Category Archives: Global

Austerity and Equality

Recent research by the OECD is unequivocal, if hardly surprising: reducing the fiscal deficit by raising taxes makes society more equal, but doing so by reducing welfare spending makes society more unequal. This holds for all 29 OECD countries studied, although the magnitude varies by country, depending on how large and progressive are their respective tax and welfare systems. Continue reading

Economic Premise: Service Sector Reform and Manufacturing Productivity

On foot of a recently published Policy Research Working Paper, exploring the potential for reforms to Indonesian service sector FDI policy to drive productivity in downstream manufacturing sectors, my co-authors and I have prepared a – much more digestible! – Economic Premise note for the World Bank’s Poverty Reduction and Economic Management Network. Published today, and available here.

Côte d’Ivoire: An Elephant at the Crossroads

cote_d_Ivoire_flagIn 2013, Côte d’Ivoire will be aiming to go one better than in 2012 across two fronts. The national football team will try to improve on last year’s runners-up spot in the African Cup of Nations, while the Ivorian authorities are targeting an increase in real GDP growth from 8.6% to 9%.

Having contracted by -4.7%  in 2011 on foot of the post-electoral political crisis that saw 3,000 people killed, real GDP rebounded strongly in 2012. Whether this represents a one-time recovery of lost ground or is indicative of higher trend growth remains to be seen. The Ivoirian authorities are aiming for double-digit growth rates from 2014 in a bid to position the country as an emerging market by 2020. Although slightly less bullish, the IMF expects a still impressive average growth rate of 7.5%  over the 2013-2015 period. Continue reading

’13: Another Year of Living Dangerously?

We saw the first ripples of the US sub-prime crisis in the summer of 2007. A year later, the global economy was on the precipice of disaster. Only resolute action by world leaders, Gordon Brown not least among them, and coordinated fiscal and monetary stimulus prevented a re-run of the Great Depression.

Cracks in the Eurozone edifice which had been papered over during the good times were soon brutally exposed. As the crisis enters its seventh calendar year, we are more than half way through a lost decade. The question, particularly on Europe’s periphery is whether one lost decade will turn into two.

2013 promises to be yet another momentous year in Irish economic history; the year Ireland hopes to cease being a ward of the troika; a year plagued with potential banana skins. Without doubt, the fallout from yet another hair-shirt budget will dominate the early months of the year. It follows that we will face into a similarly challenging budget cycle as 2013 draws to a close. Like peeling an apple, the closer you get to the core, the more the pips squeak. Budgets will only get harder. Continue reading

Indonesia Rising

After the trauma of the 1997-98 Asian financial crisis, Indonesia has come roaring back, growth averaging over 6% in recent years even as the world struggles with the first financial crisis of the 21st century, and the deepest since the 1930s.

If the developed world remains wracked by ‘slowing pains’, many of Indonesia’s economic challenges can be classed as ‘growing pains’.

Creaking infrastructure, for instance, results from under-investment, but the problem is rendered far more acute by the capacity strains that come with break-kneck economic growth. Roads may be of insufficient number and quality, but the trebling of road traffic over the past decade is the real source of bottlenecks.

Policymakers aim to help the economy kick on to reach its full potential, with growth in the 7-8% range which would see Indonesia become one of the world’s top ten economies by 2025.

While Indonesia’s large domestic market and burgeoning middle class shield the economy to a certain extent from ongoing economic weakness and uncertainty in the developed world, so-called ‘decoupling’ has been proven a mirage for emerging markets. Indonesia is no different. The combination of slowing growth in China and stagnation in developed export markets are two challenges on the immediate horizon.

Economic transition in China, however, brings its own opportunities. Increasingly, rising wages in China mean Indonesia is being sought out as a low cost production hub. Increased domestic demand in China means a massive, growing export market on Indonesia’s doorstep.

During my time working with the World Bank in Indonesia, I made a modest contribution to the latest Indonesian Economic Quarterly.

These are its top five take-aways: Continue reading

Financial Liberalization & Financial Crises: No Smoke Without Fire

What role has financial liberalization, including capital account liberalization, played in recent financial crises in emerging markets? What policy conclusions should one draw from this?

You can’t have smoke without fire. Recent economic history would suggest that neither can you have financial crises without weak macroeconomic fundamentals. Certainly, capital flows can increase vulnerability to, and the amplitude of, emerging market crises. Moreover, it is often capital flow reversals that signal the onset of financial crises in dramatic fashion.

While it is true that prohibiting global capital flows would prevent or dampen many economic crises, it does not necessarily follow that this is the appropriate policy course. If you can’t have smoke without fire, then it’s also true to say that you can’t have fire without tinder. Removing all tinder would surely prevent future fires, but we should not forget that learning to use fire was one of homo sapiens’ most important social evolutions.

This this is not to say that all capital flows are good flows, or even that restrictions on flows could not yield a pareto improving outcome. It is simply recognition that a certain degree of international mobility of capital is critically important if emerging and developing economies are to have some chance of converging with advanced economies. Continue reading

Global Imbalances: It Takes Two to Tango

What role did global imbalances play in the center (2007-) financial crisis? What were the primary causes of theses imbalances? What are the difficulties involved in resolving them?

Just as it takes two to tango, so current account imbalances require offsetting capital flows to keep international payments in balance. Global imbalances thus have two drivers: borrowers and lenders. In the middle of the last decade, the US’ growing twin fiscal and current account deficits were the focus of much debate. Continue reading

Building Better Global Economic Governance

Today marks the launch of Columbia’s Center on Global Economic Governance (CGEG), with Alan Krueger, Chairman of President Obama’s Council of Economic Advisers delivering the keynote address at its opening conference.

The concept behind CGEG is to bring together the best minds, from Columbia faculty and from outside, to focus on key issues in global economic governance and develop effective policy approaches.

With developed economies largely stagnant, emerging markets facing their own challenges, and growing intra-national equality the world over, we need now more than ever a new approach to global economic governance that puts people first. The advent of the G20 as the premier forum for global governance widened the circle beyond the traditional G7/G8 configuration, but its initial impetus has dissipated, while issues of legitimacy remain to be addressed.

With Jeffrey Sachs and PEPM’s own Guillermo Calvo on the panel alongside Krueger and others on the panel, I’m really looking forward to the opening conference.

You can watch the livestream here from 9am EST / 2pm GMT.

You can find my own recent thoughts on the evolution of Global Economic Governance here.

Paradigm Lost

Last weekend, I had the great privilege of attending, as part of the Young Scholars’ Initiative, a sublime conference organized by the Institute of New Economic Thinking:

Paradigm Lost: Re-thinking Economics & Politics.

Leading lights of the economics profession came together with top policymakers and journalists to appraise the state of current economic thinking, and to chart a better way forward.

Conference highlights are viewable here. Continue reading

Life is a Rollercoaster

The IMF today published its latest World Economic Outlook. According to Chief Economist, Oliver Blanchard, the world economy has been on a rollercoaster these past six months. Recent market jitters over Spain, and collective schizophrenia between growth and austerity, would suggest that we have just come over the crest of a peak rather than having reached the end of the ride.

Upgrades to growth forecasts for several economic regions are welcome, but risks of derailment continue to clutter the path ahead. Europe’s economy is expected to contract in 2012, while a spike in oil prices and a Chinese slowdown also pose downside risks to global growth.