Shocking finding of the day

Wait-- let me get this straight: If you lower taxes, then you see strong growth?

Go figure.

(Though I love the "problems" discussed in this bit-- the local economy is so strong that it's hard to find qualified people for expanding businesses and residential vacancy is remarkably low.)

The Future Monetary System of Zimbabwe

I blogged recently about Zimbabwe's now defunct 100-trillion-dollar note. Currently, citizens of Zimbabwe are free to use US Dollars and South African Rand for their transactions. Since inflationary finance and seigniorage are often key political tools in developing countries, one should not be surprised if Zim notes make a return in the near future. New Zimbabwe reports:

Finance minister Tendai Biti says the country needs at least six months import cover and a sustainable track-record of economic growth, inflation stability and above 60 percent capacity utilisation in industry before the Zim dollar can be brought back into circulation.

However central bank chief, Dr Gideon Gono said the country should consider adopting a gold-backed currency.“There is a need for us to begin thinking seriously and urgently about introducing a Gold-backed Zimbabwe currency which will not only stable but internationally acceptable,” he said in an interview with state media.

Whether Zimbabwe will adopt a commodity-backed system remains to be seen. I think it is highly unlikely. But it is encouraging to see that option on the table.

Aid is a success! No, it’s a failure! Wait, it depends.

Aid evaluation is all the rage. But how is successful evaluation possible if we don’t know the benchmark? Some aid advocates argue that aid can end world poverty while some critics of aid are more modest stating that aid can not increase growth but may ease human suffering. In a recent debate in the Cato Journal, Peter Leeson and David Skarbek argue, in their article 'What Can Aid D0?', that foreign aid is both a success and a failure:

“Foreign aid’s advocates claim aid has been successful. Aid’s critics claim aid has failed. We explain why both camps are correct. Aid can, and in a few cases has, increased a particular output by devoting more resources to its production. In this sense, aid has occasionally had limited success. However, aid cannot, and has not, contributed to the solution of economic problems and therefore economic growth. In this much more important sense, aid has failed” (page 392).

They go on to argue that, on its best day, aid can provide more ‘stuff’ but not find the solutions to the economic problem of poverty:

“So, what can aid do? Like other forms of central planning, aid can increase X by devoting additional resources to X’s production… If planners pick a specific outcome, such as more immunizations, aid can provide additional resources to produce immunizations. All of the “success stories” that aid’s advocates highlight are of this nature (page 394)…Solving the economic problem determines whether a country’s economy develops. It is strange, then, that professional economists have had trouble distinguishing the positive relationship between inputs and outputs from solving the economic problem when it comes to evaluating foreign aid” (page 391).

In a critique, Gustav Ranis claims that “. . . Skarbek and Leeson are ready to throw the baby out with the bath water,” but that different forms of aid, such as grants for projects, can be more effective than past aid. However, Leeson and Skarbek remind us in a follow up piece of the important distinction between positive versus normative analysis:

“The thrust of our original paper, which asked the simple question, “What can aid do?”, was that no foreign aid initiative can solve the economic problem societies must solve to climb from poverty. That problem requires identifying the resource allocation that maximizes resources’ value to society. “Grants for projects” don’t help us identify this. They’re an example of what aid can do—increase a predetermined output by devoting more resources to its production—not what aid must do to make poor countries rich, which is to solve the economic problem stated above. Whether developed countries should use aid to increase a predetermined output by devoting more resources to its production is a normative question. Our original argument analyzed a positive one” (pages 1-2).

So the next time a shouting match breaks out between those who claim aid is successful and those saying aid is a failure, perhaps we need to first agree on what aid can achieve and evaluate aid in this context.

HERE IS WHERE YOU PLACE THE HIDDEN TEXT.

Are the Poor Getting Poorer?

Indiana Rep Proposes "Entrepreneur Auction"

Story:

Sue Ellspermann (R-74) says she has filed a bill allowing recent college graduates to pitch their business ideas to local leaders, who would then decide if they want to make an offer to locate the startup in their community.

Under the plan, entrepreneurs could have several offers which would then be reviewed to decide which community would make the best fit.

I can think of several advantages and disadvantages to this proposal, but I think the bottom line is going to have to be "Winner's Curse."

Death By PowerPoint

I assume Claudia will ensure that Aidwatch will be all over this. From Wired:

Consider it a new version of death by PowerPoint. The NATO command in Afghanistan has fired a staff officer who publicly criticized its interminable briefings, its over-reliance on Microsoft’s slide-show program, and what he considered its crushing bureaucracy.

Have you centrally planned your war economy today?

Property Rights for the Poor: Effects of Land Titling

By Sebastian Galiani and Ernesto Schargrodsky, forthcoming in JPE (ungated):

Secure property rights are considered a key determinant of economic development. The evaluation of the causal effects of property rights, however, is a difficult task as their allocation is typically endogenous. To overcome this identification problem, we exploit a natural experiment in the allocation of land titles. In 1981, squatters occupied a piece of land in a poor suburban area of Buenos Aires. In 1984, a law was passed expropriating the former owners’ land to entitle the occupants. Some original owners accepted the government compensation, while others disputed the compensation payment in the slow Argentine courts. These different decisions by the former owners generated an exogenous allocation of property rights across squatters. Using data from two surveys performed in 2003 and 2007, we find that entitled families substantially increased housing investment, reduced household size, and enhanced the education of their children relative to the control group. These effects, however, did not take place through improvements in access to credit. Our results suggest that land titling can be an important tool for poverty reduction, albeit not through the shortcut of credit access, but through the slow channel of increased physical and human capital investment, which should help to reduce poverty in the future generations.

African Poverty

Still not the best place in the world, but things have been improving. Here's the abstract from a new paper by Sala-i-Martin and Pinkovskiy:

The conventional wisdom that Africa is not reducing poverty is wrong. Using the methodology of Pinkovskiy and Sala-i-Martin (2009), we estimate income distributions, poverty rates, and inequality and welfare indices for African countries for the period 1970-2006. We show that: (1) African poverty is falling and is falling rapidly; (2) if present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time; (3) the growth spurt that began in 1995 decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic. All classes of countries, including those with disadvantageous geography and history, experience reductions in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for mineral-rich as well as mineral-poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below- or above-median slave exports per capita during the African slave trade.

Note #3 from the abstract-- a popular (ill-guided) concern over African growth is that income inequality will result, and that's bound to cause problems. The latter is debatable, but the former isn't the case.

Praise for Bauer

I just wanted to draw your attention to my post and the discussion over at AidWatch on the importance of Bauer in development economics, especially on the role of foreign aid.

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