Lessons from Kaundanomics

grievechelwaLeave a comment

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A story is told that a few years after independence in 1964, Kenneth Kaunda, Zambia’s first president, visited one of the mines in the mineral rich Copperbelt Province and was immediately struck by the complete absence of Zambians in senior management positions. He proceeded to ask the mine owners as to when they reasonably thought Zambians would be ready to occupy positions of influence within the country’s mining sector. With straight faces, the mine owners responded “not before 2003, Mr. President.”Read More »

An Economic Strategy for The Gambia?

Sanjay G Reddy1 Comment

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I was privileged recently to spend a little time in The Gambia, whose people recently overthrew a megalomaniacal, authoritarian and in many respects vicious President, Yahyeh Jammeh, in an extraordinary democratic moment, due to their courage and the timely supportive action of other countries in West Africa (and very little if at all due to support from major powers, apart from their role in placing some effective limits on prior abuses and eventually supporting a Security Council resolution that helped to legitimize the ECOWAS action).

I was able to observe a moving event in which members of the country’s diaspora, from Alaska to Taiwan and from Cape Verde to Sweden, most of whom were active in opposition (and quite a number of whom were highly educated professionals successful in the countries to which they have departed) assembled to meet the new President and to express their pleasure at the New Gambia as well as their sincere hopes for the future. Conversations with ordinary Gambians reveal general relief and enormous optimism. Arguably, the current juncture provides the first opportunity since the country’s independence in 1965 for a broad ranging public conversation on the ends and means of development.Read More »

200 Years of Ricardian Trade Theory: How Is This Still A Thing?

Ingrid Harvold Kvangraven9 Comments

maxresdefault.jpegOn Saturday, April 19th 1817, David Ricardo published The Principles of Political Economy and Taxation, where he laid out the idea of comparative advantage, which since has become the foundation of neoclassical, ‘mainstream’ international trade theory. 200 years – and lots of theoretical and empirical criticism later – it’s appropriate to ask, how is this still a thing?[1]

This week we saw lots of praise of Ricardo, by the likes of The Economist, CNN, Forbes and Vox. Mainstream economists today tend to see the rejection of free trade implicit in Trump and Brexit as populist nonsense by people who don’t understand the complicated theory of comparative advantage (“Ricardo’s Difficult Idea”, as Paul Krugman once called it in his explanation of why non-economists seem to not understand comparative advantage). However, there are fundamental problems with the assumptions embedded in Ricardo’s theory and there’s little evidence, if any, to back up the Ricardian claim that free trade leads to balanced trade. On this bicentenary, I therefore think it’s timely to revisit some of the fundamental assumptions behind Ricardo’s theory of comparative advantage, that should have led us to consider alternative trade theories a long time ago. Read More »

On the Journals: Western Populism and Economic Development

Ingrid Harvold KvangravenLeave a comment

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The election of Donald Trump last year and Britain voting to leave the EU (‘Brexit’) left a lot of people angry and confused. While there was a lot of in-depth media coverage trying to make sense of the phenomenon immediately after the fact, the academic analysis is as usual late to the game because of the lag associated with academic publishing

Only these past couple of months have academic articles dealing with the issue started appearing. Real World Economics Review, for example, published an excellent special issue on Trumponomics in March. Although the analysis tends to be Western-centric, there have been a few notable pieces that take a more global perspective and/or deal with economic consequences for the developing world.Read More »

The Financialization of Africa’s Development

Richard Itaman4 Comments

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Financial development has gained prominence in Africa. Only with slight reservation around the regulatory environment, most country and regional studies of financial development paint a strikingly positive picture of its impact on growth, poverty and inequality. [i] This optimism with finance in Africa is corroborated with increase in financial flows, expansion of commercial bank branches, growth of regional banks, rise in microcredit institutions and success of mobile payment systems. [ii] However, poverty and inequality remain persistently high. There are more poor people in Africa today than in 1990, and 7 of the 10 most unequal countries in the world are in Africa. [iii] Hardly has any progress been made in addressing a most obstinate infrastructure gap unsettling the continent. In addition, Africa’s most recent average growth of 1.5 per cent is at its lowest in two decades. As such, the underscored belief in financial development as a driver of progress is exaggerated, since it seems to disregard the immediate needs of the people on the continent.

For these reasons, a growing body of literature now demonstrates wariness with the financial development narrative. An aspect of this literature reveals that the success story of microfinance in Africa is not quite what the proponents claim it to be. There is evidence of how the poor were plunged into a crisis of over-indebtedness in South Africa, through microfinance lending. By 2012, the country’s debt amounted to a staggering 75 per cent of disposable income. [iv] This experience contradicts the proposed poverty alleviating effects of microfinance. Like other forms of finance, its dominant motivation has been found to be profit seeking rather than poverty alleviation. Similar caution has been expressed about the celebrated rise of electronic payment systems,[v] prominent in Kenya, Nigeria and Uganda. Yet, more than just caution is needed to ensure that the proliferation of finance does not continue to wield detrimental effects on economic development in African countries.Read More »

Hazards of a Tourist Boom

Developing Economics1 Comment

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by Silla Sigurgeirdottir and Robert H. Wade

Iceland is surfing a tourist boom. From 440,000 tourists in 2008, numbers started surging in 2011 to reach 1.3 million in 2015 and 1.8 million in 2016. The resident population is 330,000 in an area over 40% that of the United Kingdom. Having experienced the sharpest crash of all the OECD economies in 2008-2009 Iceland regained the pre-crash level of average income by late 2014. GDP grew super-fast at over 6% in 2016, and forecasts suggest annual growth of almost 5% between 2017 and 2019, one of the fastest in the OECD.

Pre-tax salaries rose nearly 10% a year in both 2015 and 2016. Foreign exchange reserves are ample. Inflation is low, at less than 2% through 2016. Household debt to income is low. The state is paying down public debt fast; the current level is around 50% of GDP. The banks have passed stringent stress tests, with unusually low leverage ratios, low loan to value ratios, strong liquidity positions (especially in foreign currencies) and high capital ratios (close to 30%). A repeat financial crash is very unlikely.

So what is not to like? Given what is happening in Europe and the United States, political leaders elsewhere would love to have Iceland’s problems. Still, those problems could develop badly for the population at large.Read More »

How India can benefit from FDI: lessons from China

ilanstraussLeave a comment

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by Ilan Strauss and Vasiliki Mavroeidi*

With the launch of India’s Make in India campaign, Karl P. Sauvant and Daniel Allman asked in their recent Perspective: “What can India learn from China?”, focusing on attracting FDI. However, the issue is not only attracting FDI, but benefitting from it fully. Liberalization alone will not enable Make in India to transform India into a manufacturing hub. Targeted industrial policies are required to ensure that FDI upgrades domestic capabilities.

Read More »

How Racist Rhodesia Did It And ‘Independent’ Zimbabwe Is Getting It Wrong: Comparing Currency and Finance Under Sanctions

tinashenyamundaLeave a comment

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Although Zimbabwe was the victorious outcome of a nationalist struggle against Rhodesia, there were significant continuities in the country’s economic structures in the first two decades of independence. The government exhibited limited commitment to land reform and economic indigenisation. Even though the ZANU PF government needed to be tactful not to upset historical structures of Zimbabwe’s economic inheritance, it needed to strike a delicate balance and undertake some form of transformation to maximise the country’s future prospects. However, limited progress was achieved in terms of economic transformation in the first twenty years of independence, resulting in political disaffection in the 1990s.

To retain political support at the turn of the twenty first century, the state undertook sudden and radical measures aimed at transforming the racial structure of the economy, resulting in the Fast Track Land Reform Programme. However, the racial undertone and process of this overdue exercise was problematic. Moreover, land reform did more than destabilise race relations. Although a steady decline had started in the early 1990s under the weight of the Economic Structural Adjustment Programme (ESAP), land reform prompted rapid economic collapse. The most visible symptom of this was inflation. With its Special Drawing Rights (SDR) suspended at the World Bank and with its government officials facing European Union and American sanctions, these challenges ushered in a deepening political and economic crisis. By comparison, Rhodesian history had also been characterised by political conflict and international sanctions between 1966 and 1979.Read More »