Executives from NBC in New York confirmed yesterday what many industry-watchers had been expecting and its admirers dreading. They intend pulling the plug on the programme for good when its current season – the seventh – ends in May.
I am enjoying BBC’s The Thick of It, a kind of a cross between Yes, Minister and The Office which has just transferred from digital to terrestial TV, but Hugh Abbot won’t take the place of President Bartlett.
It is almost enough to make me oppose term limits. At least for fictional presidents …
Danny Glover in the National Journal on the importance of blogging in US politics, arguing that bloggers are indirectly influential, because they help to frame issues and define the agenda.
As Hampton Stephens points out, there have been few, if any, examples in the US of blogs affecting US foreign policy (yet), though arguably they have been important in the UK in keeping some attention on the controversy over extaordinry rendition.
Alex Singleton makes an interesting point about patent and copyright protection in the WTO (known as TRIPS):
Free trade liberals take the view that unilateral liberalisation is good for countries, regardless of what anyone else does. But those, like Pugatach, who believe it would be a disaster to liberalise without an IP agreement can only, logically, be opponents of unilateral free trade. Without such an agreement, free trade would be a race to the bottom. … It is not uncommon for market-oriented people to believe in the necessity of TRIPS and also in the virtue of unilateral liberalisation. But the fact is that you cannot serve two masters: if you think that civilization will crumble without TRIPS, you have to reject unilateral free trade.
Is there an intellectually valid reason for supporting unilateral trade liberalization while still believing in the need for multilateral copyright and patent agreements?
I think there probably is a defensible distinction. In short, it is this: there is a colossal market failure in the market for knowledge-based products which can only be corrected by government intervention, nationally and internationally, which menas that "free trade" in these goods would produce a sub-optimal equilibrium. That is why they are different from other products.
Continue reading
Binyavanga Wainaina, writing in Granta about how to write about Africa:
Throughout the book, adopt a sotto voice, in conspiracy with the reader, and a sad I-expected-so-much tone. Establish early on that your liberalism is impeccable, and mention near the beginning how much you love Africa, how you fell in love with the place and can’t live without her. Africa is the only continent you can love—take advantage of this. If you are a man, thrust yourself into her warm virgin forests. If you are a woman, treat Africa as a man who wears a bush jacket and disappears off into the sunset. Africa is to be pitied, worshipped or dominated. Whichever angle you take, be sure to leave the strong impression that without your intervention and your important book, Africa is doomed. ….
Broad brushstrokes throughout are good. Avoid having the African characters laugh, or struggle to educate their kids, or just make do in mundane circumstances. Have them illuminate something about Europe or America in Africa. African characters should be colourful, exotic, larger than life—but empty inside, with no dialogue, no conflicts or resolutions in their stories, no depth or quirks to confuse the cause.
Animals, on the other hand, must be treated as well rounded, complex
characters. They speak (or grunt while tossing their manes proudly) and
have names, ambitions and desires. They also have family values: see how lions teach their children?
Elephants are caring, and are good feminists or dignified patriarchs.
So are gorillas. Never, ever say anything negative about an elephant or
a gorilla. Elephants may attack people’s property, destroy their crops,
and even kill them. Always take the side of the elephant. Big cats have
public-school accents. Hyenas are fair game and have vaguely Middle
Eastern accents.
Interesting article in The Grauniad by Laura Barton who claims that 2005 has seen a decline in the monopoly control of the marketing departments of music companies:
This has been the year fans have increasingly taken music into their own hands, rejecting the over-processed diet served up by many major labels in favour of something a little more homemade. In the process they have notched up numerous high-profile successes, including Arctic Monkeys, Arcade Fire, Clap Your Hands Say Yeah, Spinto Band and Nizlopi.
It does seem to me broadly right that it is in the interest of songwriters and performers that people should be able to share music, rather as many of us did with cassette tapes many years ago.
I have no inside information about this, but I don’t think Gordon Brown will become leader of the Labour Party, or Prime Minister. My reasons are:
- the clear favourite almost never succeeds (think Gaitskell/Bevan, Foot/Healy)
- with David Cameron in charge of the Tories, the Labour Party will want someone of a younger generation
- Brown will be blamed, fairly or not, for slower economic growth and the impact of fiscal constraints in the coming years
- I suspect Blair will pick the moment of his departure to minimise Brown’s chances of succession
Who will it be instead? My guesses would be (in no particular order) David Miliband, Ruth Kelly or Douglas Alexander.
They call this the Departure Lounge. So called, I assume, because people sit here hastening their departure from our mortal lives, by smoking heavily, drinking early in the morning, and eating the most disgustingly unhealthy array of snacks I think I have ever seen.
My flight is delayed for at least 2 hours. It is good to be back in Europe. Not.
A discussion began at The Sharpener about why US blogging has a proportionately bigger readership, and more influence, than UK blogging; and it has been picked up by Martin Stabe and the Curious Hamster.
One explanation that has been offered is that the US mainstream media is worse than the UK media – so bloggers there fill a void. Brian Barder (aka my Dad) doesn’t agree:
For generally balanced and well informed comments on current issues, comprehensiveness of news coverage, and the essential separation of news from comment, I would argue that the New York Times and the Washington Post are superior to any British newspaper with the partial exception of the Financial Times, which is anyway these days almost as much an American as a British paper, and which doesn’t lay claim to the status of a journal of record.
I agree, and not just out of filial loyalty, that the US print media is at least as good as, and in many ways superior to, the UK newspapers.
But I am not swept along with his idea that broadcast coverage of news and current affairs is any match for the UK media. We have 80 channels of cable TV here at home and we don’t switch on the set from one week to another. I get all my broadcast news from BBC Radio 4 and the World Service. I suspect my father’s perspective suffers from:
- selection bias – he is comparing the best US programs which are rebroadcast internationally (or which he sets aside time to watch) with everyday TV he watches in Britain;
- seeing the international version of CNN rather than the domestic version (which is almost unwatchable)
- focusing on TV rather than radio – there are no radio stations in the US that come close to matching the quality of BBC radio.
Finally, if the Foreign Office has a budget to promote Britain’s reputation abroad, it could use it to pay the BBC not to show BBC America which consists of nothing but reruns of dismal sitcoms like "Keeping Up Appearances".
Harriet Miers has withdrawn as a nominee for the Supreme Court.
It was clear that, whatever her merits as a person, Harriet Miers was not suitable for a lifetime appointment to a Court for which qualifications include a sharp legal mind, intellectual rigour, and an ability not only to make decisions but communicate the reasons for them.
In the United States, the process of Senate approval can weed out unsuitable nominees. Admittedly it doesn’t always correct the Administration’s mistakes, but the fact that the system exists, and that it is not toothless (a Republican-led Senate having refused to approve the appointment by a Republican White House of John Boulton, and leading to the withdrawal of Ms Miers) forces the Administration to think considerably harder about who it is going to nominate.
In the UK, we don’t have proper scrutiny of the thousands of appointments made by the Government, generally by the Prime Minister under Crown prerogative. We should.
However, the reason the Miers nomination failed was not only that she was not suited for the job, but because the appointment failed to secure the support of the conservative base, by virtue of whose support President Bush governs. In his current difficulties I suspect that he will be tempted to throw them some red meat, by the nomination of a conservative. We may yet wish that Harriet Miers had been confirmed.
One of the difficult questions in the economics of developing countries is why poor countries are not closing the gap on rich countries. With both more rapid policy convergence and deepening globalization, most economists would have expected poor countries to grow more rapidly than rich countries, so closing the gap.
An interesting new paper by Branko Milanovic looks at this question. Branko is on leave from being the lead economist in the World Bank research department.
Branko finds that the main cause of slow growth in least developed countries (LDCs) is that they are much more likely to be involved in wars and civil conflict. He estimates that this factor alone accounts for an income loss of about 40 percent over 20 years. Wars alone explain the entire relative decline of least developed countries compared to middle-income countries. In other words, had prevalence of war among LDCs been at the same level as elsewhere, the LDCs would have at least kept pace with the rest of the world.
Branko finds that the delay in reform in LDCs – which undertook comprehensive economic reforms from the mid-1990s, about ten years after middle income countries – has made virtually no difference (at most 1 percent in total over 20 years).
Neither can slow growth be attributed to lack of democratisation nor failure to create the conditions for direct foreign investment; as according to Branko’s results, neither of these have made any statistical difference to growth rates.
There is some, rather marginal effect from trade policy reforms. Exchange rate liberalization appears not to have positive effects; and (paradoxically) countries with high tariff rates do better than countries with lower tariffs, but—for a given country—reducing tariff rates is marginally helpful.
Interestingly, Branko finds that lending from the World Bank and IMF has also had an indifferent effect on LDC growth. He does not find evidence to support the suggestion from some quarters that aid has been harmful; but nor does it appear to have made a positive contribution. (His analysis does not include aid from bilateral donors.)
If you believe this analysis, the the lesson is that reducing war and civil strife is the key to enabling poor countries to catch up and share the benefits of globalisation. In the absence of peace, there are unlikely to be a signficant benefits for economic development from increases in aid, democratisation, investments in higher education, economic reforms, the environment for inward investment, or trade liberalisation.
My own take on this analysis is that it provides a useful reminder that helping to end to conflict and wars is an absolutely essential pre-requisite to economic development. But, as with all such cross-country growth regressions, it is almost impossible to divine causality, and to distinguish the underlying causes. Both extreme poverty and poor governance are causes of conflict, as well as caused by it. And poor governance and extreme poverty are causes of each other. It would be a mistake to look for a single lever we can pull to make the problem of extreme poverty go away. We can tackle this, but to do so requires a long, sustained and commited campaign on all fronts: to break into the vicicous cycle of extreme poverty, high mortality, low investment, low growth, poor governance, and protracted conflict by providing support for positive change at every point in circle. Branko is right to say that while conflict continues, pretty everything else is hopeless; and to point up the lack of evidence for the supposed miraculous powers of any other silver bullet solution.
This week’s Economist reports an interesting study into the taxation of mobile phones. Not surprisingly, developing countries with high mobile taxes generally have far fewer mobile phones per person than those with low taxes.
This is important because there is good evidence that access to mobile phones is good for development.
Easy! we all cry out in unison. Developing countries should stop being so short sighted and abolish the tax on mobile phones. Doh!
Indeed they should. But if you are the Finance Minister in a very poor country, this is easier said than done. In Bangladesh, health expenditure per person per year is just $11, and primary education just $34 per person per year. You need the money to expand those services. People with mobile phones clearly have more money than most.
Finance Ministers know that if they abolish the tax on mobile phones, there will be more usage, more business, and more taxes coming in. Well perhaps: but when will that revenue arrive? How are you going to manage in the meantime? Many developing countries cannot afford to borrow to see them through until the revenues pick up.
Mobile phones are just one example. The economies of many developing countries would benefit hugely if they could abolish import tariffs, for example on computers and cars; liberalise state telephone companies and other state companies; remove user fees on key government services; and so on. But in poor countries with only a small formal economy, these taxes and charges are major sources of revenue for the government which pay for essential public services.
This seems to me a good example of how aid donors might help developing countries to carry out reforms. The rich countries could provide fixed term funding to finance the fiscal costs to developing country governments of sensible tax and policy reforms that will boost the supply side of the economy, to see the government through during the dip in revenues that they will inevitably experience and can ill afford. The aid could be calibrated to replace the revenues forgone as a result of the reform, and taper off over time as the revenue benefits of the supply side reforms begin to materialize. Donors would thereby provide bridging finance for reform, and share some of the risk that the revenues do not materialize. For this to work, the bridging funds would have to be predictable, guaranteed for as long as the reforms are sustained, and unhypothecated and untied.
2005 was to be the year of development. There have been some significant advances – particularly on debt relief and funding for vaccines.
But as I explain in this longer assessment, overall, 2005 has not lived up to the ambitions that campaigners and some politicians had for it as a year of development.
As things stand, 2005 will be remembered as the year that the world recognised that the Millennium Development Goals would not be met, and decided to pass by on the other side.
Over at Samizdata, there has been an ignorant and racist discussion of South Africa’s land reform policies. Now I don’t throw the term ‘racist’ around lightly – I’ll explain below why I consider the comments there to be racist. But first let’s deal with the substantive issue.
South African Land Reform
South Africa has a land reform policy in three distinct parts:
- Restitution
A person or community dispossessed of property after 19 June 1913 as a result of past racially discriminatory laws or practices is entitled either to restitution of that property, or to equitable redress. 68,000 claims were lodged before the deadline (end of 1998), to be arbitrated by a Land Claims Court, overseen by a Commission on the Restitution of Land Rights. After a slow start, more than 62,000 of the claims have now been settled. - Redistribution
The redistribution program, which is separate from restitution, is a policy to increase land ownership by black people by transferring 30% of arable agricultural land. The government provides help to communities and individuals to enable them to buy land from existing land holders on a willing-buyer-willing-seller basis, by providing grants to enable the purchase of land (requiring a matching contribution from the buyer). So far, 3% of land has been transferred. - Tenure reform
A person or community whose tenure of land is legally insecure as a result of past racially discriminatory laws or practices is entitled, to the extent provided by an Act of Parliament, either to tenure which is legally secure, or to comparable redress.
Last Thursday, the Commission on Restitution of Land Rights announced that it would serve an expropriation notice on Hannes Visser, the owner of a cattle and arable farm in North West province. This will be the first time that compulsory purchase, rather than a willing-seller sale, has been used to conclude a restitution claim. The farm was once part of four parcels owned by the Molamu family, which was forced to sell under the apartheid government’s policy of stripping blacks of land and moving them into townships and "homelands." Descendants of the Molamus filed a claim seeking restitution.
Assessment
There is an important distinction between the restitution policy, which is a time-limited, quasi-judicial process to restore land to people who had it removed from them under apartheid’s racist land laws, and the program of redistribution, which is an entirely willing-seller process to buy up land to rebalance land ownership in South Africa.
It is a testament to the skill and patience of the South African government that the vast majority of land restitution claims have, until now, been settled without any recourse to compulsory purchase, either by buying out the current owners of the land, or by compensating the claimant in other ways. It is a pity that, in this case, it has not been possible to reach settlement on this basis. In these circumstances, compulsory purchase is apparently the only option remaining to restore to the Molamu family the land that was stolen from them under apartheid. But the decision to use the legal powers force a sale of the land, to return it to its original owners, has nothing to do with the more general policy of land redistribution (for which there are no such powers).
And yet the reports on the BBC, CNN,and Voice of America, as well in blogs such as Samizdata, (and blogs here, here, here, here, here and here ) have wilfully ignored this distinction. They have all written about the proposed compulsory purchase of Mr Visser’s farm as if it were part of the land redistribution program. (An honourable mention for Aural Fixations who makes the distinction).
Many of us – including, you might think, some of the bloggers linked above, believe that property rights are an essential component of a functioning economy and a fundamental right in a free society. And yet when a democratically-elected Government in South Africa attempts to enforce and protect property rights by restoring to people the land that they owned and had taken away from them by racist land laws, in a time-limited program overseen by the courts, and as they are required to do by the Constitution of South Africa, we hear complaints from the conservatives and right wing free marketeers. It seems that they believe that property rights are only for white folks.
"I’m not a racist but …"
Which brings me to my accusation that the bloggers and some of the commenters at Samizdata are racist. Wherever you find right wing libertarians, racists are not far behind. When I was a student, the Federation of Conservative Students, hard-line libertarians who supported legalization of hard drugs, distributed badges that said "Hang Mandela". Now they and their type peddle their racism at Samizdata.
Here are some comments on the blog post that I consider to be racist:
"I have no problem talking about the idiocy, as I see it, of some black attitudes"
"Let them take over the land, run it into the ground (run land into the ground?), and starve themselves right out of the gene pool."
"Prior to the arrival of the eeeevil colonialists in Africa, property belonged to the warlord with the best warriors."
"Farming done in the African manner (eg. Tanzania, Kenya, Mozambique) does not have a sterling track record, "
"African cultures haven’t adopted the idea of national identity."
"given the near-total lack of respect for property rights and the rule of law in Africa"
"They’ll barbecue the dairy cows, and then come to the West holding out the begging bowl. This is either a racist statement, or else a pretty conservative prediction"
If anyone posted that sort of bile on comments here, I’d delete it. We should have zero tolerance of racism, period. Whoever operates the Samizdata site should be ashamed of themselves for allowing this sort of stuff.
It will make no difference to anything but for what it is worth I’ve removed the link to Samizdata from my blogroll. There are some serious people who blog at Samizdata (such as Alex Singleton from the Globalization Institute): I hope that they will insist that this sort of racism is not tolerated there, or dissociate themselves from the site.
Up
date 25th September: I’ve amended this post to give some of the background to South African land reform.
In the meantime, Tim reckons – see the comments – that "property belonged to the warlord with the best warriors." and "Farming done in the African manner does not have a sterling track record," are both statements of fact. Both are complete rubbish – they are the fantasies of white colonialists who know nothing about the countries they occupied. And I don’t care who said them: they are clearly racist, as are the other comments which Tim doesn’t even try to defend.
So New Labour plans to introduce a new offence of publishing a statement which "glorifies, exalts or celebrates" acts of terrorism. (Full text here – pdf).
Alfred Nzo, General Secretary of the African National Congress, spoke in Camden on June 26th 1980, the 25th Anniversay of the Freedom Charter. He spoke of the two attacks by ANC on 1 June on two Sasol oil refineries:
The main strategic objective of the ANC and its allies is the armed seizure of political power for the establishment of a people’s government in South Africa. The recent attacks by the ANC guerillas on two of South Africa’s huge Sasol oil-from-coal plants (Sasol l and 2) as well as on the oil refinery have underlined not only South Africa’s continuing vulnerability to an oil embargo but even more significantly, for the future development of the revolutionary armed struggle of our people. The SASOL operation demonstrated the growing skill and sophistication of the actions of our people’s army – the staunchness of its cadres.
If Labour’s proposed legislation had been in place then, he would not have been able to make that speech.
Just sayin’.
I think the next tech bubble may be on its way.
I was sitting in Oakland airport on Sunday, reading the New York Times and drinking my double espresso. I happened to be wearing a Linux T-shirt.
Which was enough to get me offered a job. The owner of a Silicon Valley tech company, sitting at the next table, came over and said his firm needed a second Linux guy: was I interested?
Apparently they didn’t need a development economist. Which is a shame, as I’d love to become a Silicon Valley billionaire.
The mainstream media have lost interest in Darfur. Even Nicholas Kristof, who has done an outstanding job writing about this in the New York Times, has been quiet since July.
Things are not getting any better. A fuel shortage delayed the deployment of Africa Union troops, desperately needed to restore peace.
George Bush and Tony Blair, both of whom have said words to the effect that another Rwanda must not happen on their watch, are doing nothing.
We know what needs to happen. The International Crisis Group, a respected, independent, non-profit, non-governmental organisation, said this on July 6th:
The international community is failing in its responsibility to protect the inhabitants of Darfur, many of whom are still dying or face indefinite displacement from their homes. New thinking and bold action are urgently needed. The consensus to support a rough doubling of the African Union (AU) force to 7,731 troops by the end of September 2005 under the existing mandate is an inadequate response to the crisis. The mandate must be strengthened to prioritise civilian protection, and a force level of at least 12,000 to 15,000 is needed urgently now, not in nearly a year as currently envisaged.
This requires more courageous thinking by the AU, NATO, the European Union (EU), the UN and the U.S. to get adequate force levels on the ground in Darfur with an appropriate civilian protection mandate as quickly as possible, which in practical terms means within the next two months. Otherwise, security will continue to deteriorate, the hope that displaced inhabitants will ever return home will become even more distant, and prospects for a political settlement will remain dim.
What are we waiting for?
President Bush, at 10.30am this morning, arriving in Mobile Alabama:
The good news is — and it’s hard for some to see it now — that out of this chaos is going to come a fantastic Gulf Coast, like it was before. Out of the rubbles of Trent Lott’s house — he’s lost his entire house — there’s going to be a fantastic house. And I’m looking forward to sitting on the porch. (Laughter.)
Err, that would be the same Trent Lott who had to resign as Senate majority leader in 2002, for making apparently nostalgic remarks about racial segregation:
When Strom Thurmond ran for president, we voted for him. We’re proud of it. And if the rest of the country had followed our lead, we wouldn’t have had all these problems over all these years, either.
Could President Bush have thought of a more inappropriate way of empathising with the victims of Katrina?
According to SFGate.com, the city of San Francisco is putting out to tender a proposal for city-wide WiFi.
Stephen Thomsen at Chatham House has published an interesting paper, "Foreign direct investment in Africa: the private-sector response to improved governance" (pdf) which says that:
- Private capital flows to Africa in the form of foreign direct investment (FDI) are growing. While in the past much of this investment was limited to the raw materials sector, the current wave involves firms from more countries and sectors than ever before.
- Foreign investors, including from within Africa itself, invested almost $50 billion in Africa during 2000–03. While this represents only a small share of global flows, the more relevant comparison iswith the size of the African economy. By this measure sub-Saharan Africa attracts almost as much FDI as Southeast Asia.
- Although Europe remains the principal source of investment, a rising share is coming both from Asia and from within Africa itself.
- Investors have been influenced by improvements in governance, most notably with respect to the business climate, where the desire to attract foreign investors can provide a strong incentive for African governments to reform their policies and practices. Although much remains to be done, some countries have nevertheless made great progress in areas such as political and economic stabilization, privatization and simplification of cumbersome regulations.
- This foreign investment also has implications for patterns of trade and integration. Many African exports are channelled through multinational enterprises, helping to integrate African countries both with one another and with the global economy.
As the paper argues, this is a tribute to the huge improvements in governance across the continent over the last few years. I was also interested to see the conclusion that aid flows and foreign direct investment are complementary:
Not only can public donors encourage private investors and vice versa, but together they can also make a greater contribution to development than either by itself. This can be seen most clearly with respect to infrastructure where neither the large aid-financed projects of the 1950s and 1960s nor the largely private projects of the 1990s have yielded the expected private and social returns in many cases. In this light, any increase in aid to Africa such as through debt relief agreed at the G8 meeting is likely to foster greater flows of foreign investment in the future. When allied with improvements in governance on the continent, the combined impact of increased aid and FDI might well yield positive results on a far greater scale than has previously been seen.
There has been quite a bit of interest today in two new studies by Raghuram Rajan and Arvind Subramanian from the IMF. I apologise for this rather technical posting, but it is important to understand that, while the authors are eminent economists, the econometrics underlying these particular papers is seriously flawed. Correctly specified, the model in fact produces the same correlation between aid and growth that countless other studies have found.
There was a press report about the study in today’s Financial Times, and also on Newsnight tonight. It has also been picked up elsewhere in the blogosphere. The first paper, Aid and Growth: What Does the Cross-Country Evidence Really Show?, challenges evidence of a link between aid and economic growth. The second, What Undermines Aid’s Impact on Growth, argues that the benefits of aid may be offset by an appreciation of the exchange rate.
The problems with the first paper are to do with the way the econometrics have been specified. The criticisms that follow are derived entirely from expertise of my colleagues – especially Michael Clemens. (Any errors are my own.)
The authors’ own results show that a number of small and sensible changes to the way they have specified their model would change their results. Each change would, by itself, only lead to a small and possibly statistically insignificant increase in the correlation between aid and growth; but if they are taken together, as they should be, the result would get a large and statistically significant positive relationship, as found in all the other studies of this topic.
Here are three examples of how the authors have missspecified the model and ignored the evidence in their own results. First, when they regress growth on aid, assuming a linear relationship between the two, they get a zero or negative relationship. They do this several times. But every growth model since the late 1950s and nearly every aid-growth study since 1995 has recognised that aid would have a nonlinear impact: that is, there would be diminishing returns to aid. If you don’t allow for this effect explicitly in your model, then an upside-down U-shape can look like a flat line. When Rajan and Subramanian allow for this (in part of one table): not surprisingly, the aid effect becomes positive in all cases and comes close to being statistically significant in many cases. Clearly, a non-linear specification is needed: but Rajan and Subramanian take no notice of this whatsoever. Second, much aid is either not aimed at growth (e.g. humanitarian) or is not expected to cause growth on the medium term, not even a few decades (e.g. aid to support democracy). When Rajan and Subramanian eliminate these types of aid from their measure and focus on "economic sector" aid: not surprisingly, the aid coefficient is positive and statistically signficant (though sensitive to the instruments chosen, as all instrumented variables are). Again, this is to be theoretically expected, but Rajan and Subramanian do not adjust their model to take account of it. Third, theory leads us to expect that it is absolutely crucial which other variables you control for, since many country characteristics are correlated with both aid and growth, and could lead to spurious negative correlations between those two variables if they aren’t accounted for. Rajan and Subramanian don’t meaningfully test the sensitivity of their results to which other variables are controlled for, they leave out variables which have been demonstrated in the literature to be correlated with both aid and growth (e.g. civil warfare and the occurrence of natural disasters) and wrongly include other variables (e.g. they control for government spending — presumably the very channel through which much aid acts!). Now while each of these effects is small by itself, if they were to make all of these changes simultaneously, as their own tables make clear, the effect of aid would be positive and significant. All of the changes are justified by theory and by 30 years of literature (to which they scarcely refer.) Just to be clear: Rajan and Subramanian’s own tables show that a well specified regression specification would reveal aid’s positive impact on growth. They would get results similar to those reported here which find a strong, positive, and statistically robust correlation.
There are other, even more technical problems about their econometric strategy. In particualr, they do not make a clear case that their instruments capture a large fraction of the variance in aid, i.e. that their instruments have "power", which is absolutely essential if one is going to claim that the coefficient on an instrumented variable is indeed zero.
Rajan and Subramanian second paper seeks to explain their findings by reference to the macroeconomic effects of aid flows, and in particular the "crowding out" effect of Dutch Disease. The point is that an increase in aid flows can cause an appreciation of the real exchange rate which then crowds out the very export industries on which a country may depend for growth. When I was at the Department for International Development (the UK aid agency), we did quite a careful study of this. The results were published here. The paper found that, sustained aid inflows raise incomes and welfare in the recipient country, but in doing so they generally cause some appreciation of the nominal and real exchange rates. This is a necessary aspect of the adjustment process. If aid is used effectively, this appreciation will not undermine growth, either in aggregate or in the export sector. We also found that temporary increases in aid require greater flexibility on the part of the recipient government, and that this effect was an additional reason why donors should ensure ensure that aid flows and their disbursement are sustained and predictable.
Rajan was quoted in the FT saying "We need to be careful given the chequered history of aid, that we do not place more hopes on aid as an instrument of development than it is capable of delivering." This is absolutely right: aid is not the whole answer to development. But the study which claims to contradict the substantial body of evidence that aid makes a significant contribution to economic growth in developing countries is seriously flawed at a technical level.
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