Recent increases in demand for food products across the world, accompanied by a surge in food price inflation, is likely to lead to further growth in the supply of genetically modified (GM) food. In fact, the move towards GM food is already taking hold in many countries. Currently, countries such as America, Argentina, Brazil, India and China are dominating the global supply of GM food (see The Economist). Continent wise, Europe and Africa are still not keen in joining the wagon, but they will if the current trend of strong growth in food demand continues, putting pressure on conventional method of agriculture.
In principle, genetic engineering of crops so that they become resistant to, say, pesticides and extreme weather conditions (such as drought) should be welcome. However, when one scratches the surface, the underlying issue is more complicated. The main reasons are related to health and environmental consequences of GM food production (see, for instance, greenpeace and the interview with the director of the film The Future of Food (2004)).
Ultimately, the success of GM foods will depend on market demand, provided that consumers are aware of GM foods and that they can easily identify GM food labels from supermarket shelves.
Sunday, February 24, 2008
Sunday, February 10, 2008
The IMF and Fiscal Policy: Back to the Keynesian Solution?
The IMF's long-standing position on fiscal policy austerity, especially in its dealings with countries facing financial or balance-of-payments crisis (up until recently, mainly developing and emerging countries), is well known. However, in a recent commentary, the fund's managing director, Dominique Strauss-Kahn, gave his blessings for fiscal stimulus to ward off the risks of a global economic slowdown due to financial-market turmoil that originated in the US housing market in summer 2007.
While Mr. Strauss-Kahn directed his commentary to developed countries and emerging economies, he did not say a word on how a fiscal package could or could not work in developing countries. Clearly, developing countries are not immune to the problem facing the rest of the world. Rather, as strong global growth over the past few years has helped them earn higher export revenues, any risk of a global slowdown will have the opposite effect. Thus, developing countries face the same sort of policy dilemmas as anyone else.
Actually, the argument for fiscal support rests on the apparent weakness of monetary policy to prop up domestic demand. The reason is that monetary policy is effective only when the banking system is well functioning, which, judging by the recent events, is not the case at the moment. Due to heightened uncertainty about risk exposures, banks are reluctant to lend as much as one would like them to. By this standard, the problem for monetary authorities in developing countries is even be worse because their financial markets are underdeveloped, making monetary policy ineffective as a tool for demand management. The case for using fiscal policy to support their economies is, therefore, stronger than that in developed countries.
While Mr. Strauss-Kahn directed his commentary to developed countries and emerging economies, he did not say a word on how a fiscal package could or could not work in developing countries. Clearly, developing countries are not immune to the problem facing the rest of the world. Rather, as strong global growth over the past few years has helped them earn higher export revenues, any risk of a global slowdown will have the opposite effect. Thus, developing countries face the same sort of policy dilemmas as anyone else.
Actually, the argument for fiscal support rests on the apparent weakness of monetary policy to prop up domestic demand. The reason is that monetary policy is effective only when the banking system is well functioning, which, judging by the recent events, is not the case at the moment. Due to heightened uncertainty about risk exposures, banks are reluctant to lend as much as one would like them to. By this standard, the problem for monetary authorities in developing countries is even be worse because their financial markets are underdeveloped, making monetary policy ineffective as a tool for demand management. The case for using fiscal policy to support their economies is, therefore, stronger than that in developed countries.
Friday, February 1, 2008
What's Special About the Middle Class?
The belief that the middle class matters for economic growth because of its entrepreneurial spirit goes as far back as John Stuart Mill, who said “The virtues of a middle class are those which conduce to getting rich—integrity, economy, and enterprise.” (quote is from The Economist)
However, using household surveys in 13 developing countries, Abhijit Banerjee and Esther Duflo of the Massachusetts Institute of Technology, USA, find little evidence to back the belief (see the paper). The authors analyze the pattern of consumption and investment by the middle class, which they define as those whose daily consumption per capita is between $2 and $10 in 1993 purchasing power parity (that is allowing for cross-country differences in price levels). They conclude that people in the middle class are more likely to prefer a steady well-paying job to running their own business. On family and spending patterns, the authors find that middle class families have fewer children, and spend much more on education and health.
What is equally important but missing from the study is what factors help or hinder the creation and sustainability of the middle class. For instance, the role of education and health in increasing labor productivity (human capital in general) and income, and therefore in the expansion of the middle class. Evidently, the lower class (the poor) in developing countries can not invest or consume as much they like by borrowing because of credit constraints. This is related to underdeveloped capital markets and not necessarily lack of entrepreneurship.
In any case, the notion that the middle class is more of a wage-earning class and less of an entrepreneur class has some merits; see Robert Reich's comment in the Financial Times: America's middle classes are no longer coping.
However, using household surveys in 13 developing countries, Abhijit Banerjee and Esther Duflo of the Massachusetts Institute of Technology, USA, find little evidence to back the belief (see the paper). The authors analyze the pattern of consumption and investment by the middle class, which they define as those whose daily consumption per capita is between $2 and $10 in 1993 purchasing power parity (that is allowing for cross-country differences in price levels). They conclude that people in the middle class are more likely to prefer a steady well-paying job to running their own business. On family and spending patterns, the authors find that middle class families have fewer children, and spend much more on education and health.
What is equally important but missing from the study is what factors help or hinder the creation and sustainability of the middle class. For instance, the role of education and health in increasing labor productivity (human capital in general) and income, and therefore in the expansion of the middle class. Evidently, the lower class (the poor) in developing countries can not invest or consume as much they like by borrowing because of credit constraints. This is related to underdeveloped capital markets and not necessarily lack of entrepreneurship.
In any case, the notion that the middle class is more of a wage-earning class and less of an entrepreneur class has some merits; see Robert Reich's comment in the Financial Times: America's middle classes are no longer coping.
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