Saturday, June 7, 2014

Economic Growth: Evidences, Issues, Insights

Within the past half-century, the world has seen unprecedented global economic growth. The global GDP increased by roughly 800 percent from 1950 to 2000 while population grew by less than 300 percent. Much of this increase however pertain to the now developed nations. The important policy question then with respect to economic growth has always been that – why do some nations grow faster than others? What determines the variation in economic performance?

Economic growth refers to the increase in the total output of an economy (that is production and consumption of goods and services) represented by the gross domestic product (GDP). In the national income accounts, the GDP is divided into the categories of consumption, investment, government expenditure, and net exports. To get a more accurate measure of output growth, the effect of inflation is discarded by using either constant or chain-weighted prices.

Achieving economic growth is one of the primary objectives of public policy as it is a necessary step towards the broader goal of human development. With economic growth, governments can have the means to deliver much needed social services and redistribute income to achieve equity. Hence, determining the factors that contribute to economic growth is a very important subject of inquiry. This essay aims to review the literature on economic growth and its determinants. The ultimate objective is to draw useful insights for institutional reform and, from the researcher’s perspective, on how to approach the different theoretical and empirical issues that researchers are sure to face in this highly complex field of research.

The ADB: Its Evolving Role

The Asian Development Bank (ADB) has been and continues to be an important partner of Asian countries in achieving poverty reduction. During the last five years, ADB has provided roughly $95 billion in development assistance to the region. The role of ADB in the development of Asia and the Pacific is briefly discussed in this essay.
The Asian Development Bank (ADB) was established on December 19, 1966 in Manila, Philippines. It was conceived to foster economic growth and cooperation in Asia which was then one of the poorest regions in the world. During its first years, the focus of ADB’s operations was on provision of assistance in food production and rural development. It was in the 1970s that the assistance extended into the education and health sectors. In the latter part of the decade, the gradual rise of Asian economies has increased demand for investments in infrastructure and industry development and therefore the ADB responded to this need. In addition, the oil price shock during the 1970s has led the bank to also support in development of domestic energy sources.

ADB’s focus on infrastructure and energy projects continued in the 1980s while its support to social infrastructure including microfinance, gender, education, health, urban planning, and environment also continued. In the 1990s, the ADB began promoting regional cooperation such as that for the Greater Mekong Sub-region. When the financial crisis struck in 1997, ADB responded through programs that strengthen the financial sectors and develop social safety nets for the poor. It was towards the end of the 1990s when the ADB adopted poverty reduction as its overarching goal.

A Review of Collier's Exodus: Immigration and Multiculturalism in the 21st Century

In this book, Paul Collier, who himself is a descendant of immigrants, provided a comprehensive account of the different controversies surrounding immigration. Relying upon evidence rather than value judgment, Collier’s main argument is that the right question to ask is not about what the overall effects of immigration is but rather what the effects are at the margin. His analysis and observations clearly point out that a rapid acceleration of immigration would yield undesirable results from the points of view of host countries, migrants, and those left behind. He then explicated a set of policies that host countries can implement if they were to keep the rates of migration at bay.

The key driver of immigration, he noted, remains to be the presence of wide income gap between countries of origin and destination. In recent decades, migration had accelerated partly due to the rise in the poor countries’ income which has made migration more affordable. But this slight convergence is not the source of worry. Rather, it is the accumulation of migrants, known as diasporas, in host countries that tends to speed up the rate of immigration. A diaspora is a group of migrants that are yet to be integrated into the society of host countries. They make more migration possible because they help out would-be migrants in their journey to the host country.

Migrants bring with them their culture, creating multiculturalism and diversity. Collier cited Putnam’s social capital work to illustrate how immigration creates diversity. Taken in moderation, diversity is beneficial because it gives people more choices. But at some point, diversity undermines mutual regard, cooperation, and generosity at the host country. Trust is said to be adversely affected in the presence of a highly diverse society. Hence, this is a key rationale for restricting rapid rate of immigration.

The CCT Dilemma: Is it worth it?

The Philippines CCT, known locally as the 4Ps, is by far the most expensive social development program the government has ever embarked on. Implemented by the Social Welfare department (DWSD), it invests in human capital to break intergenerational poverty by providing, for a maximum of 5 years, cash transfers to poor families (around US$7/child per month for up to 3 children, aged 6 to 14, per family for education; US$12/family for health component) in exchange for school attendance and health visits.

From its inception in 2008 to 2013, 4Ps has already reached 3.9 million households and has spent around PhP120 billion (US$ 3 billion). Eighty percent represents the cash transfers; the remaining goes to other costs (see Table 1). This program is funded by loan money from the World Bank and ADB.

How big is this budget? PhP120 billion is equivalent to over twice the 2013 health budget or 41% that of the education department (DepEd). In fact, it is more than twice what is needed to close the education sector’s resource gap as of 2013. Also, the DSWD, which has not handled a program this big before, has spent quite a sum in training. In fact, 5 to 6 years into the program, it was still incurring PhP500 million in training. The investment may be worth it if the program goes on for a long time. But had this investment been made on teachers instead, I wonder what could have been the impact?

So how do we know that the government is not wasting money? What if these children would go to school anyway? After all, there is a public elementary school in every Philippine village. But there are not as many secondary schools; there is a high dropout rate among older children. Yet the 4Ps has been designed to include poor families with primary school-aged children without considering the likelihood of school attendance.