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21. Rice Crisis Forensics: How Asian Governments Carelessly Set the World Rice Market on Fire

Author:
Tom Slayton
Publication Date:
03-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The world rice market was aflame last spring and for several months it looked as if the trading edifice that had exhibited such resilience over the last two decades was going to burn to the ground. World prices trebled within less than four months and reached a 30- year inflation-adjusted high. Many market observers thought the previous record set in 1974 would soon be toast. The fire was man-made, not the result of natural developments. While the governments in India, Vietnam, and the Philippines did not to set the world market on fire, that was the unintended result of their actions which threatened both innocent bystanders (low-income rice importers as far away as Africa and Latin America) and, ultimately, poor rice consumers at home. This paper describes what sparked the fire and the accelerants that made a bad situation nearly catastrophic. Fortuitously, when the flames were raging at peak intensity, rain clouds appeared, the winds [market psychology] shifted, and conditions on the ground improved, allowing the fire to die down. It remains to be seen, however, if the trading edifice has been seriously undermined by the actions of decision makers in several key Asian rice exporting and importing countries. In describing the cascading negative effects of these seemingly rational domestic policies, this paper aims to help policy makers in the rice exporting and importing nations to avoid a repeat of the disastrous price spike of 2008.
Topic:
Agriculture, Economics, Health, Humanitarian Aid, Markets, and Political Economy
Political Geography:
Africa, India, Asia, and Latin America

22. Coping with Rising Food Prices: Policy Dilemmas in the Developing World

Author:
Nora Lustig
Publication Date:
03-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Rising food prices cause considerable policy dilemmas for developing country governments. Letting domestic prices adjust to reflect the full change in international prices generates inflationary pressures and causes severe hardship for poor households lacking access to social safety nets. Alternatively, governments can use food subsidies or export restrictions to stabilize domestic prices, yet this exacerbates global food price increases and undermines a rules-based trading system. The recent episode shows that many countries chose to shift the burden of adjustment back to international markets. The use of corn and oilseed for the production of biofuel will result in a recurrence of such episodes in the foreseeable future.
Topic:
Agriculture, Development, Humanitarian Aid, and Markets

23. Rice Price Formation in the Short Run and the Long Run

Author:
C. Peter Timmer
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper analyzes price formation on the world's rice market using simple supply and demand models as a start, but moving to “supply of storage” models—a staple of commodity-market analysis for more than half a century—to explain hoarding behavior and its subsequent impact on prices. The supply of storage model, however, does not account adequately for the influence that “outside” speculators have on prices. This paper quantifies the impact of financial factors and actors on commodity-price formation using very short-run prices and Granger causality analysis for a wide range of financial and commodity markets, including rice. The results are highly preliminary but are also very provocative. Speculative money seems to surge in and out of commodity markets, strongly linking financial variables with commodity prices during some time periods, but these periods are often short and the relationships disappear for long periods of time. Finally, the paper addresses the long-run (since 1900) relationships among the prices of the three basic cereal staples, rice, wheat and corn (maize), which have declined more than 1 percent per year over the past century. The decline accelerated after the mid-1980s; only the recent run-up in cereal prices in 2007–08 returned them to the long-run downward trend. Despite these common features and important cross-commodity linkages, however, price formation for rice has several unique dimensions worthy of further study.
Topic:
Agriculture, Markets, Food, and Financial Crisis

24. To Formalize or Not to Formalize? Comparisons of Microenterprise Data from Southern and East Africa

Author:
Vijaya Ramachandran, Manju Kedia Shah, Alan Gelb, and Taye Mengistae
Publication Date:
07-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Why do firms choose to locate in the informal sector? Researchers often argue that the high cost of regulation prevents informal firms from becoming formal and productive. Our results point to a more nuanced story.
Topic:
Development, Economics, Markets, and Labor Issues
Political Geography:
Africa

25. Pricing and Access: Lessons from Randomized Evaluations in Education and Health

Author:
Michael Kremer and Alaka Holla
Publication Date:
01-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper surveys evidence from recent randomized evaluations in developing countries on the impact of price on access to health and education. The debate on user fees has been contentious, but until recently much of the evidence was anecdotal. Randomized evaluations across a variety of settings suggest prices have a large impact on take-up of education and health products and services. While the sign of this effect is consistent with standard theories of human capital investment, a more detailed examination of the data suggests that it may be important to go beyond these models. There is some evidence for peer effects, which implies that for some goods the aggregate response to price will exceed the individual response. Time-inconsistent preferences could potentially help explain the apparently disproportionate effect of small short-run costs and benefits on decisions with long-run consequences.
Topic:
Development, Economics, Education, Health, Human Welfare, and Markets

26. Do Regulatory Reforms Stimulate Investment and Growth? Evidence from the Doing Business Data

Author:
Benjamin P. Eifert
Publication Date:
01-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The role of regulatory barriers in inhibiting entrepreneurship, investment and employment creation is an old topic in economics. This study utilizes a five-year panel of data on regulations and procedures from the World Bank's Doing Business project, along with Arellano-Bond dynamic panel estimators, looking for evidence that regulatory reforms lead to higher aggregate investment rates (roughly, factor demand) or GDP growth conditional on investment rates (roughly, factor productivity). It looks both at individual regulatory indicators and more aggregate measures of the incidence of reforms, finding some evidence of positive impacts of regulatory reforms in countries which are relatively poor (conditional on governance) and relatively well-governed (conditional on income). Relatively poor and relatively well-governed countries grow about 0.4 and 0.2 percentage points faster in the year immediately following one or more reforms, respectively. In both subsets of countries, investment rates accelerate by about 0.6 percentage points in the subsequent year.
Topic:
Development, Economics, Markets, Poverty, and Third World

27. Making Markets for Merit Goods: The Political Economy of Antiretrovirals

Author:
Ethan B. Kapstein and Josh Busby
Publication Date:
08-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper examines the role of policy entrepreneurs and global activists in shaping the international market for antiretroviral drugs to combat HIV/AIDS. When ARVs first came on the market in the 1990s they were exceedingly expensive; the cost of treatment was upwards of $10,000 per year. These drugs were thus accessible only to those patients who had high incomes. But in 2006, the “international community,” meeting at a United Nations General Assembly Special Session (UNGASS), made an astonishing pledge to those who were infected with HIV. It proclaimed that there should be universal access to ARV treatment. This UNGASS, following up on an earlier historic UN special session devoted entirely to AIDS in 2001, marked the first time in history that the international community pledged itself to chronic care for the ill, which in this case includes the approximately 30 million people around the world estimated to be HIV positive. How do we explain the transformation of ARVs from private goods, which only a few could afford, into merit goods that were (at least declaratively) to be made available to everyone? In other words, how does a norm of “universal access to treatment”—that no person should be denied these life-extending drugs—become the ethical basis for global public policy with respect to pharmaceutical allocation? What are the lessons of the ARV story for other global issues? These are the primary questions we explore in this paper. Briefly, we argue that the policy entrepreneurs and activists who promoted the creation of a universal access to treatment regime—of the transformation of ARVs into global merit goods—relied on a combination of moral arguments and ideas with favorable material circumstances. From the ethical perspective, the task of these entrepreneurs was to convince the “international community” that access to ARVs was a “human right,” or conversely to convince decision-makers that it was morally wrong to allocate these life-enhancing drugs solely on the basis of ability to pay. But from a material standpoint, these arguments were greatly facilitated by the lowering prices of ARVs caused by a combination of differential pricing (that is, lower prices for drugs in the developing world than in the advanced welfare states) and competition from generics producers, coupled with increases in foreign aid spending devoted to HIV/AIDS and other diseases.
Topic:
Globalization, Health, and Markets
Political Geography:
United Nations

28. Why Warner-Lieberman Failed and How to Get America's Working Families behind the Next Cap-and-Trade Bill

Author:
David Wheeler
Publication Date:
07-2008
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Among partisans of greenhouse gas emissions regulation, the Senate's failure to pass the Warner-Lieberman cap-and-trade bill is often attributed to rampant denial, fueled by diehard political conservatism, energy-company propaganda, and government suppression of evidence on global warming. If so, the solution to the problem is electoral change, exposure of the propaganda, and public education. However, public concern is already so widespread that even leaders of the Southern Baptist Convention have acknowledged the need for action. In this paper, I consider two additional forces that have stymied carbon emissions regulation in developing countries. The first is the perception that costly carbon regulation promoted by the rich will inflict an unjust burden on the poor. The second is hostility to taxation of critical fossil-fuel resources that were developed long before climate risk was identified. My econometric analysis suggests that these same forces have significantly affected senators' votes on Warner-Lieberman. By implication, Congress is not likely to approve cap-and-trade legislation unless Americans with below-median incomes are compensated for expected losses. My analysis supports recent proposals for direct distribution of emissions permit auction revenues to American families on an equal per-capita basis.
Topic:
Climate Change, Environment, Government, Markets, and Politics
Political Geography:
America

29. Crossroads at Mmamabula: Will the World Bank Choose the Clean Energy Path?

Author:
David Wheeler
Publication Date:
02-2008
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
At the recent UN climate change conference in Bali, UN Secretary General Ban Ki-moon called for a revolutionary change in the world's energy mix to minimize the risk of catastrophic global heating. This paper explores the implications for the World Bank and other donor institutions, employing proposed Bank financing of the Mmamabula coal-fired power project in Botswana as an illustrative case. Using the latest estimates of generating costs for coal-fired and low-carbon power options, I compute the CO2 accounting charges that would promote switching to the low-carbon options. In all cases, I find that that the switching charges are at the low end of the range that is compatible with safe atmospheric limits on carbon loading. Among the low-carbon options that I have considered for Botswana, solar thermal power seems to dominate carbon capture and storage.
Topic:
Energy Policy, Environment, Markets, and United Nations
Political Geography:
Africa

30. Currency Undervaluation and Sovereign Wealth Funds: A New Role for the World Trade Organization

Author:
Arvind Subramanian and Aaditya Mattoo
Publication Date:
02-2008
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Two aspects of global imbalances—undervalued exchange rates and sovereign wealth funds (SWFs)—require a multilateral response. For reasons of inadequate leverage and eroding legitimacy, the International Monetary Fund (IMF) has not been effective in dealing with undervalued exchange rates. We propose new rules in the World Trade Organization (WTO) to discipline cases of significant undervaluation that are clearly attributable to government action. The rationale for WTO involvement is that there are large trade consequences of undervalued exchange rates, which act as both import tariffs and export subsidies, and that the WTO's enforcement mechanism is credible and effective. The WTO would not be involved in exchange rate management, and our proposals do not entail the WTO displacing the IMF: Rather, they would harness the comparative advantage of the two institutions, with the IMF providing the essential technical expertise in the WTO enforcement process. On SWFs, there is a bargain to be struck between countries with SWFs, which want secure and liberal access for their capital, and capital-importing countries that have concerns about the objectives and operations of SWFs. The WTO is the natural place to strike this bargain. Its services agreement, the General Agreement on Trade in Services (GATS), already covers investments by SWFs, and other agreements offer a precedent for designing disciplines for SWFs. Placing exchange rates and SWFs on the trade negotiating agenda may help revive the Doha Round by rekindling the interest of a wide variety of groups, many of whom are currently disengaged from the round.
Topic:
Foreign Exchange, International Organization, International Trade and Finance, and Markets