Finance has some harrowing predictions for private capital flows to emerging Asia - a falloff to $64.9 billion in 2009 from $314.8 billion in 2007, a drop of nearly 80% in two years. This places it behind only emerging Europe in percentage terms.

The century of Chindia?

A just released book published by the World Bank looks at the potential for economic cooperation between China and India in the IT sector. It's called New Industries from New Places, and it's been coauthored by Neil Gregory, an adviser in the World Bank's Financial and Private Sector Development department.  

From the description:

This book represents the first rigorous comparison of China and India's new growth sectors. It compares the emergence of India and China as global leaders in hardware and software production as well as the growth performance of private enterprise in the IT manufacturing and IT services sectors in China and India. It examines the economic context and the business environment for private enterprise in China and India, and considers how far differences in economic policies or the business environment explain the observed differences in growth performance. The book concludes by evaluating explanations for the growth performance of each sector in each country and by drawing conclusions for future economic policies and business strategies.

So, will this be the century of Chindia? I'll get back to you after I've read the book...  

Crazy driving in Ulaanbaatar

"We drive cars the same way we ride horses," a Mongolian colleague once told me. It took me a while to process that thought. I can't say I see the grace and beauty of a Mongolian horseman reflected in Ulaanbaatar's traffic. But I don't think that's what he meant. I think he was referring to the freedom of movement that both drivers and riders on horseback enjoy.

I first experienced Mongolian traffic as a pedestrian, desperately trying to cross busy streets, surrounded by cars and in constant terror. At first, I stayed alive by waiting until a critical mass of pedestrians gathered together at the side of the road. Then, as a single body, they would surge forward into the traffic, forcing cars to stop or at least slow down. I don't know what triggers the collective decision to move forward, but somehow it works.

Creative destruction in ICT

If ever there were a moment to witness creative destruction in action, now is it. If I had to bet on a sector that would benefit most from this process in the current financial crisis, it's ICT. My colleage Oleg Petrov in e-Development points me to a recent note from the World Bank on the experience of ICT during the Asian financial crisis. The note argues that creative destruction is exactly what happened during that episode:

...the point here is that the Asian financial crisis was actually beneficial in creating a Schumpeterian "gale of creative destruction" that swept through the failed telecom investment schemes of the mid-1990s (in this case based on narrowband networks) and prepared the ground for a fresh round of investment. The Republic of Korea was arguably hardest-hit by the Asian financial crisis, but it was also in the vanguard of the broadband charge, with the Government taking a leading role, alongside private enterprises...

...financial crises also create openings for disruptive technologies, and here, small companies hold an advantage. Google was born in 1998, in the middle of the Asian financial crisis, while Skype was born in 2003 at the very bottom of the dot.com slump.

The city is the future

Tim Harford opines on the future of cities in his book The Logic of Life:

It's true that modern communications technology is allowing some forms of work that once had to be done in the city to be done in the countryside. But as we've seen, it also allows the most efficient suppliers-be they New York advertisers, London financiers, Milanese designers, or Bangalore's software engineers-to reach anywhere in the world. It makes cities more manageable, unlocking their diversity as a source of friendship and of business, and encourages global travel that links one city to another. Throw in the increasing importance of the service sector and the fact that services are more varied and high-quality in cities, and the rational conclustion is inescapable: Cities are likely to enter a new golden age.

While I think that in the long-run Harford is right, the financial crisis looks set to cause at least a brief reversal in the rise of cities. As an example, massive numbers of rural-to-urban migrants in China have lost their jobs and look set to return (or have already returned) to the countryside. As part of its response, the Chinese government has been directing subsidies to the agricultural sector. While this might help reduce unemployment in urban centers, a reversal of rural-to-urban migration suggests an overall reduction in productivity levels and missed out economies-of-scale.   

Blogging and the financial crisis

I've run across two stories of bloggers being arrested (or threatened with arrest) in relation to the financial crisis. One blogger was arrested in Korea in January and was charged with "spreading false rumors that led to a drop in the country's currency." And now a blogger in Guyana is threatened with arrest  because of "a false report that a commercial bank in the South American nation had requested a $5 million bailout to avert a collapse." I expect that as the second-round effects of the financial crisis continue to spread around the world, more bloggers will face similar situations. 
  

Mobile banking takes WING in Cambodia

One of the enterprises that IFC has been working with in Cambodia is WING, a subsidiary of the Australia and New Zealand Banking Group (ANZ). In late January, WING launched a mobile payments business that targets unbanked customers. Last week, I had the opportunity to visit WING’s offices, meet their team, participate in their rollout, and travel to remote areas to visit agent locations. I was impressed by the high energy and creativity of WING’s staff, their incredible progress in a relatively short period of time, their willingness to adapt to new lessons quickly, and the unique aspects of their solution. 

WING’s USSD-based service will allow customers to save, make purchases, transfer money to both WING and non-WING users, and perform a range of other financial services – all through mobile phones. Since WING account numbers do not have to be tied to a customer’s mobile phone number, the service is also available to people who do not own phones. In a country like Cambodia, this feature is extremely important because a large percentage of the population still does not own mobile phones but have easy access via family and friends.

Prior to designing their product, WING performed extensive market research to ensure that they understood the target market and its financial needs. The resultant service was developed in response to those findings. Product development occurred over a 9-month period during which the company performed iterative testing and redesign, mapping their solution closer and closer to the needs of the market.

Active consumption is a form of patriotism

When people speak of patriotism, they tend to think of war and of deeds on the battlefield. But even in peacetime, patriotism can actually be found in every facet of life. More than simply an idea, patriotism is an action. Today, as China faces serious difficulties and challenges both domestic and international, active consumption is a form of patriotism...

...Consumption is an inherent requirement of economic development and is crucial for the national economy. Marx pointed out, "Production is thus at the same time consumption, and consumption is at the same time production....Without production there is no consumption, but without consumption there is no production either, since in that case production would be useless."* On the one hand, only through consumption do products thus produced become real commodities, and only through consumption can commodities realize their value. On the other, consumption can generate new demand and new motivations for production.

We elevate consumption to the level of patriotism because broadening consumption is particularly important for China's economic development right now.

The preceding is from an op-ed in Xinhua's Outlook Weekly. (Translation via Danwei.) Although I doubt that patriotism will give consumers the confidence needed to spend, it could very well help give cover to very unhelpful protectionist measures. (Here is one example from the UK.)

Income (in)equality among the professoriate

“Salary progression”—the difference in salary between junior and senior professors—in general appears modest compared to the situation in the professions outside academe. According to our research, for most of the 15 countries in the study, salaries seldom doubled between entry level and senior ranks. The major industrialized countries (including Germany, France, Canada, the United States, and the United Kingdom) stood at the bottom, in terms of variations between junior and senior ranks, and the developing countries (such as China, South Africa, Argentina, and others) at the top. India ranks poorly on both progression and on basic salary. The lack of possibilities for improved salaries is a problem for the profession in general, but it is particularly damaging for the most productive academics. The latter are the most likely to leave academe or to go to countries with higher salaries.

That is from a new article by Philip Altbach, Director of the Center for International Higher Education, called The Intricacies of Academic Remuneration. Of course, we must take into account the many types of non-income remuneration that academics receive. But still I wonder - what are the chances that the professiorate (or Ministries of Education) would permit the kind of income dispersion that is normally seen in the (purely) private sector? I'm not holding my breath. 

Tough times in the Chinese labor market

Brian Schwarz of the China Challenges blog reports on the difficulties facing workers in China due to the financial crisis. Governments around the world are gearing up with various stimulus packages, but in the meantime prospects don't sound very good:

Today many firms are downsizing or considering closing up shop all together. Citing fast-climbing labor costs and pesky production quality problems, a growing number of German companies are doing an about face and pulling their manufacturing operations out of China. In August the Association of German Engineers (VDI) estimated that one in five of the approximately 1,600 German companies with presences in China were planning to pull out of the market...

...government officials have slashed interest rates and announced plans for a large fiscal stimulus to keep the job engine from stalling completely. McKinsey estimates that another 300 million rural residents must come to Chinese cities over the next seven years. Already, this year's 5 million university graduates are struggling to find white-collar jobs.

Clearly, very substantial declines in exports are having a serious effect on people's livelihoods.

(Hat tip: Oiwan Lam of Global Voice Online)

Bank Indonesia promotes e-money efficiency

Back in November of last year, Bank Indonesia and IFC co-hosted a half-day forum focused on bringing efficiency to electronic money solutions in the country. The seminar – titled Peningkatan Efisiensi Penyelenggaraan Uang Elektronik (E-money) – was opened by Bank Indonesia Director Murniastuti and IFC Vice President Rachel Kyte. Global experts were brought in from Europe and India to discuss emerging regulatory best practices as well as the role for interoperability between mobile money and mobile banking solutions. 

Bank Indonesia is interested in efficient systems not just for mobile money, but for other forms of electronic money such as credit cards, debit cards, pre-paid cards, ATMs, and point-of-sale (POS) terminals. Since many banks in Indonesia still maintain proprietary payment networks, it is not uncommon to find multiple POS terminals present at a single retailer – each POS accepting payment or debit cards from a limited number of banks. The same is true of ATM networks.

Can randomized evaluations defeat economic gangsters?

I just finished reading Economic Gangsters, an excellent little book that summarizes in popular form a lot of recent evaluation work on corruption and violence. (See earlier posts here and here.) Although the book covers a hodgepodge of topics, from witchcraft in Tanzania to smuggling in China, it is held together by a particular approach to international development - namely, a call for randomized evaluations or one of its close kin to assess the utility of development interventions. Authors Raymond Fisman and Edward Miguel put it rather bluntly when discussing the particular case of the Millennium Village Project:

We genuinely hope that the Sauri [millennium village] model proves to be the great innovation that solves the problem of global poverty...But a serious program evaluation is needed to understand how and why its successes did (or did not) take place. Otherwise, we'll have learned little, and Sauri and the other Millennium Villages will likely join the long list of well-intentioned but ultimately inconclusive (and quickly forgotten) attempts to make poverty history.

I agree with their critique, but I wonder in turn what the limits are to their approach when looking at the particular issue of corruption. As Fisman and Miguel point out in the book, randomized evaluations have been invaluable in judging the merits of certain types of interventions. They provide examples of two interventions in Busia, a district in Kenya. One intervention provided deworming pills for children, while another supplied textbooks to classrooms. Since both interventions were randomly assigned, researchers were able to figure out after the fact that the deworming pills did a good job of boosting school attendance, while the additional textbooks had at best a negligible effect. Fisman and Miguel maintain that a similar approach can be used to learn how to fight corruption.

Entrepreneurship - the key to prosperity ctd.

World Bank data show a strong correlation between measures of entrepreneurship and income. But how does this relationship come about, and what drives what? Abhijit Banerjee, of Poverty Action Lab fame, gives his take:

It turns out that the businesses of the poor are also poor businesses: The typical business has zero paid employees and no machines in almost every country where we have data and where we have the information to be able to calculate this, what the household earns from the business is less than what they would earn on the lowest end of the labor market. They are in effect buying a job and not [a] particularly good job at that...

Next in line for m-banking services: Papua New Guinea

This past October I participated in a 2-day Mobile Money Summit in Port Moresby, Papua New Guinea. Why Papua New Guinea? There is growing interest among telecom companies and banks there in mobile financial services. Although the meeting was attended by more than 50 people from around the Pacific, the majority of the participants were from companies doing business in Papua New Guinea.

IFC cosponsored the event, along with the Asian Development Bank, Bank of Papua New Guinea, the Business Council of Papua New Guinea and the Port Moresby Chamber of Commerce and Industry. The topics discussed reflected the variety of participants – an overview of mobile banking, regulatory discussions, and success stories from the region. Bank South Pacific also provided us with a demonstration of a mobile banking service. And I spoke during a session on New Solutions: Engaging with Customers and Creating Compelling Products, where I presented a range of business models and discussed technology options for mobile financial services.

What’s your lucky number? For Mongolia, it’s 58.

The hall was large and chilly. But it was also full. Nearly 80 people had come to listen to a presentation on Mongolia’s ratings in the 2009 Doing Business survey. I was happy to see a healthy mix of government officials, private firms, developmental organizations, NGOs and journalists there.

The Doing Business project looks at the business environment in 181 economies using ten indicators that reflect the life cycle of businesses. Then it ranks them. Governments can use the rankings to compare themselves to other countries, or to measure their own progress in business reforms over time.

Mongolia is currently at 58, a slight drop from last year. It is 7th in the East Asia & Pacific Region, well ahead of China (83) and Vietnam (92). Mongolia also outperformed most countries of the former Soviet Union, including Russia (120) and Kazakhstan (70). Quite an achievement!

New Blogger: Janine Firpo

Mobile banking – everyone is talking about it, but how can we separate hype from reality? I've invited Janine Firpo, President of Sevak Solutions, to help us make sense of this potentially transformative technology. Janine was recently hired by IFC, a member of the World Bank Group, to work with IFC’s regional advisory teams to accelerate the development and large-scale roll-out of mobile money solutions in East Asia and the Pacific.

Janine brings over 24 years experience in technology, international development, and consortium building to her efforts. For the past six years, she has focused exclusively on the role of information and communications technologies in the extension of financial services. She is a pioneer in the implementation of branchless banking solutions and has worked on a range of related issues in Africa, Asia, and Latin America. Welcome!

Legislating for doing good

While the financial and economic crisis has prompted much soul searching on the appropriate government and business boundaries and the right balance of regulation, it will be interesting to see how this filters down to emerging markets such as India and China -even at the local level there are now efforts to legislate for corporate responsibility.

In China the focus to date has mostly targeted clarifying and increasing standards in production – see CSR Asia’s report on labor standards being tested in Yiwu City. This makes sense when companies are reliant on export markets sensitive to such issues, but as exports decline and consumers focus even more on price savings, the momentum may be sucked from such efforts.

In India, the states of Gujarat and Karnataka exemplify an alternative approach. They are considering legislation to make CSR mandatory via required funding of social projects. As reported in Indian Express, Gujarat already requires public enterprises to use 30% of profits before tax for social initiatives. It is now set for extension to private firms.

Web 2.0 and disaster management

There's been quite a lot of attention in the media recently about the role of Web 2.0 in disaster management. Spurred by the Mumbai attacks, Jeremiah Owyang, a specialist in web strategy and social media, wrote an interesting article on "How Municipalities Should Integrate Social Media Into Disaster Planning." (For a different but also fascinating take on what municipalities can achieve through the web, see "a city that thinks like the web").

And it's not just man-made disasters that are getting attention. Aftershock is a website entirely devoted to "the world’s first massively collaborative disaster simulation about a major earthquake affecting much of Southern California." Even if you don't live on the West Coast you can still chip in: "you can imagine your life outside of the region, and we’ll help you understand how the earthquake would affect you. A major earthquake in Southern California will disrupt normal patterns of life for millions of people in the U.S. and the world."

Virtual gifts for a recessionary holiday

A question for the economists out there - what gifts will turn out to be this holiday's most popular inferior good? It looks like the virtual goods industry (now worth an estimated $1.5 billion worldwide) is hoping they will win that prize. Dan Jansen, head of Virtual Greats, had this to say:

Maybe you can’t afford that Louis Vuitton bag, but you could in virtual form...They’re an affordable luxury in this difficult economy.

Perhaps Jansen's hopes for the industry are a little far-fetched, but the trade in virtual goods is no joke. According to the New York Times, China is at the front of the pack:

By most estimates, customers spend about $1.5 billion a year on virtual goods worldwide. Tencent Holdings, a publicly traded Internet media company based in China, is the leader, with hundreds of millions in annual revenue from virtual goods in online games and other applications. Internet companies in the United States are behind the curve.

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.

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.

Bankers are people too!

Where might you find a bank president, an ambassador, an attorney, a journalist, a café owner, and other assorted characters in a single place? On stage, of course! The UB Players, an expat theater group, just put on Agatha Christie’s The Mousetrap. It was a great show, and to my surprise, I recognized about half the cast.

One of the advantages of living in a place like Ulaanbaatar is the mix of people you meet in day-to-day life. You bump into them everywhere. I last saw Sergeant Trotter, played by the President of TDB Bank, Randolph Koppa, at a workshop on housing finance. TDB has a trade finance guarantee with IFC and hosts the Mongolian SME Toolkit, an online business planning tool for small businesses. I didn’t expect to see him trying to solve murders!

The private sector vs. poverty

The World Bank released the results of a global poll today about international development and the role that the World Bank should play in the world. Poverty was the top concern. I find it curious - but perhaps telling - to see how respondents thought that poverty could most effectively be addressed:

In an environment where poverty and growth are high priorities of the WBG and its clients, the poll explored with stakeholders their views on the most effective ways to solve these challenges. In East Asia/Pacific, South Asia, and Africa regions, agriculture productivity emerged as the most important area of development to reduce poverty. In Latin America and Middle East/North Africa, education is onsidered the key to poverty reduction, while in Europe/Central Asia, stakeholders identified private sector growth as the most important area to reduce poverty.

Europe/Central Asia has also consistently dominated the Doing Business report as the most active reform region. Two decades on, it is the post-communist world that is most supportive of the private sector.

China, meet World of Warcraft

The Financial Times today reports that China does U-turn on online money-making. Making 'real' money by trading virtual currencies earned from online gaming was banned two years ago, but it looks like the Chinese government has changed its mind. China will now collect a 20 percent tax on income earned from online gaming.

As I point out in a post on The end of Doha and the World of Warcraft, gold farming and trading in virtual currencies is "largely under the radar of the World Trade Organization and, to some extent, government tax collectors." The FT cites an online contributor with a slightly more poetic take on the issue: "If they successfully implement this tax, I will jump over Mount Everest."

Walmart in exchange for Harvard

The U.S. gets Walmart, and in return, China gets...Harvard. At least that's part of the story told by a graph in a recent publication from Campus France (Hat tip: University World News). China is by far the largest importer of educational services in the world, at least by student numbers. The U.S. absorbs nearly a quarter of China's mobile students. For more visuals on student exchange, check out International Student Mobility.

 

Education, Thai-style

The very reliable Program for Research on Private Higher Education recently released a study of Thai private higher education. With the returns to higher education growing rapidly in many developing countries - including Thailand - the question of expanding access to higher education is no small matter. According to the new study, Inside Thai Private Higher Education, private higher education has been growing like gangbusters:

Thai PHEIs [private higher education institutions] have grown into one of the principal industries in producing manpower for the job markets in both domestic and international realms. In 2006, approximately 45 percent of the total Thai higher education institutions are private with the enrollment share of 13 percent (Praphamontripong forthcoming). In fact, over the past several decades since the first enactment of the Private Higher Education Act, the enrollment share of private sector has grown progressively. 

Trading without Doha

Still upset about the failure of the latest round of Doha talks? Don't worry - there are still many ways to improve the outlook for international trade. You can take Simeon Djankov's advice over on the Doing Business blog and reduce the delays related to trade. Or, according to a new World Bank working paper, you could make trade more transparent. In Governance, Corruption, and Trade in the Asia Pacific Region, authors Kazutomo Abe and John S. Wilson estimate huge gains for trade and GDP due to reforms that improve transparency:

[T]he reforming economies in APEC stand to benefit significantly in regard to GDP and welfare gains with the type of reform we examine here. In particular, Vietnam could expect an increase in real GDP by more than 30 percent in Case 1. Russia, Philippines and Thailand’s GDP and welfare would rise substantially, as well. The benefits to Malaysia and China would be almost one year’s growth. The estimated global benefits here with transparency reform, US$406 billion in Case 1 and US$290 billion in Case 2 in the 2006 prices are larger than those reported in previous work on trade facilitation.

China jigsaw puzzle

See how the populations of 34 countries could fit into China's provinces.

And for another take, see how China is an island.

In Praise of Lukewarm Water

September 2008. Yesterday, suddenly, our apartment got lukewarm water the color of weak tea. I was delighted.

In Ulaanbaatar, as in cities of the former Soviet Union, hot water and heat for buildings is produced in a power plant and piped throughout the city. You can still see thick, insulated pipes running above ground, and arching up and over roads. Very ugly, but cheaper than putting them underground.

Every year, the hot water supply is shut off for maintenance and cleaning of pipes. This usually lasts a few weeks in major cities, and can last for months in smaller ones. In my district, there was major pipe work done. Because of this I have never had hot water in Mongolia. They promised it in June, then August. Then in mid-September, when the heat is supposed to go on. It makes me long for the simple bak mandi bathing system I had in Aceh.

 

Can Islamic Finance go micro?

With more than half-a-trillion dollars in assets and an annual growth rate that has outpaced conventional banks’ by nearly 50 percent, the Islamic finance industry is already making waves among investment fund managers. And this not only applies to the Muslim world: The Banker magazine recently named the United Kingdom to its list of the top 15 countries managing Sharia-compliant assets.

The new CGAP Publication Islamic Microfinance: An Emerging Market Niche argues that the Islamic finance industry, with its unprecedented popularity and growth, may be well-placed to address a critical need in microfinance: reaching the some 72 percent of people in Muslim-majority countries who do not use formal financial services.

Doing Business 2009 - Five years of reforms

Doing Business 2009 is here! The sixth in the World Bank Group's annual series on business regulations, DB 2009 allows us to take a look at five years of reforms since DB 2004. But before I get to that, let me hit the highlights of DB 2009:

• This year's top reformer is...drum roll please...Azerbaijan! Azerbaijan improved on 7 out of 10 of the indicators tracked by DB and moved up 64 slots in the overall rankings.
• Two regions - Eastern Europe and Central Asia and Sub-Saharan Africa - accounted for 7 of the top 10 reformers: Azerbaijan, Albania, Kyrgyz Republic, Belarus, Senegal, Burkina Faso, and Botswana. The other top 10 were Columbia, Egypt, and Dominican Republic.
• Once again, Singapore tops the rankings, followed by New Zealand, the United States, and Hong Kong, China. 

Supply and demand of property rights

Famed Peruvian economist Hernando de Soto has argued forcefully for the protection of property rights as a key ingredient in economic development. His book The Mystery of Capital became a big hit with its argument that the poor had plenty of capital but that the lack of property rights meant it was unusable. De Soto hammered home this point again with the publication of Making the Law Work for Everyone. While there is general consensus on the importance of property rights, there is still a huge, unanswered question: How do we create them?

Economic detectives track down corruption

Just how far has the international development community come in its attitudes toward corruption? Here are classic lines from Samuel Huntington's 1968 opus Political Order in Changing Societies:

In terms of economic growth, the only thing worse than a society with a rigid, overcentralized, dishonest bureaucracy is one with a rigid, overcentralized, honest bureaucracy. A society which is relatively uncorrupt...may find a certain amount of corruption a welcome lubricant easing the path to modernization.

Nowadays, the work of organizations like Transparency International has made such attitudes seem heretical. Yet even the best efforts of organizations like Transparency International have yet to put a huge dent in corruption around the world, despite achievements such as passage of the OECD's Convention on Combating Bribery. Two economic detectives propose a new strategy for combating corruption in an article in the newest Foreign Policy entitled How Economics Can Defeat Corruption (subscription required).

Winning gold

August 25, 2008. I didn’t see it, but I heard it. Everybody heard it. On the last day of the Olympics, Mongolia won its second gold medal. When Badar-Uugan Enkhbat, a 23-year old boxer, slammed Cuba on Sunday afternoon, Ulaanbaatar simply erupted. It seemed that the entire city celebrated: shouting, cheering, honking horns, and flag-waving. Young men stood on moving cars, holding flags, and somehow managing to keep their balance.

It is wonderful to see the entire country so happy. Ten days ago, when Tuvshinbayar Naidan won the gold in judo, the entire country celebrated its first-ever Olympic gold. The second gold medal puts Mongolia either at or near first place in gold medals per capita. Chuck Culpepper pointed out in the Los Angeles Times that for Mongolia, with only 2.9 million people, to win gold means much more than the United States or China, with their large populations, to win their 30+ gold medals. Spot on.

In China, a rising tide lifts all boats

At least that's the new finding from PREM in a paper on Rising Income Inequality in China. Coauthors Xubei Luo and Nong Zhu do a lot of number crunching using the China Economic, Population, Nutrition and Health Survey and find that while inequality has risen rapidly in China, strong growth has meant that all income groups have seen pretty substantial economic gains. Figure 1 provides a pretty clear picture of the rise in inequality as measured by the Gini coefficient:

 

Creating creative capitalism

The debate continues over at Creative Capitalism, the blog/book-to-be spurred by Bill Gates's speech at Davos. Meanwhile, Gates gives a hint at just how to create Creative Capitalism - get universities involved. At a forum in Hong Kong, Gates argued that universities need to team up with industry to drive innovation. More resources on university-industry collaboration are available here. 

A great time to gamble?

If betting on stocks is looking too risky to you these days, perhaps it's time to look for other ways to gamble your money. The Wall Street Journal reports that casino operators in Macau have taken a hit after stories circulated that mainlaind Chinese may face new restrictions on visiting. On the other side of the world, Las Vegas has also been suffering, according to the Economist. I'm guessing that now is a good time to look for deals on hotels. With the precariousness of the markets around the world, it may be a good bet right about now.

Pollution in Beijing after the Olympics

I knew that Beijing has been cracking down on pollution, but I didn't know how they were going about it. It looks like authorities have banned vehicles on alternate days based on the last number of the vehicle's license plate. However, a representative of the Beijing Municipal Committee of Communications has said they will not extend the law after the end of the Olympic games.

I had heard about bans like this before in Mexico City. I've been told that wealthier families would often buy two cars and drive them on alternate days. As far as I have been able to find out, it looks like this idea started in 1986 with a program called Proconve in Sao Paolo. Apparently, local authorities have attributed large reductions in gaseous pollutants to the program. I'd love to know how many families have opted to buy multiple vehicles to get around restrictions like these. How much more pollution is created by this additional demand for vehicles?

Universities and development

Every year around this time, the Shanghai Jiao Tong University makes waves with its Academic Ranking of World Universities. As always, North America dominates in the short list of top 100 universities, with the Ivy League universities occupying most of the top slots. And as always, aggrieved parties produce howls of pain along with numerous complaints about methodological flaws - see a few examples here and here.

While there are certainly flaws, part of the problem lies in the inherent impossibility of ranking universities. These institutions devote themselves to many different tasks, while the Jiao Tong rankings examine only one task - research. (For an excellent discussion of the debate around rankings, see this commentary from Alex Usher of the Educational Policy Institute.) Jiao Tong ranks research output by aggregating a bunch of data on things like the number of Nobel prizes awarded to faculty and the number of articles cited in Nature and Science. (A full description of the methodology can be found here.) Given that these rankings tell us about the distribution of research output around the world, what might we be able to glean about the prospects for development?

The internationalization of business R&D

The OECD has recently come out with a new publication, this time on The Internationalisation of Business R&D. A lot of OECD publications provoke a half yawn from me, but this one is worth a look. Here's the main thrust:

...non-OECD countries have attracted an increasing amount of R&D investment in recent years. Surveys indicate that China and India, among others, are now considered very attractive locations for future investment both because of their large and rapidly growing markets and their large pools of qualified workers and their relatively low, though rising, labour costs. However, they also indicate important drawbacks, such as inadequate enforcement of intellectual property rights (IPR). While these may not deter companies from investing, they may affect the type of R&D undertaken in these countries.

And here is some of the data that supports this statement:

Rising food prices and child labor

Over at the Economist, a debate is heating up over the following proposition: "There is an upside for humanity in the rise of food prices." I just checked, and right now the votes stand at 59 percent "pro" and 41 percent "con." It seems to me that the result is a bit skewed, however, given the wording of the question - I can imagine few things in the world that don't have at least some upside. In support of the proposition is Homi Kharas, a senior fellow at the Wolfensohn Centre of the Brookings Institution. Here is his take:

I Fox, you Rabbit

Kiev, July 2008. The kids jumped all over me as soon as I arrived, my son jabbering excitedly in English and my daughter in Russian. It’s hard to believe they grew up in the same household. This is one of the consequences of my spending two years in Aceh, Indonesia, which was a non-family post when I went there in 2006. While I was there I parked my family in Kiev, where my wife is from. With the school year over, I’m back in Kiev to pick them up and move them to Ulaanbaatar.

The contrast between Ulaanbaatar and Banda Aceh is huge and required a lot of adjustment when I moved there last May. One day I was in a lush, hot, humid, jungle climate, with endless ocean, the next I was wearing jackets and sweaters and surrounded by Soviet architecture. I was astonished that in mid-May there were still no leaves on trees, and that the mountains around the city looked brown and parched. I almost wept when, on the morning of May 28, I opened the curtains of the hotel and saw a city covered in snow.