Strong US dollar a concern for developing countries

From CNBC – some good graphics in this presentation and an interview with Eswar Prasad, an economist at the Brookings Institution and professor at Cornell University. Quote below:

“So here’s the paradox. The rest of the world despises how dominant the dollar is, yet they go to the U.S. dollar, because there really isn’t much of an alternative,”

Some facts about the US Dollar –

  • 60% of the world’s central banks’ foreign exchange reserves in US dollar-denominated assets.
  • 40% of consumers use the US dollar as a payment currency worldwide.
  • 60% of international debt and 50% of loans globally is in US dollars.
  • US dollar – still the main currency to buy and sell commodities such as oil.

“This is ultimately going to entrench the dollar’s dominance even further,” Prasad said. “That is certainly a serious problem for low-income countries that have high levels of foreign debt, especially dollar-denominated debt.”

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2022 HDI – Switzerland #1

Below are two very good videos by Geoff Riley of Tutor2u. They cover the 2022 HDI figures and an explanation of the 3 main indicators that make up the index. This topic is part of the A2 Economics course and the videos great for revision purposes. Switzerland comes in at #1 with New Zealand and Belgium 13th=. The second video covers the limitations of HDI which can be part of an essay questions. Click here to find more economics revision videos from Tutor2u.

Globalisation and geo-political tectonic plates

Below is another very good CNBC video which tackles the issues of globalisation and can it bring countries together? It goes right back to the 15th century and the Age of Discovery and mentions when globalisation really began in 18th century Britain with the industrial revolution. However more recently with more populist governments countries has become more protective of their industries of which the US China trade war being an example. This year the war in Ukraine has pushed international relations to breaking point.

2023 will most likely see a significant slowdown in the global economy and the reliance on global trade to function. IMF Chief Economist Pierre Olivier Gourinchas talks of ‘geo-political tectonic plates’ where rising commodity prices, supply chain problems, a refugee crisis and higher central bank interest rates have all pushed the plates (countries) further apart to form trading blocs.

The rise of China and other emerging markets has been the success of globalisation but it has also led to protectionist measures and rebalancing of power. Therefore as a country’s power increases there is a need to adjust the way we deal with this imbalance i.e. some countries economic development has not been matched with their financial and global institutional firepower which is patly due to the dominance of the US dollar. This is ironic as the US economy’s share of global output has declined. Worth a look especially when teaching trade and protectionism – see also the table on pros and cons of globalisation.

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The Paradox of Aid – dumping in developing countries.

Although a few years old now the video below is a good example of dumping – where the exporting country is able to lower its prices below that of the domestic price in the market it is selling into. Useful to show when teaching barriers to trade.

The U.S. spends approximately $37 billion dollars a year on foreign aid – just under 1% of our federal budget. “The Foreign Aid Paradox” zeroes in on food aid to Haiti and how it affects American farming and shipping interests as well as Haiti’s own agricultural markets. The fact that the US dump rice exports on the Haitian market below the equilibrium price severely affects the revenue of local farmers. Should there be a trade-not-aid strategy for developing countries? Below is a very good video from wetheeconomy

The trade-not-aid strategy is based on the idea that if developing countries were able to trade more freely with wealthy countries, they would have more reliable incomes and they would be much less dependent on external aid to carry out development projects. International trade would raise incomes and living standards as poor countries would be able to export their way to economic development.

Climate change: who is helping developing countries

Poor nations, which have contributed the least to climate change are among the most vulnerable to climate change today. They need some financial commitments from the developed world who have grown their economies by polluting the atmosphere. For instance Pakistan emits under 1% of global emissions but it is the eighth most vulnerable country – see graphic. It is estimated that Pakistan has had $22 billion in material damages with up to 12,000 people losing their lives with 60 million affected – 2022 saw extreme monsoon rains and the worst flooding in a decade.

It is the developed world that is most responsible for climate change – since 1850 the US has emitted more than 500 billion tonnes of CO2 which is approximately twice that of the next largest emitter China. It is vital that the richer countries assist the developing world combat extreme weather. They have the finance to do it but don’t seem to rich their target of $100bn per year year since 2020. There is a pay back here in that those got countries got rich on the problem that we now have.

1992 UN Framework Convention of Climate Change was approved and at the Conference of Parties (known as COP) and in 2009 15 developed nations committee to $100 billion each year – see graphic – to support developing countries with reducing emissions and adapting climate change. The $100 billion goal was “carefully crafted” to be deliberately vague. As a result, there’s no requirement that specific countries contribute a certain proportion of the funds. Multiple analysis have calculated that the United States, which contributed less than $3 billion of the $83.3 billion in 2020, is under delivering by tens of billions of dollars when considering its relative emissions, population size and wealth.

The IMF has also provided long-term affordable financing. The money so far has funded mitigation projects, which help developing countries transition away from fossil fuels, like building a zero-emissions transit system in Pakistan. Money has also gone toward adaptation projects, which help countries build resilience against climate risks, like restoring vegetation and reducing the risk of flooding.

Source: New York Times. Who will pay for Climate Change. Nov 7 2022

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Skills needed to achieve UN Sustainable Development Goals

An article from the IMF publication ‘Finance & Development’ tackled the question of how can the UN bring about the 17 SDGs? Economic development depends a lot on the skill levels of the population and this requires considerable investment and time. The IMF highlighted 3 issues:

  1. Skill differences account for three-quarters of cross-country variations in long-term growth.
  2. The global skill deficit is immense, as two-thirds or more of the world’s youth do not reach even basic skill levels.
  3. Accordingly, reaching the goal of global universal basic skills would raise future world GDP by $700 trillion over the remainder of the century.

Long-run growth depends primarily on the skills of the people. According to Hanushek and Woessmann 2015 relevant economic skills are captured quite well by international student achievement tests in math and science. The graph below shows the relationship between long-term growth and achievement. Skills are measured by two international assessments:
Programme for International Student Assessment [PISA]
Trends in International Mathematics and Science Study [TIMSS]

Growth and achievement are closely linked: countries with high-achieving populations grew fast; those whose people lag in achievement hardly grew at all. Achievement explains three-quarters of the variation in growth rates across countries. Moreover, years of schooling have no bearing on growth after accounting for what has actually been learned.

Although international achievement tests were first developed in the 1960’s the majority of poorer countries have never participated. The IMF define basic skills as those necessary to participate productively in modern economies. These are represented by mastering at least the lowest of the six skill levels of the PISA test – at this level students are able to carry out obvious routine procedures. However at this level they cannot solve simple problems involving whole numbers. These skills are imperative in the ever changing world of employment. 66% of the world’s young people fail to compete in the international economy. According to the IMF there are 6 development challenges by global deficits in basic skills:

  • At least two-thirds of the world’s youth do not obtain basic skills.
  • The share of young people who do not reach basic skills exceeds half in 101 countries and rises above 90 percent in 37 of these.
  • Even in high-income countries, a quarter of young people lack basic skills.
  • Skill deficits reach 94 percent in sub-Saharan Africa and 90 percent in south Asia, but they also hit 70 percent in Middle East and North Africa and 66 percent in Latin America.
  • While skill gaps are most apparent for the third of global youth not attending secondary school, fully 62 percent of the world’s secondary school students fail to reach basic skills.
  • Half of the world’s young people live in the 35 countries that do not participate in international testing, resulting in a lack of regular foundational performance information.

It is not enough for young people to be at school – low quality education is prevalent in most poorer countries. The last few years have not helped with school closures and reluctance to return to the classroom which will not disappear simply by restoring schools to their January 2020 performance. The pandemic has impacted the poorer children in both developed and developing countries.

Improving student achievement is the goal and a possible way of doing this is incentives related to educational outcomes, which is best achieved through the institutional structures of the school system. Notably, education policies that develop effective accountability systems, promote choice, emphasise teacher quality, and provide direct rewards for good performance offer promise, supported by evidence.

Source: IMF F&D The Basic Skills Gap – September 2022

Difference between the IMF and the World Bank

Updating the new CIE AS and A Level syllabus for 2023 and external debt and the role of IMF and World Bank are part of Unit 11 of CIE A2 syllabus. This is an area where students get confused as to the role of each organisation.

The International Monetary Fund (IMF) (http://www.imf.org) promotes international financial stability of the world’s monetary system. Lends to countries with balance of payments problems and aims to promote development by restoring short run stability and by supporting long term adjustment and reform

The World Bank (http://www.worldbank.org) promotes institutional, structural and social development by providing low interest loans and technical assistance for domestic investment projects. It’s goal is to reduce poverty by offering assistance to middle-income and low-income countries. It aims to help countries meet the UN Millennium Development Goals.

Below is a useful video from CNBC on the differences.

Sign up to elearneconomics for multiple choice test questions (many with coloured diagrams and models) and the reasoned answers on developing economies and the IMF/World Bank. Immediate feedback and tracked results allow students to identify areas of strength and weakness vital for student-centred learning and understanding.

BRICS – acronym to strategic bloc

The acronym started as “BRIC” in 2001, when Goldman Sach’s then-chief economist Jim O’Neill predicted that the economic weight of Brazil, Russia, India and China could eclipse the world’s biggest economies in the next decade. A decade passed, and that didn’t happen. But leaders of BRIC nations did hold their first official summit in Russia in 2010, with South Africa joining the group a year later. Since then, they have met regularly to discuss cooperation on global issues. Video below is from CNBC International. Good viewing for A Level Developing Economies.

For more on Development Economics and BRICS view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.

Is the Chinese debt trap a myth?

It has been suggested that China cajoles less developed countries into taking out multiple loans to build expensive infrastructure that they can’t afford to fund themselves. This then leads to fears of possible takeover of assets by China when the borrowing country defaults on its debt. An example of this is the Sri Lankan port of Hambantota. However, a deeper look shows that accusations of so-called debt trap diplomacy turn out to be unfounded.

Sri Lanka – Hambantota.

It was the Canadian International Development Agency—not China—that financed Canada’s leading engineering and construction firm, SNC-Lavalin, to carry out a feasibility study for the port. The initial phase of the project should allow for the transport of non-containerised cargo—oil, cars, grain—to start bringing in revenue, before expanding the port to be able to handle the traffic and storage of traditional containers.

In 2007 after being turned down by the US and Indian companies, China Harbor won the contract to build the port with China Eximbank agreeing to fund it – $307 million,15-year commercial loan with a 6.3% interest rate. There were 2 phase of the build:

Phase 1 – infrastructure to handle non-containerised cargo – oil, grain, cars etc.
Phase 2 – transforming Hambantota into a container port.

Instead of waiting for Phase 1 to generate income the government went ahead with Phase 2 and borrowed $757 million from China Eximbank at an interest rate of 2%. By 2015 Hambantota was losing money and the Sri Lankan Port Authoroity (SLPA) signed an agreement with China Harbor and China Merchants Group to have them jointly develop and operate the new port for 35 years.

By this time with a change of government and increases in sovereign bond payments the Sri Lankan fiscal position was desperate. They owed more to Japan, the World Bank and the Asian Development Bank than to China. Only 5% of $4.5bn debt servicing was due to Hambantota.

It is important to note that there was never a default – IMF raised money by leasing out the Hambantota Port to an experienced company. Two bids came from China Merchants and China Harbor; Sri Lanka chose China Merchants, making it the majority shareholder with a 99-year lease, and used the $1.12 billion cash infusion to bolster its foreign reserves, not to pay off China Eximbank.

Africa and Chinese infrastructure projects

The video below from ‘Bloomberg Quicktake Originals’ looks at a similar scenario in Africa to that of Sri Lanka. Over the past two decades, China has built large infrastructure projects in almost every country in Africa, making Western powers uncomfortable amid wider concerns about Beijing’s investments across the continent. However, a deeper look shows that accusations of so-called debt trap diplomacy turn out to be unfounded.

Source:

The Chinese ‘Debt Trap’ Is a Myth – The Atlantic 6-2-22

For more on Developing Countries view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.

Africa’s resource paradox and market failure

I have blogged a few times on the resource curse that affects some developing countries but it seems that in Africa a lot of resources go unused when they are actually demanded in an economy. There seems to be a lack of planning for supply and demand and build an infrastructure linking the two. The Economist came up with some good examples of this:

  • Ghana – generation vs distribution. The country produces too much electricity as Ghanaian usage per year equates to what someone in the US uses a fortnight. More than 25% of households in Ghana are not connected to the grid and 25% of electricity is lost due to derelict distribution infrastructure and theft. With regard to oil, Ghana spent over $4.7 billion on importing petroleum last year, despite having domestic petroleum refineries which are lying idle – they could produce 30% of its petroleum needs.
  • Uganda – like Ghana supply is greater than demand as capacity if nearly double peak demand. Trucks wait on the side of roads even though traders can’t find vehicles to transport their goods.
  • Ethiopia – largest livestock in Africa and tanneries to turn hides into leather but shoe and glove makers import leather from China. Local tanneries are concerned with how the leather is treated.
  • Nigeria – tomato-processing plant to make tinned paste but closed down due to crop failure caused by a voracious moth

Another issue is the completion of infrastructure projects – according to McKinsey approximately 80% of African infrastructure projects fail in the cost benefit analysis stage whilst fewer that 10% get the stage of acquiring funding. For Africa to further development there has to be some acknowledgement of market failure and a willingness to separate commercial power and political power amongst its government officials.

Source: How market failures are holding Africa back. The Economist 5th May 2022

For more on Market Failure and Development Economics view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.

Why do developing countries like a strong currency?

In the majority of economics textbooks a depreciation of the exchange is beneficial to an economy especially those like developing countries which depend a lot on export revenue.

A fall in the value of the exchange rate will make exports cheaper and so acts as an implicit subsidy to firms that sell abroad. Exposure to world markets also helps companies in the developing world learn and improve. Finished imported products that are still purchased will be more expensive and some of these will count in the country’s consumer price index. Costs of production will be pushed up because the cost of imported raw materials will rise. Domestic firms may also feel less competitive pressure to keep costs and prices low.

A rise in the value of exchange rate will make exports more expensive in terms of foreign currencies, and imports cheaper in terms of the domestic currency. Such a change is likely to result in a fall in demand for domestic products. A higher exchange rate may also reduce inflationary pressure by shifting the aggregate supply curve to the right because of lower costs of imported raw materials. The price of imported finished products would also fall and there would be increased competitive pressure on domestic firms to restrict price rises in order to try to maintain their sales at home and abroad.

It has been traditional for developing countries to try and engineer a weaker currency to make their exports more competitive especially as this revenue is one way in which their economies can start to grow. China and other South East Asian economies adopted this strategy as they went through industrialising their economy. Empirical studies suggest that an undervalued currency boosts growth more in developing rather than developed economies.

Why then is it that some African countries still want to maintain a strong currency? Primary sector exports and overseas aid raises the demand for local currencies making them appreciate. Governments are concerned about a weaker currency as

  • Some are dependent on capital imports to finance infrastructure projects
  • It forces them to spend more income to pay back foreign debts.
  • Pushes up the cost of imported goods, including food, medicine and fuel – mainly impacts the city population who are more likely to complain to politicians.
  • Some companies in developing countries import a lot of their machinery and raw materials – additional cost to their production.
  • A weaker currency does make exports cheaper but this can be nullified by more expensive imports.

However all of this has been overshadowed by COVID-19. The pandemic is increasingly a concern for developing countries which rely heavily on imports to meet their needs of medical supplies essential to combat the virus.

Food and fuel prices impact on Sub Saharan Countries

Just finished completing policies for developing countries with my A2 class and invariably with all my economics classes you cannot get away with not talking about the war in Ukraine and the inflationary problems that the global economy is experiencing. The increase in food and and fuel prices hits the developing world the most and could not have come at a worse time as economies around the world are starting to open up after the COVID pandemic. For the developing world, especially in Sub-Saharan Africa (SSA) there is a significant erosion in living standards and macroeconomic imbalances – see graph below. The IMF has identified 3 main areas that the war is impacting countries:

  • In SSA food accounts for 40% of consumer spending with 85% of wheat supplies being imported. Add to that higher prices for fuel and fertiliser.
  • Higher oil prices mean adds $19bn to the regions imports which worsen the current account balance. However the eight petroleum exporting countries do benefit.
  • SSA countries are not well placed to cope with the need for increased government spending which means using more tax revenue. Increasing oil prices have a direct fiscal cost through fuel subsidies and rising interest rates globally make it more expensive to borrow money to keep the economy ‘above water’ let alone for actual development.

Sign up to elearneconomics for multiple choice test questions (many with coloured diagrams and models) and the reasoned answers on inflation. Immediate feedback and tracked results allow students to identify areas of strength and weakness vital for student-centred learning and understanding.

Surge in food prices hits developing countries

With the war in Ukraine there have been serious concerns about global food supply especially when you look at the graph below. Main points to consider:

  • Russia and Ukraine are both major grain and sunflower oil exporters
  • Spring planting near impossible for farmers in battle zones
  • Sanctions on Russia agricultural goods
Source: Thoughts from the Front Line – Another Strange Recession By John Mauldin | March 12, 2022

How will it impact developing countries.
The staple diet of many developing countries relies on imports of wheat and sunflower oil – for instance Egypt imports 85% of its wheat and 73% of its sunflower oil from the Ukraine and Russia. Countries in these circumstances have no choice but to not put sanctions on food imports. The Food and Agricultural Organisation of the UN Food Price Index – meat, dairy, cereals, oils, and sugar – rose 24.1% in February compared to a year ago. This price shock will impact developing countries as food takes up a greater percentage of a person’s income in the developing world. In the developed world food costs 17% of consumer spending in contrast to those in poorer countries where it takes up 40% of income.

IMF Blog

Many developing countries subsidise food prices to maintain law and order and avoid its population from starving but with higher food prices how are they going to afford subsidies? There is also the problem of repaying debt as feeding the population will the priority rather than servicing foreign debt. Furthermore there is an opportunity cost – money won’t be spent on eduction, healthcare, infrastructure etc which it was originally intended for.

In getting out a recession consumers and producers make adjustments sufficient to reinstate growth. I can’t see that happening soon. The entire world order is experiencing a shock adjustment — economically, geopolitically, and otherwise. John Mauldin

Sign up to elearneconomics for multiple choice test questions (many with coloured diagrams and models) and the reasoned answers on Inflation. Immediate feedback and tracked results allow students to identify areas of strength and weakness vital for student-centred learning and understanding.

Chinese lending and underreported debt.

Most people will be aware of China’s presence in global trade but its growing influence in international finance seems to be relatively unknown mainly due to a lack of transparency and data. The vast majority of lending to Low Middle Income Countries (LMIC) is focused on infrastructure projects but China’s lending policy is obscure for a variety of reasons.

  • There is no published report of the China’s lending activity
  • As China is not a member of the Paris Club that shares bilateral lending and trade credit flows

The Paris Club is a group of 22 major creditor countries who try to find sustainable solutions to the payment difficulties experienced by debtor countries.

Features of Chinese loans

China by far the world’s largest official creditor, with outstanding claims in 2017 surpassing the loan books of the IMF, World Bank and of all other 22 Paris Club governments combined.  see graph.

Features of Chinese loans:

  • China lends at commercial rates – approx 4% – which is four times than that of a loan from the World Bank or an individual country.
  • China’s repayment period is generally shorter – less than 10 years which compares to approx 28 years for other lenders’ loans to LMIC.
  • China’s state-owned lenders require borrowers to maintain an offshore account which they have access to as security. This saves China having to go through the judicial process to recover funds.
  • Some countries are fast accumulating debt to China and for a lot of them the amount of debt owed has increased from less than 1% of debtor country GDP in 2005 to more than 15% in 2017. A dozen of these countries now owe debt of at least 20% of their nominal GDP to China.

Is China setting up debt traps?
There are mixed views on whether China keeps lending money to countries that can’t afford the repayment. This can result in China gaining part ownership of foreign assets as compensation for non-payment of a loan. Sri Lanka has been cited as an example of this in which there was considerable Chinese investment in a port project. However using loans and contractors from China proved contentious and Sri Lanka was left with growing debts. In 2017 consensus was reached which gave state-owned China Merchants a controlling 70% stake in the port on a 99-year lease in return for further Chinese investment.

However some reports suggest that the deal was driven by local political motivations, and China never took formal ownership of the port. In fact there are no instances of China seizing a major asset in the event of a loan default – AidData.

Why is there underreported debt? According to the China Africa Research Initiative there are five main reasons why countries have not reported debts to the World Bank.

  • World Bank rules on debt reporting only apply to countries actually borrowing from the World Bank. For instance when President Hugo Chavez of Venezuela pulled out of the World Bank after paying off loans, China then lent Venezuela US$90bn (21.1% of its GDP) which Venezuela was not required to disclose to the World Bank
  • Geopolitics also influences a country’s decision to disclose its debt. As well as Venezuela, Russia doesn’t report fully to the World Bank. For instance sanctions against a country will limit its ability to borrow from the World Bank.
  • Weak government capacities – if a country is afflicted by civil war they are often unable to report their borrowing. Sudan – overrun by conflict – stopped reporting loan commitments by China after 2010.
  • Deliberate hiding of foreign borrowing – loans to a country’s SOE’s may not be reported to the World Bank as domestic accounting systems keep SOE debt distinct from central government public debt. Mozambique has deliberately hidden loans from Swiss and Russian banks.
  • Chinese loan contracts – confidentiality clauses in them prevent borrower governments revealing the terms or even the existence of debt. Although more evidence is needed to prove this claim.

Why does underreported debt matter?
For policymakers in LMIC’s underreported debt is worthy of attention for the following reasons:

  • It can displace other public spending priorities that were planned and budgeted.
  • If a central government has a high level of debt exposure and this is underreported it will continue to borrow from lenders who are unaware of the risks. This can lead to an unsustainable accumulation of public debt.
  • It becomes very hard for for countries to resolve their debt crisis when they have such high underreported debt exposure. Creditors are likely to be less sympathetic to country’s who have underreported their debt exposure leading to litigation.

Sources

What is the Real Story of China’s “Hidden Debt”? by Deborah Brautigam and Yufan Huang. China Africa Research Initiative No. 6 2021.

China: Is it burdening poor countries with unsustainable debt? by Kai Wang – BBC Reality Check January 2022

Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects. Sep 29, 2021. Aid Data

Externalities of Food

Informative video from the FT that looks at the externalities of food covering – environmental cost, health costs and social costs. It focuses on the ‘True Cost Accounting’ and uses the example of coffee where a 1 kilo bag from Brazil costs $2 but the real cost is around $5.17 when you include that farmers are underpaid, there is unsustainable water use, air pollution, climate changing energy supplies and land degradation.

To encourage greater sustainability Rabobank introduced ‘The Rabo Impact Loan’ which is a low-interest business loan created especially for farmers that have a high sustainability performance. Good introduction to market failure.

Africa’s resource curse lingers on.

Africa may have enormous natural reserves of oil, but so far most Africans haven’t felt the benefit. In Nigeria, for instance, what’s seen as a failure to spread the country’s oil wealth to the country’s poorest people has led to violent unrest. However, this economic paradox known as the resource curse has been paramount in Africa’s inability to benefit from oil. This refers to the fact that once countries start to export oil their exchange rate – sometimes know as a petrocurrency – appreciates making other exports uncompetitive and imports cheaper. At the same time there is a gravitation towards the petroleum industry which drains other sectors of the economy, including agriculture and traditional industries, as well as increasing its reliance on imports. It is estimated that for every extra dollar in foreign currency earned from exporting resources reduces non-resource exports by $0.74 – Torfinn Harding of the NHH Norwegian School of Economics and Anthony Venables of Oxford University.

Economists also refer to this as the Dutch Disease which makes reference to Holland and the discovery of vast quantities of natural gas during the 1960s in that country’s portion of the North Sea. The subsequent years saw the Dutch manufacturing sector decline as the gas industry developed. The major problem with the reliance on oil is that if the natural resource begins to run out or if there is a downturn in prices, once competitive manufacturing industries find it extremely difficult to return to an environment of profitability.

According to the UN a country is dependent on commodities if they are more than 60% of its physical exports – in Africa that makes up 83% of countries. One of the major concerns for resource rich countries is the wild fluctuations in commodity prices which can lead to over investment – Sierra Leone created two new iron-ore mines in 2012 only for them to close in 2015 as prices collapsed. However the amount of jobs created in the mineral extraction industry is limited – across Sierra-Leone of 8m people, about 8,000 work in commercial mines. A major problem in these countries is that when there is money made from resources it tends to go on government salaries rather than investing in education. infrastructure and healthcare etc.

Norway – has a different approach.
In Norway hydrocarbons account for half of its exports and 19% of GDP and with further oil fields coming on tap Norway could earn an estimated $100bn over the next 50 years. Nevertheless there is a need to wean the economy off oil and avoid not only the resource curse that has plagued some countries – Venezuela is a good example as approximately 90% of government spending was dependent on oil revenue – but also the impact on climate change. Norwegians have been smart in that the revenue made from oil has been put into a sovereign wealth fund which is now worth $1.1trn – equates to $200,000 for every citizen. This ensures that they have the means to prepare for life after oil.

Source: The Economist – ‘When you are in a hole…’ January 8th 2022

BRICS – 20 years on

‘Counting the Cost’ from Al Jazeera looks at the BRICS countries – Brazil, Russia, India and China (and South Africa, which was added later). According to Jim O’Neill of Goldman Sachs ,who came up came up with the acronym, these countries would, over time, come to dominate the rankings of the world’s richest economies. Apart from China the other countries have been a disappointment and the programme looks into the reasons why they have failed to live up to expectations. Useful for the developing economies topic as it shows how different each economy is and what they are dependent on for economic growth.

COP26 – a summary

Another good video from CNBC looking at the recent COP26 meeting. COP26 – Conference of the Parties – is the specific name of the annual United Nations Climate Change Conference in its 26th year. The first meeting was in Berlin in 1995. Main points from the video are:

  • 2015 Paris Climate Agreement – committed countries to limit global warming to no more than 2°C above pre-industrial levels with an aim for 1.5°C
  • Global warming is 1.1°C – on track for 2.4°C increase by end of the century
  • Rather than phasing out coal they would phase down – opposition from China and India
  • USA, EU and others stated that they would cut global methane levels by 30% by 2030
  • India to cut its emissions to net zero by 2070
  • Richer nations need to help finance emerging economies to cope with climate change
  • Present policies will see the temperature rise by 2.7°C.
  • If National Determined Contributions (NDC) targets are implemented then by 2030 temperature rise will be approximately 2.4°C.
  • If all targets are fulfilled the best case scenario is 1.8°C
  • GFANZ – Glasgow Financial Alliance for Net Zero – hope to raise $130 trillion from private capital to fight climate change.

AS Revision – Tariffs and Protectionism

Just completed a 3 day CIE AS Revision Course.  I talked about Tariffs and Protectionism which is in Unit 4 of the AS course and how it can be a popular ‘Discuss’ question in the essay paper (Paper 2). However you will be expected to know this at A2 level also. Remember the following reasons for barriers to trade:

Why Protectionism?
a) Safeguard home country employment
b) Correct balance of payments disequilibria
c) Prevent labour exploitation in developing countries (or other political – not economic – goals)
d) Prevent Dumping
e) Safeguard infant industries

Below is useful mindmap that I use for revision of the topic.

Source: CIE A Level Revision – Susan Grant

New Zealand Subnational Human development index (SHDI)

Most macro economics courses cover development economics and the human development index (HDI). The HDI is the average of three indices based on three different variables and it sets a minimum and a maximum value for each dimension and then shows where each country stands in relation to these values, expressed as a number between 0 and 1. The higher a country’s HDI score, the higher its level of human development (and vice versa).:

The 3 indices in the HDI are:

Life expectancy: Life expectancy at birth and is:
1 when Life expectancy at birth = 85
0 when Life expe
ctancy at birth = 20.

Education:
Mean years of schooling – a country whose citizens all attained 15 years of education by the age of 25, would have an MYS index of 1.0.
Expected years of schooling – if every student in a country enrolled in a master’s degree that country’s EYS index would be 1.0

Standard of living: GNI per capita (PPP US$)
1 = $75,000 / annum
0 = $100 / annum

The new Subnational Human Development Index (SHDI)is a simple cross-nationally comparable index. While at the national level it coincides with the official HDI constructed by the UNDP, its subnational values reflect – in a globally comparable way – the variation in human development among geographic regions within countries. See graph below for New Zealand. Note that Wellington and Auckland have the highest SHDI score whllst Gisborne and Northland the lowest.