Category: Convergence

The nobel of influence in Economics or Why theories fail

Yaku1 Comment

The only Nobel Prize that has nothing to do with the will of its creator, Alfred Nobel, was announced on Monday, October 14th. As usual, the announcement sparked a range of reactions, and as economist . This time, the prize did its job and recognized the contribution of neo-institutionalism to economics. Its influence is undeniable, as can be seen from the fact that these authors are widely cited in macroeconomics courses. For instance, Daron Acemoglu had long been mentioned in academic circles as a favorite to win the Nobel, much like Leonardo DiCaprio was repeatedly named a favorite for the Best Actor Oscar. While we are already familiar with the kind of economics that dominates classrooms and the hegemonic media, as well as the economics that influences politics and shapes economic policies, it鈥檚 worth discussing the theoretical and empirical contributions being recognized and their main critical observations.

Daron Acemoglu, Simon Johnson, and James A. Robinson (AJR) have been awarded for studies of how institutions are formed and affect prosperity. Their work addresses what is perhaps one of the most important questions in economics: How do we explain the economic disparity between countries? Why are some nations persistently wealthy while others remain consistently poor? We should understand prosperity as the plain and simple economic growth. If we rule out biological, cultural, or geographical reasons, what remains is dimension of the historical-political order. Development, then, is largely dependent on one key factor: In the early stages of nations, before they became modern states, what forms of government, civil codes, and laws were established? According to AJR, the root of development lies in the different types of political institutions that were established across the world. Thus, inclusive institutions are in sharp contrast with extractive institutions.

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Covid-19 and The Myth of Convergence: The West, the Rest and the urgent need for fiscal space in the Remainder

pbehuria5 Comments

Imagining recovery, while a pandemic rumbles on, is an ominous task. But governments around the world have been forced to contend with this challenge. Several African, Asian and Latin American economies were in precarious financial positions before the pandemic hit. Fluctuations in global commodity prices in recent years and mounting trade deficits had already forced several African countries to request the International Monetary Fund (IMF) for a range of support mechanisms including credit facilities. Debt was already reaching alarming levels. The pandemic made economic dependencies more salient, with Zambia plunging towards becoming Africa鈥檚 . 

The recent thrust of research championing possible convergence (often based on questionable and selective use of data) between 鈥榙eveloped鈥� and 鈥榙eveloping鈥� countries ignores the vast range of economic trajectories of former colonies. In slapdash cross-country economic studies, a strategic use of averages and unreliable categorisation is often used to draw generalisations about large-scale change. Sweeping claims made about a rising 鈥榙eveloping鈥� world often fail to isolate China鈥檚 rise. There is rarely any acknowledgment that most countries鈥� economies remain undiversified and deeply dependent on foreign actors. The data used to make the case for convergence often relies on GDP and human development indicators, rarely mentioning let alone measuring the of economies. Structural transformation remains one of the essential facets of economies that have . Whether countries can retain fiscal space after this crisis will inevitably depend on the nature of structural transformation and how that has shaped national growth and dependency within the global economy.

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Neoliberalism or Neocolonialism? Evaluating Neoliberalism as a Policy Prescription for Convergence

Rahul Menon6 Comments

Melton_Prior_-_Illustrated_London_News_-_The_Transvaal_War_-_General_Sir_George_Colley_at_the_Battle_of_Majuba_Mountain_Just_Before_He_Was_Killed.jpgBradford deLong has recently argued that neoliberalism provides a way for former colonies to close the gaps with their erstwhile colonial masters. But this argument ignores the fact that several economic policies of colonial times were explicitly laissez-faire in nature.

The recognition of the dangers of allowing finance a free hand in the economy has led to a rethink of the soundness of neoliberalism as an economic and policy doctrine, from . has attacked the theoretical foundations of neoliberalism itself, judging that its insistence on allowing for unhindered market activity is bad economics itself, for economic models that make a theoretical case for markets cannot be easily transplanted into the real world in the way that advocates of neoliberalism believe.

Yet this is not to say that the concept is dead and buried. As Harvey (2007) points out, neoliberalism is a political economic process that ostensibly seeks to organise society and economies around the principle of free market activity, while primarily attempting to shift the balance of power towards dominant economic classes that control capital. Seen in this light, neoliberalism is still a powerful force shaping political and economic changes in much of the world today.

, first published in 1998 and re-published now shows that the term 鈥渘eoliberalism鈥� still carries intellectual currency. His is a curious argument; neoliberalism provides the only suitable path for countries of the developing world to close the gap with their former colonial powers. Access to the latest goods and technology allows developing economies 鈥� with low levels of productivity 鈥� to boost productivity and output growth, and consequently incomes. The reason the State should stay away from the economic sphere in the developing world is because democratic institutions have not been established yet, and hence the political sphere is vulnerable to capture by elites.Read More »

Towards a better understanding of convergence and divergence: or, how the present EU strategy 鈥� at the expense of the economic periphery – neglects the theories that once made Europe successful

Erik ReinertLeave a comment

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This new working paper attempts to address some of the main problems of the European Union today. The main thesis is that the Weltanschauung and the economic narrative on which the European project has been based have changed radically since the inception of the European Project, from one conducive to convergence and cohesion to another which is conducive to divergence and, in the last instance 鈥� I shall argue 鈥� to a form of internal colonialism towards the economic periphery.

The field of Science and Technology employs the term sociotechnical imaginary [1] about the collective narratives and visions of social futures and of the common good. I shall argue that the European Union has moved away from the sociotechnical imaginary, or narrative, that dominated after World War II. I shall argue that this post WW II Marshall Plan Narrative (MPN) gave way to an equilibrium-based Neo-Classical Economics Narrative with an added innovation rhetoric, which I shall argue is based on a fairly shallow understanding of innovation (which I shall call NC+I).Read More »

Unequal Inequalities Revisited

jpellg6 Comments

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Any discussion of inequality includes an implicit normative or ethical comparison of distributions; a certain distribution of some good, or of gains in that good, is acceptable or not acceptable, is better or worse, is improving or stagnating. If discussions of inequality also inevitably involve rankings and comparisons of different distributions, then how inequality is . The choice of measurement of inequality is therefore not value neutral.Read More »

Kicking Away the (Statistical) Ladder

assaj4012 Comments

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Developed countries often lecture developing and emerging countries on the appropriate policies and institutions necessary for economic success. This is done either bilaterally or through multilateral organizations such as the World Bank, IMF, OECD or European Union. Cambridge economist Ha-Joon Chang exposed the hypocrisy of this approach in his provocative 2002 book . Chang suggests that when today鈥檚 rich countries were themselves developing, they used practices opposite to what they preach today, including industrial policies, high tariffs and infant industry protection. Therefore their current advice to poorer countries amounts to 鈥榢icking away the ladder鈥� of development.

A lesser-known but equally disturbing process has occurred in the realm of economic statistics, in particular national income accounts. The EU and OECD often criticize the national accounts of developing countries, and a recent example is a claim made in a by Robert Barro: “There are suspicions that China鈥檚 reported growth rates in recent decades have been boosted by manipulation of the national-accounts data.” While no statistical system is beyond doubt, the biggest manipulations of data in history, in fact, have benefited (and were supported by) rich countries.Read More »

The Rise of the Rest? A shameless plug

ilanstrauss2 Comments

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During the summer I wrote on the rise of emerging markets since World War II for the Delma Institute, a consulting firm based in the UAE. The piece is designed to be read on the web as an (apparently that is what all the hip kids are doing nowadays). This blog post is a shameless plug to get you to read it. Below I pick a few juicy items from it to wet your appetite.

But first, who should read the full piece? It will make for perfect holiday reading if:

  • You want to take extended bathroom breaks to escape your family and need some reading.
  • You want a big picture overview 鈥� for yourself or your undergraduate students 鈥� of global economic development since WWII.
  • You haven鈥檛 been on your computer enough during the last quarter.

The piece essentially tries to answer two questions: Have emerging markets 鈥榬isen鈥�? And will their 鈥榬ise鈥� become more widespread? It does so by painting a picture of the major changes in the global economy since World War II, focusing on: 1. Increasing global economic integration and the spread of capital; 2. The rise of emerging Asia (and China in particular); and 3. The fall of communism. Read More »