Results for “africa”
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How similar are your country’s products?

The network maps show that economies tend to develop through closely
related products. A country such as Colombia makes products that are
well connected on the network, and so there are plenty of opportunities
for private firms to move in to, provided other parts of the business
climate allow it. But many of South Africa’s current exports–diamonds,
for example–are not very similar to anything.

If the country is to develop new products, it will mean making a big leap. The data show that such leaps are unusual.

Tim Harford explains.  Here are maps of product interrelations.

Neglected growth miracles

Between 1962 and 2002, life expectancy in the Middle East and North Africa…increased from around 48 years to 69 years…it was…the strongest performance of any region in the world…

…China, which saw life expectancy growing at 1.6 percent in the 1960s, collapsing to around 0.2 percent in the 1980s and 1990s, while income growth was going in the other direction.

Did you know that The Gambia, Yemen, Bangladesh, Nepal, and Libya were all in the top ten gainers in life expectancy, 1962-2002?

Here is the paper.  Here is the guy’s (very interesting) blog, via Bryan Caplan.

Bad Credit, Bad Driver

Some states ban the use of credit scores to price auto insurance in part because African-Americans and Hispanics tend to have lower (worse) credit scores and thus pay higher auto insurance rates.  The brute facts, however, are that credit scores are good predictors of auto claims. Luke Froeb at Management R&D summarizes a recent FTC study on the issue.

  1. Credit scores effectively predict … the total cost of [auto insurance] claims.
  2. Credit scores permit insurers to evaluate risk with greater accuracy, which may make them more willing to offer insurance to higher-risk consumers … . [note: this is why you can call up GEICO, let them look at your credit report, and get an auto insurance quote over the phone].
  3. ..as a group, African-Americans and Hispanics tend to have lower scores than non-Hispanic whites and Asians.
  4. …scores effectively predict risk of claims within racial and ethnic groups.
  5. The Commission could not develop an alternative scoring model that would continue to predict risk effectively, yet decrease the differences in scores among racial and ethnic groups.

Thus banning the use of credit scores would at best force good drivers (of all races) to subsidize bad drivers.  At worst, if insurance companies cannot price according to risk an adverse selection problem could be created in which good drivers purchase less insurance (to avoid having to pay the subsidy to bad drivers) thus pushing rates even higher and perhaps unraveling the market.

Thoughts to ponder

This book review has introduced me to a new enemy, the economist Tyler Cowen…

…”The critical economic problem is scarcity,” he says in his book.
Like all other capitalist economist, Cowen is ideologically welded to
this bad idea of lack and shortages as the key problem. However,
scarcity is rarely real but manufactured. There is an abundance of
energy in the world. The sun gives it to us daily for free. All this
talk about there being not enough energy, food, fuel has been
essentially false. And the wars that have been fought to protect the
little there is for survival have been false wars–wars whose only truth
is that they befitted those who in this or that period of history owned
the means of production.

If scarcity was an authentic problem (rather than a fabricated one) then Africa would not be poor.

Here is the full review, which is titled "Bad Economics."  The pointer is from a loyal MR reader.

Auditing natural resource revenues

When my editor and I were exchanging drafts of this piece, my spam blocker wouldn’t let them through.  There is too much talk of Nigeria and diamonds!  Here is one excerpt:

Paul Collier, an economics professor at Oxford University,
has a new and potentially powerful idea.  In his recently published
book, “The Bottom Billion: Why the Poorest Countries Are Failing and
What Can Be Done About It” (Oxford University Press), Professor Collier
favors an international charter – some widely publicized guidelines
that countries can voluntarily adopt – to give transparency in spending
wealth from natural resources.  A country would pledge to have formal
audits of its revenues and their disposition.  Imagine
PricewaterhouseCoopers auditing the copper revenues of Zambia and
issuing a public report.

It’s not as futile as it might sound:

Professor Collier’s proposal at first glance seems toothless; a
truly corrupt country probably wouldn’t follow the provisions of the
charter, which, after all, is voluntary.  Yet citizens could pressure
their government to follow such a charter, and the idea of the charter
would create a focus for political opposition and signify international
support for concrete reform.

Foreign corporations would bring
further pressures to heed the charter.  Multinational companies that are
active in corrupt countries might receive bad domestic publicity.
Eventually the companies might push for adherence to the charter, even
if the charter limited their ability to bribe.  In another context, De
Beers has been stung by bad publicity about “blood diamonds,” and the
company is now a force for positive change where it operates.

In
the optimistic case, a few poor countries start abiding by the charter.
Those countries prosper and attract more investment and status in the
international community.  The pressure to adopt the charter would then
spread.  Of course, promoting the charter costs relatively little and
the potential benefits are significant.  International pressures did
eventually force a change in South African apartheid.  So maybe they can
improve other countries as well.

Did you know that Tony Blair was already promoting such a charter?  And the Nigerian government (really) already commissioned a private sector audit and now has enacted a version of this idea into law?  We’ll see how that goes, but Nigerian flirtation with rule of law ideas is one of the underreported stories of this year.

Paul Collier’s The Bottom Billion is a very exciting and important book.  It is rare to read something on economic development that is true, non-trivial, and potentially useful.  I recommend this book highly, it is also short and easy to read.  Here is a good review of the book by Niall Ferguson.

Here is the whole column.

How is it I missed this book?

John Reader’s Africa: A Biography of a Continent.  Most of all it offers historical and geographic reasons why African development has proven so problematic.  The author very frequently thinks in terms of mechanism, so it will be congenial to most economically-oriented readers.  Have you wondered why slavery is so common in African history, or why African societies are so frequently conservative and obsessed with the veneration of elders?  Why parasites can feast on humans so easily in Africa?  Why Africa has been underpopulated?

This book, which came out in 1997, is old news to many of you.  But I just discovered it, and it made for excellent airplane reading to the extremely livable, very beautiful, and tasty city of Denver.  If you are interested in African development, or economic geography more generally, this book is a must.

But not all is bright.  I now worry that, since I missed this book for ten years, there is something deeply deficient in my book-finding algorithms.  I thank Karol Boudreaux, who pointed the book out to me while we were in Tanzania.

Behavioral economics and poverty

Mullainathan worked with a bank in South Africa that wanted to make more loans. A neoclassical economist would have offered simple counsel: lower the interest rate, and people will borrow more. Instead, the bank chose to investigate some contextual factors in the process of making its offer. It mailed letters to 70,000 previous borrowers saying, “Congratulations! You’re eligible for a special interest rate on a new loan.” But the interest rate was randomized on the letters: some got a low rate, others a high one. “It was done like a randomized clinical trial of a drug,” Mullainathan explains.

The bank also randomized several aspects of the letter. In one corner there was a photo—varied by gender and race—of a bank employee. Different types of tables, some simple, others complex, showed examples of loans. Some letters offered a chance to win a cell phone in a lottery if the customer came in to inquire about a loan. Some had deadlines. Randomizing these elements allowed Mullainathan to evaluate the effect of psychological factors as opposed to the things that economists care about—i.e., interest rates—and to quantify their effect on response in basis points.

“What we found stunned me,” he says. “We found that any one of these things had an effect equal to one to five percentage points of interest! A woman’s photo instead of a man’s increased demand among men by as much as dropping the interest rate five points! These things are not small. And this is very much an economic problem. We are talking about big loans here; customers would end up with monthly loan payments of around 10 percent of their annual income. You’d think that if you really needed the money enough to pay this interest rate, you’re not going to be affected by a photo. The photo, cell phone lottery, simple or complicated table, and deadline all had effects on loan applications comparable to interest. Interest rate may not even be the third most important factor. As an economist, even when you think psychology is important, you don’t think it’s this important. And changing interest rates is expensive, but these psychological elements cost nothing.”

Mullainathan is helping design programs in developing countries, doing things like getting farmers to adopt better feed for cows to increase their milk production by as much as 50 percent. Back in the United States, behavioral economics might be able to raise compliance rates of diabetes patients, who don’t always take prescribed drugs, he says. Poor families are often deterred from applying to colleges for financial aid because the forms are too complicated. “An economist would say, ‘With $50,000 at stake, the forms can’t be the obstacle,’” he says. “But they can.” (A traditional explanation would say that the payoff clearly outweighs the cost in time and effort, so people won’t be deterred by complex forms.)

Thanks to a reader — his name mistakenly deleted from my email — for the pointer.

Random impressions

Yes, I would buy Tanzania Fund. 

The calm and reserved Dar Es Salaam is remarkably safe; I haven’t once felt threatened or even
"watched."  It is the women who stare, not the men, as is common in Islamic countries.  Throughout East Africa the country has a reputation for
politeness and courtesy. 

If a 45-year-old Muslim woman tells you she took out a micro-credit
loan to open a "saloon," she usually means a "salon."  In the interviews the Tanzanians are eager to be helpful, but they do not take over
the conversation, as might happen in West Africa.

Although there are no tourist sites of note, the city is a
pleasant green and backs into the water.  You might see an Indian Dhow
pulling into the harbor.  Every now and then you see an impressive Masai walking down the street.

Food prices are falling and the economy is
booming.  Per capita gdp in Tanzania is about $700 but the city is
prosperous.  Squalor can be found,  but only with effort.  There are plenty
of new buildings, a few real bookshops, and a bunch of OK shopping
malls.  Spiderman 3 is already in the theatres.  Given that
migration is possible, and the city is not crushingly overcrowded, how
bad can the countryside be?  (Don’t answer that one.)

They carry eggs on the bicycles and everything else on the top of
womens’ heads.  SUVs are common.  Crafts are not impressive.  Tanzania,
though large and populous, is far from an African cultural leader.

The Indian and Chinese restaurants are spicy and genuine.  The crab and the vegetables are superb.  Ugali is the native
dish; you get some ground cornmeal, roll it in a ball with your
fingers, and then dip it into a coconut sauce with vegetables.  They
cook "pullau" rice with cloves, cinnamon, black pepper, and coriander.  Goat biryani is also common; it bears only a passing resemblance to the Indian concept of the same name.

Zanzibar, a two hour ferry ride away, has splendid old Arabic and
Indian doors and many Arabic-style buildings.  Children play in the
narrow streets.  Most of the women wear headscarves and a few wear the
full veil.  The beaches appear perfect though I did not have time to
swim.  For nightly street food there is spicy lobster, grilled fish,
large fresh prawns, and french fries.

My guide in Zanzibar explained:

I decide to sell to muzungu [in Swahili this means "white person," plus
some local nuances of expression] for my living.  The Tanzanian custom is go to witch doctors.  The muzungu custom is go to travels.

How to prepare for your trips, culturally

At this point in life the answer is usually that I do nothing other than call up memories of previous cultural consumption.  If you are not at that point, Wikipedia is an excellent source for fiction and movies from a country.  When it comes to music, consult the various Rough Guides to music; I mean the books, not the mediocre CD collections or the so-so travel guides.  Also try the AllMusic guide, either paper or on-line; when it comes to music neither Amazon nor Wikipedia is to be trusted ("why not?" is an interesting question, is it because too many people feel entitled to have an opinion about music?).  Bring music on cassette, CD, or iPod, as soundtrack for your trip, and ask your driver to put on Radio East Africa.  Finding the best non-fiction books is the hardest category to master.  I still prefer shelf browsing at libraries and book superstores. 

An MR request is another option.  Matt Dreyer asks what I recommend for a trip to Greece and Turkey.  Offhand I’ll say Herodotus, the usual Greek classics, Pamuk’s Snow and Istanbul books, Sarkan (a Turkish singer), Sufi music, Greek traditional music from 1930-1950 (there are some wonderful collections, look for the word rembetika), a study of Turkish and also Greek textiles, a picture book on Cycladic art, a book on Greek sculpture at the National Museum in Athens, Norwich on the Byzantine empire, Michael Grant on the ancient world, Lord Kinross on the Ottoman centuries, a biography of Ataturk and there are a few good recent books which survey contemporary Turkey.

Your tips, either general or specific, are of course welcome.

Cell phone monies

I heard a report that in northern Tanzania they are using cell phone credits in lieu of traditional money.  If you want to pay for something, just make a call to the provider and transfer cell phone credits to the other trader’s account.  Why should those credits be any less liquid than currency?  They are easier to store and transfer and just about everybody uses them.

Monetary economics in Africa is very, very difficult.  It must start with the presumption that money is the asset with the highest carrying costs, if only because your relatives find it so easy to take away from you.

The cultural foundations of capitalism

Sahil, a loyal MR reader, asks:

I
read your blog post about Roger Scruton’s new book, which you praised
for giving a "good sense of just how much cultural background is needed
to sustain liberty."  That’s an interesting notion.  Do you have
recommendation for books that examine this very idea in a more
systematic way?  I’m sure they’re out there, and I’d be interested to
read them.

I’ll offer a few suggestions: all of Max Weber, the books by Lawrence Harrison, Alan MacFarlane on English individualism, Jonathan Israel on the Dutch Republic, Joseph Conrad, Levi-Strauss’s Triste Tropiques, Rene Girard on Christianity, anything good on English history, Hoskyns on Russian history, Albion’s Seed, IQ and the Wealth of Nations, Gilbert Freyre on Brazil, de Tocqueville, Sarmiento on Argentina, Louis Hartz, and John Gunther on America.  The book "The Influence of the African-American Tradition on the American Ideal of Liberty" remains to be written.  Nor have I scratched the all-important and largely non-European notions of liberty from the Nordic regions, which fed into the English success.

Pro-commercial norms are not scarce, as is evident here in Zanzibar.  But those norms get you only to a medieval standard of living; as Mancur Olson stressed, they do not on their own support the structures of large-scale capitalism.  It is harder to convince people to place larger abstract ideas above immediate duties to friends, family, and clan, but that is indeed the central feature of the problem.

Comments are open, what do you all recommend?

My Favorite Things Tanzania

1. Music: Opt for Taarab, the Arabic style from Zanzibar, start hereBongo Flava: Swahili Rap from Tanzania is above average for its genre.  By the way, the Rough Guide Tanzania music CD is a bit lame.

Then there is Freddie Mercury, who was born in Zanzibar.  Right now I’d rate "Killer Queen" and the "Bicycle/Fat Bottomed Girls" medley as my favorites.  The Manichean element (Mercury’s parents were Parsees) is evident in "Bohemian Rhapsody," among other songs.  Queen remains underrated, and I never tire of listening.

2. Cinema: This movie comes recommended, I’ve never seen it.  Darwin’s Nightmare is set in the country, I haven’t seen it.

3. Film, set in: Hatari!, with John Wayne, isn’t bad in a jokey sort of way.  It is, after all, directed by Howard Hawks.  Hatari, by the way, means "danger" in Swahili.

4. Sculpture: Makonde is the dominant style.  Try this older one.

5. Painting: The best-known naive style is Tingatinga.  Here is one of the better pieces.  It doesn’t compare to Haiti.  Here is more.  The leading Tanzanian naive painter was — can you guess? — E.S. Tingatinga.

6. Fiction?  Ask me again once I’ve learned Swahili.

The bottom line: Freddy is long gone, and they play Congolese "lingala" music in the clubs, so it’s culturally a little dull here; in any case I am working on a micro-credit project with Karol Boudreaux.

Beggars and rent exhaustion

Tim Harford, The Undercover Economist, reports:

Rent exhaustion is no economists’ fantasy – go to any place with
rich tourists and poor locals (Dar es Salaam, the first African city I
visited, fits the description nicely), and you’ll see lots of people
waiting for the one generous tip or overpriced taxi fare.  If the
tourists become more generous or gullible, the local guides don’t get
richer, they just multiply.  The bigger paydays become less frequent.

Tyler
Cowen – an economics professor with a popular blog – argues in his
forthcoming book, Discover Your Inner Economist, that for these reasons
you may wish to give money away by wandering around a poor country, far
away from the tourist trail, and handing cash to people who look busy.

Vicious fights over prime begging spots are yet another example of rent exhaustion in this context.  If the begging spot is worth say $50 a year, beggars will devote up to $50 a year to keep the spot.  Here is my previous post on whether you should give money to beggars.

Darth Vader’s wife likes micro-finance

Ms Portman, the 25-year-old Harvard graduate who co-chairs the Village Banking campaign, said it would seek to use social networking to galvanise her generation to support microfinance.

"I have seen that ending poverty is possible – it is just a mouse click away," said Ms Portman, whose video diary about Finca’s work will feature on its page on MySpace, the social networking website. "People check their MySpace pages 10 times a day, why not harness that tool to build support for microfinance."

Here is the story.  Complain all you wish, as celebrity activism goes this is a step up.  Here is an article on micro-finance spreading to Africa.