My Photo

Search the blog

  • Google

    WWW
    rodrik.typepad.com

« A good review makes my day | Main | Faith-based economics »

March 25, 2008

Comments

robertdfeinman

This seems to mesh well with your book (I'm up to chapter 5). But I suggest taking a look at non-economic considerations.

The most important of these is to determine who benefits from policies which don't achieve their stated aims. For example, Easterly criticizes the IMF and WB for being organizations which are more concerned with protecting themselves and enhancing the careers of the employees, then of producing optimum results. Part of this (according to him) is because staff is (was?) evaluated by how much money they give away rather than how well projects worked.

It certainly seems that many in developing countries consider the IMF as the tool of American banks who are looking for investment opportunities that have higher yields than those within the US. A history of sending in the Marines when US interests were threatened adds to this outlook.

Is the academic development community being unwittingly co-opted, by neo-colonialists who are happy to to cite ambiguous or unsubstantiated studies when they support their efforts?

Do development ideologues ignore data which contradicts their axioms? This is certainly true of the trickle-down and libertarian schools of thought who dominate much of US fiscal policy these days.

When people hold on to beliefs which are at variance to reality, their motivations become relevant.

Justin Rietz

I have started reading the paper, and so far it is quite interesting.

I have a favor to ask - before you move on to another topic, would you give us some time to read and digest the paper so that we can make (atleast partially) intelligent comments?

gordon

Then there is the corruption problem, considerably exacerbated by globalisation as this paper (Baker, Raymond W. and Nordin, Jennifer (2007) "Dirty Money: What the Underworld Understands that Economists Do Not," The Economists' Voice: Vol. 4 : Iss. 1, Article 4.) explains. I would have put in a hotlink but apparently that's not possible here.

Justin Rietz

Gordon -

I may have missed it, but I didn't see where this paper mentioned that globalization increases the amount of dirty money.

In any case, given that a huge portion of dirty money is due to government corruption, and that anyone with large amounts of dirty money can surely buy off the government and therefore avoid capital controls, I would argue that globalization does not significantly contribute to the problem.

Justin Rietz

Dani -

Before I post my comments on the paper, I wanted to clarify whether the conclusion of the paper is that in all developing countries, foreign investment is a net negative due to the impact on the real exchange rate, or only in countries that are investment constrained?

Thanks.

gordon

Justin Reitz, there is indeed no mention of the word "globalization" in the article I referenced. However the ease with which foreign transactions are now made and the enormous amounts of money involved are parts of the globalization phenomenon and I have no doubt that illegal money movement is part of the price we pay. Underdeveloped countries in particular pay more than their share; from the previously referenced article: "Despite the impact of trillions of dollars of
dirty money flowing out of poorer countries, we
are still at step one: measuring it. While our figures
are order-of-magnitude estimates, there is
surprisingly little analysis of the problem among
economists. The whole of the financial equation
for development—total capital in, total capital
out, what’s left over—has never been put on the
table".

Geoff

A number of times throughout this paper, I said to myself "finally, an economist the mainstream listens to that gets financial globalization!" This paper makes the broad point that heterodox economists like Alice Amsden, Ha-Joon Chang, and Erik Reinert have been making for a while: capital account liberalization is useless if there is nothing worth investing in. One of the most important aspects of economic development is innovation: countries get rich by exporting high value-added goods that are subject to increasing returns, and the way to produce this is through education of skilled workers, investment in R&D and critical infrastructure, and large-scale investment in tradable sectors (even supposedly "non-natural" ones). Foreign financing of development accomplishes none of these goals, as foreign investors prefer to put their money in real assets and short-term projects, rather than the type of long-term sustained investment that actually produces economic growth. South Korea, Japan, and Taiwan were only able to take off when mid- and high-tech industries began to emerge, largely as a result of (gasp!) industrial policy. That being said, at later stages of development (i.e. once there are established industries worth investing in) financial liberalization does positively impact economic growth. Furthermore, there are a lot of cases of industrial policy that did not work; however, this does not mean that industrial policy will never work. The way some people talk about the state's role in development (that it is always and everywhere a bad thing), you would imagine them calling Alexander Hamilton a socialist for being a proponent of infant industry protection and other non-orthodox ideas.

Justin Rietz

Dani -

I enjoyed reading your paper, especially as it addresses some of the questions I have had regarding your position on capital controls. I found the theoretical aspect particular interesting, i.e. savings constrained versus demand constrained developing nations. Intuitively, it makes sense - if there are no investment projects to be had, additional savings (via foreign capital) will not help growth, but instead will drive up the value of the domestic currency and thus negatively impact demand for tradables and hence growth.

After reflecting on this model, though, several questions arose to me. Why is there an influx of foreign capital if there are no investment projects? If there are no projects in which to invest, or very few, returns on initial foreign investments would be low and inflows of additional foreign investments would quickly dry up. The initial appreciation of the currency would further hamper foreign investment, so what we would expect to see after removing capital controls in an investment-constrained economy is an initial increase in foreign capital inflows, an upwards movement in the currency, with a subsequent drop and leveling off of both.

On the flip side of this, the removal of capital controls would also allow citizens to move savings offshore, with the initial appreciation in the local currency (due to capital inflows) being an additional incentive to do so. However, this capital outflow will push downwards on the exchange rate, and if the net result is a capital outflow, there will be a depreciation of the currency, which as the paper states increases the demand for tradables.

There is also what I consider to be a “timing” issue. A government may use capital controls to effectively hold down the real exchange rate and boost tradables. However, this increase in tradables will push upwards on the exchange rate. The government then has to take further action to maintain a lower real exchange rate. This seems to be a bit of a game of chicken: will the positive effects of economic growth from increased demand for tradables outpace the potential dangers of inflation? At what point in time does the government release or ease capital controls, and are they sophisticated enough to know? (a point brought up several times in the paper is the limitations of a developing nation government’s capabilities to manage economic policy)? I suspect China may well be a real-time example of this.

I don't agree with the reasoning behind the use of the U.S. interest rate as a proxy for the strength of capital inflows. In a free market, interest rates go up during boom times as the demand for capital increases, and decrease as economic activity slows down or drops. However, this has not been the case in the U.S. due to intervention by the Federal Reserve. The dot com boom and current sub prime crises are examples of this. During such times, the search for better investment returns overseas is offset by investment opportunities in the U.S. perceived to offer a better return.

Another exogenous fact that may be at play is that the ability to invest internationally increased in the 80's and 90's, both due to the opening up of foreign markets and due to the creation of a large number of mutual funds that allowed investors to indirectly invest in these markets. Hence, though interest rates in the U.S. may have been high, there may also have been pent up demand to invest internationally that was released. I don't have the numbers right now to prove or disprove this, but it may be interesting to look at.

On page three, the paper attacks specialists who ignore the costs or tradeoffs of their favored policy positions, and then footnotes a quote by Larry Summers comparing such specialists to “trade economists who know that the losers from trade surges need to be protected but regard this as not a problem for trade policy”. Yet the paper fails to fully address the impact of those who suffer from a stronger currency, and does not address those who manage to save money but then may not protect those savings during time of turmoil by moving money overseas.

The paper several times uses the Mexican peso crisis, the Argentinean crash, and the Asian currency crisis as examples of the risks of FG. However, in all instances, the crises were triggered by governments attempting to control exchange rates. Had they not, their currencies would have started depreciating earlier and over a longer period of time, thus avoiding the “big drop” that triggered the crises with its massive capital outflows. Moreover, an earlier and more gradual depreciation in the domestic currency would have increased the demand for the country's tradables earlier, which would have helped growth and pushed upwards on the exchange rate. Hence, I don’t believe any of these crises support the idea that financial globalization doesn’t work or is extremely risky, but rather that governments via economic policies aren’t very good at it. If that is the paper’s argument, I don’t disagree.

Obviously, and unfortunately, I have not made counter arguments to the data findings - the downside of being a blog commentator is that you don’t always have the time to do in-depth data analysis. Thoughts I have: Perhaps in faster growing developing nations, the growth of foreign investment can't keep up with the growth in GDP, and therefore drops on a percentage basis. Maybe portfolio rebalancing is an issue - the redistribution of funds from investments that have done well to those that haven’t (a common investment methodology). Or a slight take off on this - maybe investments are targeted towards countries that have not yet experienced significant growth in hopes of being in on the next big thing. I think it would also be interesting to look at aid as a % of GDP and see if there is any relevant relationship with GDP growth and / or foreign investment levels.

Per Kurowski

Dani Rodrik is wearing blinders

I have been one of those who have most spoken out in favor of levees or speed bumps to reduce the negative impact that the massive international flows of funds with its many volatile changes of hearts and minds can have on small economies. In this respect I would not seem to be the typical candidate to argue against a paper produced by Dani Rodrik and Arvir Subramanian titled “Why did financial globalization disappoint?” Nonetheless, I must, since the paper misses out on what I consider to be one of the most important dimensions of the issue. Let me try to explain it very briefly.

The financial globalization that is referred to in the paper occurred almost simultaneously with the introduction of a completely new set of banking regulations, known as Basel I; and that, by means of the minimum capital requirements for the banks, introduced globally a regulatory mandated adverseness against “default” risks; as this risk happened to be defined and measured by the credit rating agencies empowered by the regulators to perform the risk surveillance.

That in practice meant that even while flows were freed to flow, the regulators set up a lot of up traffic signs that alerted the market about known and unknown risks while simultaneously sending the subliminal message that these risks could indeed be measured; and the market responded to these signs …often erroneously, obviously. That a German bank goes under because of “risk free” investments in the subprime mortgages in the USA is just the tip of the iceberg when it comes to showing how these financial traffic signs proved to be very confusing to the markets. Unless we take due consideration of these risk signaling effects any analysis of the financial globalization will be incomplete.

My second argument, much related to the previous, has to do with the whole concept of risk and development. Though the paper rightly puts forward the notion that developing countries live in a second-best world, meaning multiple distortions and constraints, it still treats risk the same no matter where, even though we know that in fact risk could also be considered as the oxygen of development. The paper refers to “capital flows can create all sorts of mischief when financial institutions take excessive risks” true, but ignores the possibility of these institutions taking insufficient risks, which is somehow what I argue has happened as a result of Basle I. (Frequently references are made to Basle II as being problematic but in fact it is Basel I where the original sins could be found)

Finally once again we encounter a reference to El Salvador in a Rodrik paper, and we have to conclude that even though he sees the tree of the remittances, he does not yet see the forest. All people in El Salvador with any type of initiative have simply decided not to grow in El Salvador but to take their growth to the USA. In fact, looking at how successful they have been doing just that and that they outside of El Salvador earn much more than the whole GDP of El Salvador, we can deduct that El Salvador, as a nation, has been growing faster than China; and this has of course absolutely nothing to do with financial globalization.

http://www.subprimeregulations.blogspot.com/

mbt shoes

"Then we are all right," answered the Scarecrow, "for you can
carry us all over on your back, one at a time."
"Well, I'll try it," said the Lion. "Who will go first?"
"I will," declared the Scarecrow, "for, if you found that you
could not jump over the gulf, Dorothy would be killed, or the Tin
Woodman badly dented on the rocks below. But if I am on your back
it will not matter so much, for the fall would not hurt me at all."
"I am terribly afraid of falling, myself," said the Cowardly
Lion, "but I suppose there is nothing to do but try it. So get on
my back and we will make the attempt."

__________________
http://www.nike-star-shoes.net/ Nike shoes
http://www.mbtshoesstore.net/ MBT
http://www.suprashoesstore.net/ supra footwear
http://www.nba-sneakers.com/ famous footwear
http://www.airmax-online.net/ nike air max

Supra Skytop Orange

Then there is the corruption problem, considerably exacerbated by globalisation as this paper (Baker, Raymond W. and Nordin, Jennifer (2007) "Dirty Money: What the Underworld Understands that Economists Do Not," The Economists' Voice: Vol. 4 : Iss. 1, Article 4.) explains. I would have put in a hotlink but apparently that's not possible here.

rolex watches

People usually say :"Seeing is believing." http://www.tt88times.com
Each attempt has a corresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://www.fashionhairfu.com

rolex watches


People usually say :"Seeing is believing." http://www.tt88times.com
Each attempt has a corresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://www.fashionhairfu.com

Paul-Smiths

Here is a classy new shirt design from Paul Smith .
A classic striped shirt that will never go out of style.

coco

Our product is direct from company,also you could enjoy free shipping no tax and more discount ,all are of toppest quality and in a competitive price .there is no big order or small order .We have many years of experience in dealing with all types of shipping. The products listed on our website are available for shipping in stock. If you find some interesting you want , please don't hesitate to contact us.

ugg boots sale

Hey,guys!Are you still worried that you like this boots'style so much,
unfortunately,you cann't afford the prices? In order to satisfied with most of
customers' consumption requirements,now the most popular
uggs for sale store do with the
discount of many boots.Not only allow you to buy the heart of the boots, but
also no longer sorrow for the price.What are you waiting now ? Take action
quickly,ugg online is ready to provide you with quality products and
services.You will find what styles you like on
ugg boots sale.Also,if you want to
buy uggs for your families, there are
uggs sale

uggs sale

The UGG Australia story began in 1978, when Brian Smith, a young surfer from
Australia, took a trip to the United States with a bag full of sheepskin boots.
After finding a new home amongst California surfers, the UGG Australia brand
began to take shape.
UGGS Sale will give you this fashion
and comfortable shoes.So you don't worry about be frozen in cold winter.You can
be fashion in the winter and

Australia UGG Boots Sale will give
you many surprise.

uggsshoesboots

UGG
Adirondack is one of the most popular boots in all styles of
UGG.Super comfortable,ugg australia,Croc-Realli soft.mold to your feet; Bare
there, weigh onli 6 ounces; Vent so air pass through,keep feet
cool;Non-marking.Thei also come in a variou amount of color includ
Fuchsia,pink,purple,red,royal blue,yellow,green and much more.Depend on the type
of croc you get you will be spend differ amount of money!you will most like see
someon trot along in a pair of UGG Boots.You also can't miss

UGG Classic Tall and

UGG Classic Short.They will make you
feel confident.

vibram fivefingers shoes

Hey,it is really a good shoes that you can't miss the shoes.Vibram
fivefingers shoes is design for you when you are diong sports
outside.If you want to do sports safety,you can't miss this kind of shoes.Though
itis uglyit is really useful.As a wise man,you can't loose this fashion and
useful shoes.Vibram
Five Fingers Sprint can be a really good shoose.Maybe you will love
this shoes.

cheap uggs on sale

The UGG Australia story began in 1978, when Brian Smith, a young surfer from
Australia, took a trip to the United States with a bag full of sheepskin boots.
After finding a new home amongst California surfers, the UGG Australia brand
began to take shape.
UGGS Sale will give you this fashion
and comfortable shoes.So you don't worry about be frozen in cold winter.You can
be fashion in the winter and

Australia UGG Boots Sale will give
you many surprise.

ugg classic tall

href="http://www.uggsshoesboots.com/">UGG
Adirondack is one of the most popular boots in all styles of
UGG.Super comfortable,ugg australia,Croc-Realli soft.mold to your feet; Bare
there, weigh onli 6 ounces; Vent so air pass through,keep feet
cool;Non-marking.Thei also come in a variou amount of color includ
Fuchsia,pink,purple,red,royal blue,yellow,green and much more.Depend on the type
of croc you get you will be spend differ amount of money!you will most like see
someon trot along in a pair of UGG Boots.You also can't miss

UGG Classic Tall and

UGG Classic Short.They will make you
feel confident.

vibram fivefingers shoes

Hey,it is really a good shoes that you can't miss the shoes.Vibram
fivefingers shoes is design for you when you are diong sports
outside.If you want to do sports safety,you can't miss this kind of shoes.Though
itis uglyit is really useful.As a wise man,you can't loose this fashion and
useful shoes.Vibram
Five Fingers Sprint can be a really good shoose.Maybe you will love
this shoes

chi flat iron

Hey,girls.Are you still upset with your Short-tempered hair?Do you want to have
a long and straight hair?If your answer is yes,you can have a look at chi hair
on sale.CHI
Camo Collection Blue has a special color that if you like the color
of army,you can choose this style.Chi
Hair Iron can make your hair straight and luster.You don't have to
worry about your Short-tempered hair any more.The

chi hair iron use easy and will make
your hair straight soon.It will not cost you much time.You can make your hair
luster in a short time.Don't hesitate any more,just take action

ghd iv styler

href="http://www.ghd-hair-straighteners.biz/">GHD hair straighteners
is a good quality and very stylish look straight hair tool. It has many
colors, you can choose any color you like. And it is very inexpensive price, is
simply inexpensive.GHD
SALE UK will provide you with the most affordable, highest quality
products.If you're tired of messy curly hair,then this will be a big change.You
can let yourself become their straight, smooth hair.Do not hesitate to waste
time to make your hair become more supple. With it, you will become more
attractive

moncler uk

When you head of something you never touch before, do you have an eager to have a try? I think we all have a heart full of inquisitive minds to meet them. We try once, we can know the real thing it is and we will get more. Nice post! Thank you for sharing the meaningful.

jordan shoes

I am happy to find this post very useful for me, as it contains lot of information. I always prefer to read the quality content and this thing I found in you post. Thanks for sharing.

jordan shoes

I am happy to find this post very useful for me, as it contains lot of information. I always prefer to read the quality content and this thing I found in you post. Thanks for sharing.

jordans for sale

I think this is a great post. One thing that I find the most helpful is number five. Sometimes when I write, I just let the flow of the words and information come out so much that I loose the purpose. It’s only after editing when I realize what I’ve done. There’s defiantly a lot of great tips here I’m going to try to be more aware of.

authentic jordans

Thanks a lot for sharing. You have done a brilliant job. Your article is truly relevant to my study at this moment, and I am really happy I discovered your website. However, I would like to see more details about this topic. I'm going to keep coming back here.

cheap jordans

Very interesting issue that after a very successful. Nicely written article good work ! Thanks for the great piece of sharing.

jordans for sale

Very interesting issue that after a very successful. Nicely written article good work ! Thanks for the great piece of sharing.

jordan shoes for sale

Very interesting issue that after a very successful. Nicely written article good work ! Thanks for the great piece of sharing.

jordan shoes

I’ve seen progression in every post. Your newer posts are simply wonderful compared to your posts in the past. Keep up the good work!

jordan shoes

This is a wonderful site. The things mentioned are unanimous and needs to be appreciated by everyone.

jordan shoes

This is a wonderful site. The things mentioned are unanimous and needs to be appreciated by everyone.

jordan shoes

This is a wonderful site. The things mentioned are unanimous and needs to be appreciated by everyone.

jordan shoes

This is a wonderful site. The things mentioned are unanimous and needs to be appreciated by everyone.

jordan shoes

This is a wonderful site. The things mentioned are unanimous and needs to be appreciated by everyone.

UGG sale

thank you very much to post this for us, thank you very much. you can have a look at the cheap and nice ugg boots.

ugg boots sale

Ugg Boots Verkauf passiert online.we bieten billige Ugg Boots, wie M?nner UGG Stiefel, Frauen und Kinder UGG Stiefel UGG ist boots.For mehr Informationen erhalten Sie von unserer Website suchen. wenn Sie an unseren Produkten interessiert sind, wenden Sie sich bitte mit uns.

high interest savings account

What is the best personal finance magazine focusing on how to spend your money, savings tips, etc.?

xiaoye

Thanks for sharing your article. I really enjoyed it. I put a link to my site to here so other people can read it. My readers have about the same interets

xiaoye

Thanks for sharing your article. I really enjoyed it. I put a link to my site to here so other people can read it. My readers have about the same interets

xiaoye

Thanks for sharing your article. I really enjoyed it. I put a link to my site to here so other people can read it. My readers have about the same interets

xiaoye

Thanks for sharing your article. I really enjoyed it. I put a link to my site to here so other people can read it. My readers have about the same interets

xiaoye

Thanks for sharing your article. I really enjoyed it. I put a link to my site to here so other people can read it. My readers have about the same interets

xiaoye

Thanks for sharing your article. I really enjoyed it. I put a link to my site to here so other people can read it. My readers have about the same interets

Jeff from Silver Coast Finest

This is exactly like if the insurance regulators required the insurance companies to post higher capital when insuring the health of persons who represent higher health-risks, without accounting for the fact that these persons will be obliged, precisely therefore, to pay much higher insurance premiums.

xiaoye

Very good post. Made me realize I was totally wrong about this issue. I figure that one learns something new everyday. Mrs Right learned her lesson! Nice, informative website by the way.

Account Deleted

Browse multiple articles listed inside of shops and after that department stores, so have out in addition start spending christian louboutin sale! The very widley known shoes designer, Christian Louboutin sale, once said that have an important at an early age girl whose dream is which usually happen to be nice.

Account Deleted

raf

Thanks for article.

Ohioguide

Even if I don't always agree with your posts, I always appreciate reading them. Columbus Hotels

Account Deleted

There are many online stores having cheap chanel bags, i believe you gonna like it!hgdfs

Account Deleted

We can't form our children on our own concepts; we must take them and love them as God gives them to us
http://www.supraskytop-shoes.com/supra-skytop-shoes-for-women-c-169.html

Account Deleted

celikraf
celikraf

Thanks a lot ...

Account Deleted

Everything is very open and very clear explanation of issues. It contains truly information. Your website is very useful. Thanks for sharing. Looking forward to more!
Innsbruck hotels

Account Deleted

Raf
raf

Thanks for visiting ;)

Account Deleted

Raf
raf

Thanks for comment ...

Account Deleted

If you love a girl, it's better to fight for her happiness than to abandon her for the sake of her happiness
http://www.edhardystyle.com

Account Deleted

Many places and centers offer business and trade promotions to both buyers and supplier.What about the differences in skill intensities across industries? The job losses in the relatively unskilled-labor intensive battery industry should have little effect on the relatively skilled-labor intensive machinery
sexshop
sexyshop
sexshop online

Account Deleted

You made some good points .I did a little research on the topic and found that most people agree with your blog. Thanks.

organic seo service

Account Deleted

Towering genius disdains a beaten path. It seeks regions hitherto unexplored
http://www.leopardprintboot.com

Account Deleted

recover powerpoint presentation

Thanks for posting, good an article!

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Your Information

(Name is required. Email address will not be displayed with the comment.)