Country role models for development success

Discovered the UNU-WIDER project on Country Role Models for Develoment Success. Covers reports from various countries, worth a read.

Publications:

• The Mauritian Success Story and its Lessons
• Botswana as a Role Model for Country Success
• Can Norway Be a Role Model for Natural Resource Abundant Countries?
• Country Role Models for Development Success: The Ghana Case
• The Czech Transition: The Importance of Microeconomic Fundamentals
• The Danish Model and the Globalizing Learning Economy: Lessons for Developing Countries
• Developing Ireland: Committing to Economic Openness and Building Domestic Institutional Capabilities
• The Disinterested Government: An Interpretation of China's Economic Success in the Reform Era
• The Finnish Developmental State and its Growth Regime
• How Can Korea be a Role Model for Catch-up Development?: A ‘Capability-based View’
• Hungary: The Janus-faced Success Story
• India's Development Strategy: Accidents, Design and Replicability
• Japan’s Model of Economic Development: Relevant and Nonrelevant Elements for Developing Economies
• Lessons from the Transition Economies: Putting the Success Stories of the Postcommunist World into a Broader Perspective
• The Omani and Bahraini Paths to Development: Rare and Contrasting Oil-based Economic Success Stories
• Switzerland’s Rise to a Wealthy Nation: Competition and Contestability as Key Success Factors
• Three decades of Neoliberal Economics in Chile
• Tunisia's Development Experience: A Success Story?
• A Two-thirds Rate of Success: Polish Transformation and Economic Development, 1989-2008
• Vietnam as a Role Model for Development

Lucas roundtable

Questioning the dismal science has so many interesting posts from economists..here is Mark Thoma on asking the right questions, which reiterates my previous post on pluralism in economics...

We need to take a close look at how the sociology of our profession led to an outcome where people were made to feel embarrassed for even asking certain types of questions. People will always be passionate in defense of their life's work, so it's not the rhetoric itself that is of concern, the problem comes when factors such as ideology or control of journals and other outlets for the dissemination of research stand in the way of promising alternative lines of inquiry.

The full debate can be followed here:

http://www.economist.com/blogs/freeexchange/2009/08/lucas_roundtable.cfm

Global Financial Crisis: Questioning the questions

How has the crisis changed our thinking? Are we still asking the wrong questions? What implications does this have for policy making? RBI Governor sets out the right questions to ask in a lecture titled 'Global Financial Crisis: Questioning the questions':

Some excerpts:

Notwithstanding reams being written about resolving the present crisis and preventing another like this, global imbalances are not on the radar screen of policy debate. This is both perplexing and disturbing. Indeed, once the immediacy of the crisis is behind us, it will not be surprising if we head for another round of destabilizing global imbalances.

Resolving the problem of global imbalances does not mean eliminating them. As long as there is world trade, certain countries will have surpluses and certain others will run deficits. Global imbalances have been, are, and will continue to be inevitable.

So, to ask how we can eliminate global imbalances is clearly the wrong question. The right question is this: given that global imbalances are inevitable, how do we ensure that they do not build up to destabilizing levels?

***

The current monetary and fiscal stance is, however, not the steady state. The Reserve Bank needs to roll back the special monetary accommodation. For this to happen, there are two necessary conditions. First, the government will have to show a firm and credible commitment to fiscal responsibility by fleshing out the road map for fiscal consolidation. Second, there will have to be more definite signs of recovery. The Reserve Bank will maintain an accommodative stance until demand conditions improve and credit flow takes hold, but reversing the expansionary policies is definitely on the agenda on the way forward.

…there will need to be increasing coordination between monetary and fiscal policies. Central banks will have to take into account fiscal compulsions in their monetary stance while governments will need to commit to strict fiscal responsibility. To ask therefore how monetary and fiscal policies can go their separate ways is the wrong question. What is the right question? I submit the right question is: how can we coordinate fiscal and monetary policies to achieve the planned outcomes?

**

In a more global context, given the fall out from the crisis, to ask how central banks should revert to their sole inflation targeting mandate is the wrong question. The right question is this: what are the specific roles and responsibilities of governments and central banks in ensuring price stability, financial stability and macroeconomic stability?

***

The magic of the financial sector gave it such a larger than life profile that we began to believe that for every real life problem, no matter how complex, there is a financial sector solution. Now, of course, we know better – for every real life problem, no matter how complex, there is a financial sector solution, which is wrong...

.... However, our problem is a little different since we must regulate markets in a way that does not hamper development. But whose development do we focus on? As I have argued, what is important is the development of the real sectors not of the financial sector. To the extent that the financial sector helps deliver stronger and more secure long-term growth, its development is important. And our regulatory framework should be premised on this underlying argument. So, as we change or review our regulatory framework, the question we need to answer is whether an existing practice or a change in rule delivers higher and more secure real economy growth; not whether it develops the financial sector or accelerates its expansion.

All in all, this crisis has dealt a harsh blow to our confidence in the financial sector. But are we asking the right question? The question we are asking is how to put the financial sector back on the high growth trajectory. I believe we must be asking a different question, so that we can come up with effective and lasting solutions. That question is: how can we keep real sector growth on a high trajectory? And only in this connection, should we ask what the financial sector can do to help.

Time and investment decisions

For those who believe that markets are always efficient and tend to forget the element of time in economics, here is a primer on the biases that arise in investment..short term bias and long term bias and the implications for market pricing.

Also a paper by Bolton et al (RES2006): ‘Executive compensation and Short-termist behaviour in speculative markets’ that shows how the short term perspective can skew investment decisions in the long run.

Excerpts:

In times of great heterogeneity in investor beliefs, the optimal incentive contract is designed to partially or completely induce the CEO to pursue the strategy that tends to exacerbate investors’ differences of opinion and to bring about a higher speculative option value. Importantly, both initial shareholders and the CEO can gain from this strategy since it may increase the stock price in the short run. Thus, CEOs may be encouraged to pursue short-term speculative projects even at the expense of long-term fundamental value.

Although short-termist behaviour by managers has been highlighted before (most notably, Stein, 1988, 1989; Shleifer and Vishny, 1990; Von Thadden, 1995), managerial short-termism in these models is not induced by some optimal incentive scheme, but rather due to information or other forms of imperfection, and it arises against the wishes of shareholders. In contrast, the managerial short-termism analysed in our paper is consistent with the speculative motive of incumbent shareholders and therefore would not be eliminated even with active shareholder intervention. More closely related to our paper is that of Froot, Perold and Stein (1992), who provide a discussion of the potential link between the short-term horizon of shareholder and short-term managerial behaviour. They point out that the effective horizon of institutional investors, as measured by the frequency of their share turnover, is about 1 year, much shorter than the necessary period for them to exert long-term discipline on firm managers.