The post-9/11 emphasis on Pakistan continues to portray madrassas (religious schools) as a focal point – their rising prevalence the subject of great concern. What is surprising is that this “myth” persists despite evidence to the contrary – that madrassas are in fact not the real revolution in the Pakistani educational landscape but rather it is affordable private non-religious “mom-and-pop” schools that now dot the (rural) landscape.

In a series of papers in the past few years using publicly verifiable data sources and established statistical techniques my colleagues and I have documented this private sector revolution and the relative absence of a madrassa revolution.[1]

Read more »

A long-standing debate between libertarians and others concerns the extent to which a state is needed to enforce cooperative rules. Many libertarians argue that informal, self-sustaining agreements can achieve desirable outcomes even without the state acting as a third-party enforcer. See here for a particularly interesting version of this argument and various counter-arguments.

Bo Rothstein's fascinating paper on efficient institutions concludes with a great story from the TV series "The Sopranos," which speaks directly to this issue and is worth quoting at length.

Read more »

There was a time when economists believed that institutional reform--improving governance--was a key ingredient in improving living standards in the developing world.  "Good governance" is surely a good thing in its own right.  But a lot of recent academic and policy research has focused of late on its instrumental value for growth. 

The argument is simple and appealing. Rich countries are those characterized by democracy, rule of law, political competition, and low levels of corruption.  So poor countries have to emulate them in all these respects if they want to get rich too.

Read more »

Three is a nice long article in the New York Times by David Leonhardt, in which we learn, among other things, that Tim Geithner is actually an old China hand.  Which should come in handy as he tries to right the bilateral imbalance between the two countries that has clearly become unsustainable.

Most writing on this subject, the Leonhardt piece included, concludes that the Chinese end of the solution lies in stimulating consumption demand in China, and reducing that country's ridiculously high saving rate.  But the discussion typically ignores an important issue: the secret of China's growth is that it has made a rapid transition into producing tradables (mainly manufactures). 

Read more »

Gordon Hanson has set up a Shadow Committee on U.S. Trade Policy, and has asked several economists to respond to specific questions.  Here is the one I was charged with:

Rightly or wrongly, some have interpreted Krugman’s recent Nobel address, which has gotten considerable play in Washington, as implying ambivalence about the benefits of trade for the U.S. What does trade theory tell us about the initiatives the US should make a priority in its trade policy agenda?

And my answer:

A society's gains from trade liberalization in different sectors depend on a lot of things, but as a rule of thumb, it is useful to focus on three things. (Here I will look at only U.S. policies, leaving aside the question of which initiatives should be pursued abroad.) 

Read more »

by Robert Lawrence, guest blogger

Although we call the big three automobile companies they have basically specialized in building trucks. This left them utterly unable to respond when high gas prices shifted the market towards hybrids and more fuel efficient cars.

One reason is that Americans like to drive SUVs, minivans and small trucks when gasoline costs $1.50 to $2.00 a gallon. But another is that the profit margins have been much higher on trucks and vans because the US protects its domestic market with a twenty-five percent tariff. By contrast, the import tariff on regular automobiles is just 2.5 percent and US duties from tariffs on all imported goods are just one percent of the overall value of merchandise imports. Since many of the inputs used to assemble trucks are not subject to tariffs anywhere near 25 percent -- US tariffs on all goods average only 3.5 percent -- the effective protection and subsidy equivalent of this policy has been huge.

Read more »

Arvind Subramanian is onto something: he asks why the crisis has spawned a debate on capitalism in the advanced countries, but not in the developing nations.  As he notes, there is very little clamor for rolling back markets once one moves to the periphery of global capitalism:

Surprisingly, in the emerging markets, including India, there has been no such existential angst about capitalism, no serious questioning of the role of the market. It is not that these countries have not been affected by the crisis. Indeed, all countries—rich and poor—have found themselves in the same financial maelstrom, if not in the same boat, and the effects have been substantial. There has also been serious discussion and action on the appropriate short-term responses to the crisis. But, there have been no serious calls or indeed actions to roll back capitalism, to erect protectionist barriers, or to re-nationalise the economy. Most surprising, there has not even been a pitch to restrict inflows of fickle foreign capital that were arguably at the centre of this crisis for many emerging markets. The crisis may have exposed the claim of a decoupled world economy, but it seems to have emphasised the decoupling in policy debate and long-term policy choices.

Read more »