Archive for the 'Development' Category

Dec 09 2009

Lesson Plan: Sources of Economic Growth and Development

Introduction: In order to understand the goals of economic development, it is useful to examine the characteristics of more economically developed countries and compare them to those of less economically developed countries.

Resources:

Part 1 – Data collection: Using the two websites above, locate the following for TWO COUNTRIES, one from the list of countries with “high human development” and one from the list of countries with “low human development”. Use the tables below to fill in the data for the two countries you have chosen.

Social Indicators:

  • HDI ranking and value
  • Age structure
  • Population growth rate
  • School life expectancy
  • Life expectancy at birth
  • Total fertility rate
  • Education expenditures

Economic Indicators:

  • GDP per capita
  • GDP – composition by sector
  • Unemployment rate
  • Public debt
  • Stock of direct foreign investment – at home:
  • Labor force – by occupation

Social Indicators:

Indicator

Country with high HDI

Country with low HDI

HDI ranking and value

Age structure (dependency ratio)

Population growth rate:

School life expectancy

Life expectancy at birth:

Total fertility rate:

Education expenditures:

Economic Indicators:

Indicator

Country with high HDI

Country with low HDI

GDP per capita

GDP – composition by sector

Unemployment rate

Public debt

Stock of direct foreign investment – at home:

Household income or consumption by percentage share:

Labor force – by occupation:

Part 2 – Dependency Ratio: A nation’s dependency ratio tells us something about the ability of members of a nation’s workforce to provide necessities to him or herself and his or her dependents. Typically, less economically developed nations will have a higher dependency ratio than more economically developed countries. The lower a nation’s dependency ratio, the greater capacity for its workers to accumulate savings, which leads to investment, accumulation of capital, greater productivity, higher incomes and more economic development.

Calculation the dependency ratio: To calculate a nation’s dependency ratio, you must find demographic information on its population. You may need to do additional research beyond the two websites above to find this data.

Calculate the dependency ratios for:

  1. Your country with high HD:
  2. Your country with low HD:

Part 3 – Lorenz Curve and Gini coefficient:

  • The Lorenz curve is a graphical representation of the income distribution of a country. It plots the percentage of a nation’s total income (GDP) against its total population. The “line of absolute equality” is the 45 degree line, indicating a nation where each quintile (20% of the population) earns exactly the same income as each other quintile. No country is absolutely equal, therefore the line of equality is only used for comparison.
  • The Gini coefficient is the ratio of the area below the line of equality and above a country’s Lorenz curve and the total area of the triangle below the line of equality. A country with perfect income equality would have a Gini coefficient of 0. A country in which the top 1% had controlled all of a nation’s income would have a Gini coefficient of nearly 1.

Example: Australia’s income is distributed across its population in the following way:

  • 1st 20% – 5.9%
  • 2nd 20% – 12%
  • 3rd 20% – 17.2%
  • 4th 20% – 23.6%
  • 5th 20% – 41.3%
  • Gini coefficient = 0.352

Illustrating your countries’ Lorenz Curves: This is another activity that may require research beyond the websites provided above. Try to find data on the share of national income earned by various levels of society. If you cannot find data for the 20% ranges, use the percentage ranges you can find. Draw a Lorenz curve for the two countries you researched.

Part 4 – Conclusions:

Evaluate your findings from the two countries you researched.

  1. What conclusions can you draw about the correlation between GDP, HDI, income equality, social and economic indicators between developed and developing countries?
  2. Does a high HDI correlate with relative income equality? What about low HDI?
  3. Is a high GDP indicative of high levels of human development?
  4. What other conclusions can you draw about economic development, national income, and equality?

To what extent did your country with low HD exhibit the following characteristics?

  1. Low standards of living?
  2. Low incomes?
  3. Inequality?
  4. Poor health?
  5. Inadequate education?
  6. Low levels of productivity?
  7. High rates of population growth and dependency burdens?
  8. High levels of unemployment?
  9. Dependence on agricultural production and primary product exports?
  10. Imperfect markets?
  11. Dependency on foreign developed countries for trade, access to technology, foreign investment and aid?





One response so far

Sep 30 2009

World Habitat Day – Raising awareness of the dire need for affordable adequate housing among the world’s poor!

World Habitat Day – Social Media News Release.

On October 5th the world will celebrate World Habitat Day. The purpose of this day, declared by the United Nations, is to raise awareness about the dire need for adequate housing among hundreds of millions, even billions, of the world’s poor. According to Habitat for Humanity:

Worldwide, more than 2 million housing units per year are needed for the next 50 years to solve the present worldwide housing crisis. With our global population expanding, however, at the end of those 50 years, there would still be a need for another 1 billion houses. (UN-HABITAT: 2005)

Raising awareness and advocating for change are the first steps toward transforming systems that perpetuate the global plague of poverty housing. World Habitat Day serves as an important reminder that everyone must unite to ensure that everyone has a safe, decent place to call home.

The U.N. further states that both developed and developing countries, cities and towns are increasingly feeling the effects of climate change, resource depletion, food insecurity, population growth and economic instability.

Rapid rates of urbanization cause serious negative consequences – overcrowding, poverty, slums with many poorly equipped to meet the service demands of ever growing urban populations.

With over half of the world’s population currently living in urban areas the U.N. believes there is no doubt that the “urban agenda” will increasingly become a priority for governments, local authorities and their non-governmental partners everywhere.

Global poverty facts

  • By the year 2030, an additional 3 billion people, about 40 percent of the world’s population, will need access to housing. This translates into a demand for 96,150 new affordable units every day and 4,000 every hour. (UN-HABITAT: 2005)
  • One out of every three city dwellers – nearly a billion people – lives in a slum. (Slum indicators include: lack of water, lack of sanitation, overcrowding, non-durable structures and insecure tenure.) (UN-HABITAT: 2006)
  • UN-Habitat has reported that because of poor living conditions, women living in slums are more likely to contract HIV/AIDS than their rural counterparts, and children in slums are more likely to die from water-borne and respiratory illness. (UN-HABITAT: 2006)
  • Housing formation generates non-housing related expenditures that help drive the economy. (Kissick, et al: 2006)
  • Investing in housing expands the local tax base. (Kissick, et al: 2006)

The facts are undeniable. Housing for the poor is one of the basic necessities that is simply not being met, both in developed and developing countries.

Today I live in Switzerland, but during my first several years as a teacher, as well as during my own high school life, I lived in Asia, where poverty is far more visible than here in Europe. At my last school, I was able to participate in a Habitat for Humanity trip myself, to Lucena City in the Philippines. The week I spent building a house with my 20 students was one of the greatest weeks of my career as a teacher. Below is the album from that amazing week in a small village in the Philippines:

Shanghai American School, Habitat Philippinese 2007 – Lucena City

In Bangkok, where I had my first teaching job, the problem of urban poverty was visible on every street corner. As part of a senior course I taught on Service Learning, I used to take upper class international school students into Bangkok’s poorest slums to learn about the challenges faced by the city’s poor. The most obvious challenge, visible everywhere in the city of 12 million, was lack of adequate housing. I made the video below to document my students’ “Urban Plunge” into the Bangkok slums, and to raise awareness of the issues faced by Thailand’s poor:

In a few days the world will acknowledge World Habitat Day. Take a moment, follow the link at the top of this post. Read about the issues faced by nearly a third of the world’s population, and see how you can get involved. Oh, and if you have the chance to participate in a Habitat build through your school or community, do it! I promise you, the experience will change your life, but more importantly, it will help improve the life of someone in need of one of life’s most basic necessities, safe shelter, a HOME!

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Sep 14 2009

Step aside America, Switzerland is the new global leader in competitiveness

World Economic Forum – Latest Press Releases

The World Economic Forum, a group of researchers, leaders, educators, entrepreneurs and others with a vested interest in global economic performance, assembles an annual list of the world’s nations ranked according to “competitiveness”. This year, for the first time ever, the United States does not top this list, instead, Switzerland has been promoted to the status of global competitiveness leader.

What does this ranking really mean?

Competitive economies are those that have in place factors driving the productivity enhancements on which their present and future prosperity is built. A competitiveness-supporting economic environment can help national economies to weather business cycle downturns and ensure that the mechanisms enabling solid economic performance going into the future are in place.”

Competitivness means a nation posesses an evnvironment that leads to improvements in the productivity of its resources, most importantly labor. America, with record budget deficits, in the trillions of dollars, faces a future of tight budgets financed by government borrowing, which eventually means higher taxes and less ability for government to spend on public goods like education and health.

America’s demotion in the rankings is attributable to falling expectations about the country’s future growth potential rather than concerns about its current economic slowdown. Switzerland has also been in a recession for the last year, although due to targeted fiscal policies unemployment has remained low, near its level before the recession begain (around 4%).

The index used to rank countries is based on several factors:

The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The pillars include Institutions, Infrastructure, Macroeconomic Stability, Health and Primary Education, Higher Education and Training, Goods Market Efficiency, Labour Market Efficiency, Financial Market Sophistication, Technological Readiness, Market Size, Business Sophistication, and Innovation.

Discussion Questions:

  1. How can a nation’s labor productivity be improved by making policies aimed at improving three of the factors measured by the GCI identified above?
  2. How does America’s gigantic budget deficit ($1.8 trillion) threaten its future ability to provide its citizens with the “pillars” identified above?
  3. Does economic integration with the global economy improve or limit a country’s ability to achieve economic competitiveness? Explain your answer.

One response so far

Apr 03 2009

Global fiscal stimulus and the plight of Africa: what’s really needed, more aid or more trade?

allAfrica.com: Africa: G20 Leaders Promise Billions for Low-Income Nations

While the G20 leaders meet in England to formulate their plan for increasing aid to Africa, the message from the continent seems to be that not aid, bur more trade, foreign direct investment and the establishment of free markets is the key to achieving meaningful economic growth and development. Dambisa Moyo explains the problem with aid on Colbert Nation on April 1:

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What, exactly do the G20 leaders have planned for the less economically developed nations of Africa in the $1.1 trillion global stimulus package?

The leaders of the world’s 20 biggest economies, recognizing that the global financial crisis has “a disproportionate impact” on vulnerable people in poor countries, have promised to make hundreds of billions of United States dollars available to these countries as part of a $1.1 trillion plan to rescue the world economy.

In a communiqué released by the Group of 20′s London Summit on Thursday, the leaders announced what they called “a global plan for recovery on an unprecedented scale.”

They said the rescue package would include resources totalling $850 billion, to be channelled through global financial institutions, “to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support.”

Outlining allocations for materially poor nations, they promised:

  • An increase in lending of at least $100 billion by multilateral development banks, including loans to low-income countries;
  • An amount of $50 billion for social protection, to promote trade and to safeguard development in low-income countries; and
  • The selling of gold reserves to help the International Monetary Fund (IMF) provide $6 billion for the world’s poorest countries over the next two to three years.

The increase in aid from the rich world to sub-Saharan Africa comes mostly in the form of loans from the IMF and the World Bank. Development aid such as this is meant to help poor countries improve their human capital through investments in education, health and infrastructure. Historically, loans from the “multilateral development banks” have been made on the condition that the recipient nations adopt certain “structural adjustment policies”:

Some of the conditions for structural adjustment can include:

Critics of such SAPs, which developing countries are forced to adopt as conditions of receiving loans from the IMF and World Bank, say that they limit the extent to which the poor country can direct the loan money towards combating poverty, reducing inequality, and thereby achieving meaningful economic development for the poor.

Recently TIME magazine had an article in which the efficacy of such financial aid from the rich world to the poor world is challenged.

Africa is hopeless, a place of war and famine seemingly populated almost entirely by tyrants and children with flies in their eyes. According to this view, if Africa generates any kind of growth, it is in suffering — and in the overseas aid sent to address that, now a $40-billion-a-year industry. Naturally, with a new appeal every year and a new disaster every other, some people have begun to wonder if all that money is doing any good. They argue that aid creates dependence, fuels corruption, undermines democracy and stifles development.

Aid in any form, at a fundamental level, positions Africa as a dependent child, and the “rich world” as the paternalistic benefactor. Aid, despite the good intentions of the west, does little to do promote meaningful economic development in poor countries:

Though it rarely occurs to Westerners who’ve been instructed that Africa needs their help, charity is humiliating. Not emergency charity, of course: when disaster strikes, emergency aid is always welcome, whether in New Orleans or Papua New Guinea. But long-term charity, living life as a beggar, is degrading. Andrew Rugasira, 40, runs Good African Coffee, a Ugandan company he set up in 2004 to supply British supermarkets under the motto “Trade, not aid.” He is emblematic of a new generation of African antiaid, antistate entrepreneurs. For Rugasira, aid not only “undermines the creativity to lift yourself out of poverty” but also “undermines the integrity and dignity of the people. It says, These are people who cannot figure out how to develop.” Aid even manages to silence those it is meant to help. “African governments become accountable to Western donors,” says Rugasira, “and Africa finds itself represented not by Africans but by Bono and Bob Geldof. I mean, how would America react if Amy Winehouse dropped in to advise them on the credit crisis?”

The G20 nations should keep this view of aid in mind as they further develop their plans to help the poor nations of the world achieve economic growth and development. Trade, not aid, is what Africa needs to achieve meaningful progress towards economic development, defined as an improvement in the quality of life, health, education, and incomes of the people of a nation. Despite over $40 billion a year of aid that has flowed into Africa over the last decade, it is foreign investment and trade that has only recently led to sustained economic growth for the continent.

In 2006, according to the Organization for Economic Cooperation and Development, foreign investment in Africa reached $48 billion, overtaking foreign aid for the first time. That gap has only widened, reflecting a quadrupling of foreign investment since 2000. As the senior adviser in Africa for the International Monetary Fund (IMF), David Nellor, noted in a report last September, sub-Saharan Africa today resembles Asia in the 1980s. “The private sector is the key driver,” wrote Nellor, “and financial markets are opening up.” War is down. Democracy is up. Inflation and interest rates are in single digits. Terms of trade have improved. Crucially, said Nellor, “growth is taking off.” The IMF puts Africa’s average annual growth for 2004 to ’08 at more than 6% — better than any developed economy — and predicts the continent will buck the global recessionary trend to grow nearly 3.3% this year.

Despite the platitudes from Barack Obama, Gordon Brown and Ban Ki Moon about the “disproportionate impact” of the financial crisis on the poor nations of the world, it is Africa that is likely to achieve economic growth this year, even while the rich nations of the world enter recession. It is little thanks to aid that the people of Africa are finally experiencing meaningful growth; rather, the economic ties between the continent and, not the West, but China, have fueled this movement towards higher incomes and quality of life. Perhaps it’s more and fairer trade, not aid, that Africa needs now. And maybe that’s what we in the West need too in this time of economic chaos.

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Oct 05 2008

Where I’ll be this week: Economic development experiential learning trip to Egypt

Mediterranean Center for Sustainable Development – Collaborative School Programs

One of the great joys of teaching at an international school is the opportunity for travel. Not only during breaks and summer vacations, but also with students through programs such as Zurich International School’s kids planning in a circleClassroom Without Walls.

My colleague and fellow Economics teacher (and blogger!) Joe Hauet decided last spring to organize an economics research and experiential learning trip to a sustainable living community on the banks of Egypt’s Nile River, near the city of Beni Suef, two hours south of Cairo. 40 ZIS Economics students, mostly year 2 IB students, will spend the coming week learning about economic development from experts in the field who are part of the Mediteranian Center for Sustainable Development Programs. The students, Joe and myself will spend three days at the Nile delta’s Kan Yama Kan village, followed by two days exploring the ancient Egyptian sites at Giza and around Cairo:

When teachers bring their students to Kan Yama Kan Village and engage them in our programs, they know we take a holistic approach to learning. Students learn about the environment through hands-on activities designed to provoke critical thinking and follow-up discussion in the classroom. They are exposed to sustainable development concepts and practices that are simple, easy to comprehend and replicable. Educating youth about the environment and developing their character leads to an informed citizenry with the capacity to reach the Millenium Development Goals

Our programming is proactive and flexible. We recognize that youth today face social and global challenges in a fast-paced world and we believe that as educators it is our responsibility to help them gain the intellectual and life skills they need to succeed. We do this by exposing students to practical learning experiences and modeling the behavior and values we teach; we use issues that arise while living in a community as learning opportunities about respect for others, good governance, human rights, and personal and collective responsibility.

Each visit to Kan Yama Kan is unique. Each program is tailored to the needs of the teachers, students or group. Whether the program kids doing soil experimentsfocuses on biodiversity, animal behavior, renewable resources and searching for fossils or planning and building a habitat for tortoises, scripting a drama performance or revision for end of year exams, MCSDP works closely with faculty and school administrators to understand their objectives and meet their expectations.

The goal of the ZIS Classroom Without Walls trip to Egypt is to allow IB Economics students to experience the challenges faced by communities in developing countries, as well as to gain a deeper understanding of the development strategies rooted in sustainability that are going on around the Mediteranean region.

I owe a huge thanks to Joe Hauet, whose dedication and work in planning this trip over the last six months will truly pay off for the 40 students and four teachers leaving for Egypt bright and early tomorrow morning.

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Sep 12 2008

“In-sourcing”: a new trend among US manufacturers?

U.S. companies are rethinking manufacturing in China – Sep. 11, 2008

As the US presidential campaign trudges ever forward, both Obama and McCain have had much to say about “job creation” in the USA. Elaborate plans aimed at retraining workers displaced by globalization, arming them with 21st century skills that will enable them to thrive in our advanced economy, and assure that the hardships imposed by free trade are minimal and all Americans have the skills they need to find employment. These are good goals for America, but even as they preach their job creation plans across the country, right under the candidates’ noses jobs are being created thanks to the invisible hand of the market economy.

Talk of a reverse migration of manufacturing from China to the U.S. has been buzzing across union halls and factory floors, corporate boardrooms and Wall Street.

The cost of shipping outsourced goods from China to U.S. customers has doubled in just two years thanks to high oil prices, and labor costs in China are rising sharply.

“There’s a shortage of technical and managerial talent,” reports Anand Sharma, CEO of TBM Consulting Group. “To attract managers Chinese companies are talking about salary increases of 15% to 30% year-over-year.”

The phenomenon of jobs being “in-sourced” to America after a decade or two of being done by Chinese workers may seem surprising. Certainly, wages are still lower in China than in the US labor market. This is true, however, the demand for highly skilled labor in China is driving wages up higher and higher, due to its relative scarcity in a country where reliable, well-educated factory managers are nearly fully employed by the thousands of foreign and Chinese firms operating plants there. Competition among producers means the only way to attract new managers is to continually offer higher wages. This leads to a form of “wage-spiral inflation” where rising costs lead to higher priced output.

Despite its much smaller work force, the percentage of American workers with the managerial and technical skills needed to run a plant is much higher than in China, and the weak manufacturing sector growth in the US has meant relative wages between the US and China are closer than ever before.

Take into consideration the rising cost of fuel and the fact that China’s economy is producing at or beyond full employment, and it becomes clear why manufacturing certain products in China has become less attractive to American firms. To be sure, not all manufacturing jobs are being “in-sourced” back to the US. As Chinese wages climb and skilled labor becomes more scarce, the giant’s Asian neighbors are beginning to enjoy the re-allocative effects of the “invisible hand”.

…plenty of manufacturers will continue looking for ever cheaper places to produce. In fact, as the cost of doing business in China rises, many companies – including Chinese firms – are shifting their production to less expensive markets, such as Vietnam.

Discussion questions:

  1. What is the “invisible hand” referred to in the post above?
  2. How do higher wages in China benefit Americans? How do they harm Americans?
  3. Some critics of free trade argue that multi-national corporations exploit workers in developing countries. Does the article above illustrate give an example of exploitation? Discuss…

9 responses so far

Sep 07 2008

The importance of incentives in achieving poverty alleviation: Venezuela vs. Brazil

Managing Globalization: To reduce poverty, money isn’t everything – International Herald Tribune

Two developing countries: Venezuela and Brazil. Two ideologies underpinning economic growth and development: command in Venezuela versus free market in Brazil. Which system has worked better for the people of these two large South American countries?

How much can governments do to fight poverty? In South America, a couple of answers are emerging in the growing economies of Venezuela and Brazil. Both governments have publicly pledged billions of dollars to raise living standards – but have they succeeded?

Overall income is moving upward in both countries, if for different reasons. Venezuela is riding the black tide of high-priced oil, while Brazil’s relatively firm economic policies have built confidence in its business prospects among both locals and foreigners.

The president of Venezuela, Hugo Chávez, has portrayed himself as an ardent socialist and a disciple of Fidel Castro. Reducing inequality is fundamental to his agenda, whether by dividing up Venezuela’s oil wealth or, as he has obliquely suggested this month, through land reform. His consolidation of executive power has brought Venezuela closer to a centrally planned economy and, as such, has given him the opportunity to invest heavily in social programs.

But identifying the results isn’t easy. The poverty rate in Venezuela was about 50 percent when Chávez’s presidency began in 1999, according to the government’s own figures. Since then, roughly equal numbers of people have fallen into and out of poverty at various times, with a spike to more than 60 percent in 2003 and a drop below 40 percent in 2005…

Rodríguez also questioned whether Chávez’s programs could be completely effective because of the way they were managed. Some of the world’s most successful initiatives for improving the well-being of the poor, he said, linked families’ benefit payments to useful actions like their children’s attendance in school or visits to the doctor. In Venezuela, he said, the link is to political loyalty instead.

“The level of political polarization has become so high that not only is loyalty to the regime the key determinant of your access to benefits, it is also the key determinant of your capacity to be involved in the administration of those benefits to others,” Rodríguez said.

One example of this problem was a program intended to improve literacy. “The government had no system of accountability to monitor performance other than the reports of its own administrators,” Rodríguez said. “When program administrators learned that it was more important to show loyalty to the regime than to effectively run the program, any incentives that they had to administer resources efficiently, from a social point of view, disappeared.”

In Venezuela, president Chavez’s socialist inspired, command policies, paid for by the sale of expensive oil to the rest of the world have led to benefits primarily for those citizens willing to show political loyalty to Chavez and his party. Hard work and productivity is not rewarded as much as loyalty and support for the government. This system of incentives leads to some poor outcomes. The result? Only mediocre improvements in poverty rates, literacy, employment and health of the people.

In Brazil, where free market principles underlie much of the economic development policies, monetary benefits for development workers and the families they serve are linked not to political affiliation but to actual behavior of households and government employees. The result, not surprisingly, has been real improvements in education, health, and poverty levels amongst Brazilians.

Meanwhile, in Brazil, progress appears to have been more widespread. Figures compiled last year by Rômulo Paes de Sousa of the Ministry of Social Development and Fight Against Hunger, covering the period from 1999 through 2004, painted a rosy picture: School attendance was up, while illiteracy was down. Life expectancy was up, but hospital visits were down. Employment was up, and child labor was down.

Again, however, it’s difficult to say with certainty where the credit should go… [perhaps] to the simple fact that Brazil’s monetary benefits for families are indeed linked to actions like attendance in school, prenatal care and childhood vaccinations?

The lesson here? In a command economy like Venezuela’s, in which the government decides how resources are to be allocated, it appears that real improvements in people’s lives are not as important as political loyalty. Because most people involved in economic development work for the government, they focus on making themselves appear more dedicated and loyal to president Chavez, in order to make sure they get paid more and promoted up the ladder.

In Brazil’s free market economy, on the other hand, rewards are based on performance, not political loyalty. Brazilians have enjoyed access to a wider variety of efficiently run development programs than Venezuelans, despite Hugo Chavez’s pledge to alleviate poverty. Correct incentives explain why the market system is more efficient and effective than a command system, and the examples of Venezuela and Brazil illustrate this observation quite nicely

Discussion Questions:

  1. Why do command economies fail efficiently allocate resources to where they are needed the most?
  2. What does Brazil do that Venezuela does not that has led to real improvements in people’s lives?

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16 responses so far

May 20 2008

One version of Windows XP per child…

Laptops for poor to run Windows XP – The Boston Globe

The cute little green alien-looking computer that is the XO PC (aka the “$100 computer” that costs $200) is now available with Windows XP. For anyone who’s had a chance to play with one of these machines, the Linux based operating system takes some getting used to for those of us used to the familiarity of Windows.

As it would turn out, education ministries in the developing world, the market the “one laptop per child” program targets for its cheap, durable PC, prefer machines with Windows on them over the unfamiliar Linux system as well:

…some countries, such as Egypt, want machines that run Windows, the most common personal computer operating system in the developed world.

“They said we would be in a much better position with a Windows-capable machine,” he said.

Meanwhile, Microsoft was working on a version of its Windows XP operating system that would work on the relatively low-powered XO computer.

“Lo and behold, they finalized [it] and have a very crisp-running machine with XP on it,” Kane said.

A statement from Microsoft said the Windows XP version of the XO will be capable of using hundreds of thousands of Windows-compatible programs and hardware accessories.

My first thought at this news was, “well, there goes any chance at achieving a $100 laptop for poor children in the developing world…” Windows XP, which retails for aroudn $250 in the rich world, would push the price of an XO from $200 to $450, if Microsoft were to charge the retail price for its operating system, that is.

In fact, Microsoft is making its popular operating system available for $3 per XO, which is probably close to the actual marginal cost to Microsoft of producing additional copies of XP. What’s the incentive for Microsoft to make this apparently charitable gesture to the OLPC program?

Mike Cherry, lead analyst for Windows at Directions on Microsoft, an independent software-research firm in Kirkland, Wash., said Microsoft doesn’t want cheap Linux-based computers to threaten the dominance of Windows.

“Let’s say they put Linux on there, and people say, ‘Hey this works pretty good,’ and they start looking at it for other applications as well,” he said. Getting Windows onto the XO laptop is one way to prevent this.

“I think it’s along the lines of not allowing anybody else to get a toehold,” Cherry said.

Sometimes when companies like Microsoft act in the pursuit of their own self-interest, society as a whole benefits. In economics we call this predatory pricing. Two firms, Microsoft and Linux, are competing for a larger foothold in developing countries where more new PC users are expected to emerge in the coming decades than anywhere else.

In the name of competition and its desire to maintain market share, Microsoft has taken a product that it usually charges the full monopolist price of $250 for and reduced its price to the marginal cost of $3. To prevent all PC users from taking advantage of this massive price reduction, however, the company will only make the $3 version of XP available on the XO, assuring that only the poorest, most technologically deprived consumers benefit from the company’s price discrimination.

While the price of the XP ready XOs will be about $10 higher, the ability to run thousands of Windows programs will surely give the OLPC program a greater appeal to education ministers and government officials in the developing world. Don’t be surprised if in the near future we begin to see more and more of the little green alien machines in the hands of the developing world’s school children.

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Apr 24 2008

Dominican Republic struggles to find its “comparative advantage” as it faces new competition from Asia

FT.com / World / Americas – US economy threatens Dominican Republic

Trade based on comparative advantage… the theory originally articulated by Adam Smith, later fine-tuned by David Ricardo, the theory that suggests that if each nation specializes its economic activity on the products for which it faces the lowest opportunity cost, then trades with its neighbors, total world output and efficiency can be maximized: today this theory represents the philosophical underpinning of all free trade agreements signed between and among the nations of the world.

Through trade, countries can exchange their extra output with other nations for the goods specialized in by others, enabling all nations to enjoy a level of consumption beyond what they’d be able to achieve if they tried to produce all goods domestically.

For many developing countries, with their abundance of either land or labor, comparative advantages tend to lie in either agricultural goods or low-skilled manufactured goods. Since global prices for food are highly unstable and dependency on healthy harvests, good weather, and stable rainfall are all highly risky endeavors for a poor country, developing nations prefer to foster the growth of manufacturing sectors in their path towards economic development.

Strategies for economic growth available to developing nations include export-oriented and inward-oriented growth. A country like the Dominican Republic, the largest economy in the Caribbean, has pursued a predominantly export-oriented growth strategy, promoting through “free zones” the growth of a textile industry aimed at producing goods for consumers in developed countries, primarily the US.

To the Domincans, producing textiles for export to America has successfully given the people of this poor nation a grip on a rung of the ladder towards economic development. The import of capital has taken previously unproductive workers out of agriculture and put them into an industry where productivity, thus income, has risen, leading to improvements in living standards. Export-led growth, however, runs some serious risks of its own, as is being realized by the people of the Dominican Republic today.

It had been clear for some time that Luis Caraballo’s textile factory, in one of the Dominican Republic’s largest “free zones”, was struggling.

Finally, last December, he closed the factory gates for the last time: cut-throat competition from China and Vietnam, a weakening US dollar and unsustainable costs had become too much.

Once a hot destination for American companies looking for a cheap place to “off-shore” production of labor intensive textiles, the Dominican Republic today faces new competition, and is finding its comparative advantage slip slowly away from textiles…

The Dominican Republic depends heavily on the US, which is the destination of more than 85 per cent of exports. But textile exports – these days accounting for less than a third of total exports – fell by 32 per cent over 2007.

Although other countries in the Caribbean are also suffering from Asian competition – with Chinese textile exports to the US tripling between 2000 and 2005, while Vietnam’s multiplied almost 117 times – the Dominican Republic has been worst hit.

Here’s the thing: a nation’s comparative advantage may shift over time (from land to labor to capital intensive goods) as the structure of the global economy evolves. Once an economy like the Dominican Republic’s has undergone a period of structural adjustment, away from agriculture and towards industry, the flow of low wage workers from farm to factory begins to slow to a trickle, leading to rising wages and increased competition from countries with more abundant supplies of cheap labor.

The challenge for policy makers is to manage the structural changes as they come, minimizing the deleterious impact such global shifts of productive resources has on the citizens of a country like the D.R. Clearly, it is in the country’s interest to prepare its citizens for a “new economy”, one in which skilled labor will play a larger role. The problem is, this requires a solid education system, which the D.R., it turns out, does not yet have:

There is widespread acceptance of the need to develop a better-educated workforce, but so far education spending has been inadequate.

“The government simply doesn’t have enough resources,” said Mr Montás. About 40 per cent of its budget goes on debt obligations and another 15 per cent is dished out through subsidies. Just 1.5 per cent goes towards education.

It also turns out that this is a balance of payments story:

Mr Montás calculated that for every percentage point the US economy contracted, the Dominican Republic’s GDP would shrink by 0.4 per cent.

Not only will exporters be hit, but also the huge tourism sector and remittance flows…

One possible result of the decline in exports and flows of remittances from the US will be a depreciation of the D.R. peso, as demand for pesos by Americans falls. A weaker peso might make the country’s exports attractive once again, assuming the exchange rate is allowed to adjust on foreign exchange markets. A weaker peso should help slow the decline in the D.R.’s exports to the US, at least until new competition emerges, perhaps elsewhere in Asia, maybe even from Africa or other Latin American countries.

In all likelihood, given the increased competition from Asian textile manufacturers, continued economic growth in the Dominican Republic will depend on the country’s ability to educate and train its workforce to adapt to a more capital, technology and information-based economy, which, if successful, will eventually lead to rising incomes and higher standards of living for the people of the this rising Caribbean nation.

Comparative advantages evolve with the emergence of new competition among developing and developed countries. The negative impacts this evolution has on a particular economy can be managed if wise policy actions are taken to assure a country’s workforce is educated and trained to participate in tomorrow’s economy, rather than yesterday’s or today’s.

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Apr 13 2008

SAS students organize swimathon to help fight malaria in Africa – here’s how you can help!

Published by under Development,Poverty

Shanghai American School AquaEagles – World Swim Against Malaria

Students, teacher, parents, readers… here’s a good opportunity to spread good will and support students who truly care and want to make a difference in the world. The SAS swim team has organized a “World Swim Against Malaria” swimathon on Friday, April 18. The Aqua Eagle have set up a website where anyone can go and make a donation, small or large, $1 to $100, anything you can offer is welcome!

The money raised will go straight towards buying mosquito nets for residents of sub-Saharan African countries. A mosquito net costs $5 US, or roughly 7 days wages for a Malawian worker. One to three million die of malaria each, year, 70% of whom are children under five. Today alone, seven jumbo jets could be filled with the corpses of malaria victims.

Malaria is a disease of those in poverty. The simple solution to this disease is providing access to the simplest of technologies: a mesh bed net.

For each $100 the swim team raises, 20 nets will end up over the heads and beds of children in Africa. $100 could potentially save 20 lives right now. If you want to help out, follow the link above and make your donation now!

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