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Category: Macro

China in Africa

The abstract for a new working paper titled “The Contribution of Chinese FDI to Africa’s Pre-Crisis Growth Surge.” Skip to the part in bold font if you just want the punchline:

In the 3 years before the 2008 financial crisis, GDP growth in sub-Saharan Africa (averaged over individual economies) was around 6 percent, or 2 percentage points above mean growth rates for the preceding 10 years. This period also coincided with significant Chinese FDI flows into these countries, accounting for up to 10 percent of total inward FDI flows for certain countries in these years. We use growth accounting methods to assess what portion of this elevated growth can be attributed to Chinese inward FDI. We follow Solow (1957), Dennison (1962), and others and use data for individual economies between 1990 and 2008 to calculate Solow residuals for these years for individual economies. We use capital stock data, workforce, and factor share data by country. Capital stock data is unavailable directly, and so we use perpetual inventory methods to construct the data. Factor shares come from UN National Accounts data. We then run counterfactual growth accounting experiments for thirteen sub-Saharan African countries excluding Chinese FDI inflows for 2005-2007 and also 2003-2009. Our individual results vary by year and country, but there are several year/country combinations where Chinese FDI contributed to an additional one half of a percentage point or above to GDP growth. These results suggest that a significant, even if in some cases small, portion of the elevated growth in sub-Saharan Africa in the three years before the Financial Crisis and also in the two years afterwards (2008-2009) can be attributed to Chinese inward investment.

 

Seven Billion People on Earth: Enough with the Fear Mongering

The seven billionth person on Earth will be born today according to the United Nations. To mark occasion, the BBC has developed an application that allows calculating your own number. I learned that, of all the people now alive, I was born 4,133,669,462nd.

As is inevitably the case when talking about the world’s population, the birth of the seven billionth person has caused a rash of newspaper articles, newscasts, and blog posts about how this really is a sign that at least two of the Four Horsemen of the Apocalypse — famine and death — will soon be here.

For a perfect example of that type of fear mongering, see this presentation, by Australian journalist Julian Cribb.

The Reverend’s New(est) Clothes

But really, Cribb is merely serving us the reheated leftovers of Reverend Thomas Malthus‘ Essay on the Principle of Population. In this book, first published in 1798, Malthus asserted that disease and famine would naturally arise to limit the size of any population.

Thus, because population growth would outpace agricultural growth (after all, there is only a limited amount of arable land in the world), disease and famine would take care of keeping the size of the population in check. Malthus actually estimated that the upper bound was equal to about one billion.

The Causes and Consequences of Food Price Volatility

From a longer IRIN article published last week:

Recent responses to high prices have increasingly tended to focus on reducing price volatility — sharp fluctuations in food prices.

G20 countries in their June 2011 ministerial declaration recommended measures such as building grain reserves, a global market information system and regulating financial transactions in commodities markets.

But economists like Brian Wright, professor of agricultural and resource economics at the University of California, Berkeley, and Christopher Barrett, professor of applied economics at Cornell University, believe more emphasis needs to be placed on underlying policy problems.

“Volatility is a symptom of a structural problem of low stocks,” says Wright. “When supplies get to certain low levels the prices become vulnerable to volatility.”

He makes a distinction between the impact of one-off production shortfalls and low grain stocks over a longer period: “Though [price] spikes do not indicate times of large aggregate food grain production shortfalls, it is easy to check that they do indicate times when aggregate stocks were low.”

Barrett would like to see more emphasis on boosting production and improving distribution systems to increase the supply of food and bring down prices. “Food price volatility gets addressed naturally as food supplies expand, bringing down prices and encouraging expansion of price-stabilizing inventories.”

Traditional policy responses to price volatility tend to benefit large farmers in developed countries and not the poor consumer or producer in a developing country, said Barrett.

“Every dollar spent on developing expensive reserves or marketing systems is a dollar taken away from improving yields, from developing drought-tolerant rice or setting up marketing infrastructure in a developing country,” he said.