Immigration supply

A Reuter's story (through Yahoo) relates a discussion on the supply side of immigration. The context of course is the raging debate on the US on immigration - though Mexican immigrants are the biggest group affected, lots of Filipinos illegals stand to benefit as well.

Per capita income is a good indicator of local wage rates. The disparities are indeed enormous. The case of Spain and Portugal are held up as examples of how tackling the supply side - evening out the income disparities - will do much to ease immigration pressures.

What happened to Spain? Well way back in mid-1980s its US$ per capita income (PPP-adjusted) was 10,435; today it stands at 25,100. That is per capita income rose by a factor of nearly 2.5. That can be done by plodding along at a decent growth rate of about 4.5% per year (in per capita terms). Once your economy is that size, you don't need Tiger economy growth rates (in the rate of 7% and above) to double hit developed country levels in a short time. All Mexico needs to do is to trundle along at about that pace; in fact its per capita growth has been in the range of 1%-2% in the last couple of decades. So the US can expect a lot more migration from the South in the medium term - that how that entry is managed is their call.

What about the Philippines? At about US$ 1,000 per capita, even doubling income will still keep us at a poor country level. If we can make our per capita income grow by 3% per year (around the growth rate last year) then in 20 years we can hit US$ 2,500. Pretty impressive, no? That's about Thai standards now. What we need is really fast growth (Tiger - standard). At 7% per capita growth (9.5% in GDP terms), we quadruple income in 20 years. But that's only about Malaysia standard (these days). In fact, the past couple of decades our per capita growth has been lower than Mexican standard!

So we can expect lots of migration from the Philippines over the next several decades. Slow growth and employment generation at home has been a major "push" factor behind all that worker migration. If we can rack up decent growth rates, there will eventually be a slowdown in the rate of growth of overseas remittance - and even a reversal. I do not believe that overseas remittance growth has contributed in a significant way to slowing down our growth rate - my gut feel is that the effect has been positive.

Experimenting with corruption

The Economist points to this great study, in terms of scientific approach and relevance to development. The paper (PDF) is mostly nontechnical (and is completely accessible to an economics major.) The study looks at road projects in Indonesia and compares actual expenditure with measured expenditure, working backward from the observed quality of the road. The difference between the two is the effect of corruption (pocketing project money that should have gone to purchasing materials and labor.) The experiment is made by introducing community-based monitoring and central government audit at random across the sample of projects, prior to the conduct of the projects.

It shows that - surprise! - officials respond to announcement of audit. This is observed within a corruption-prone society. More "modern" approaches, which relies on community-based monitoring, is found to be less effective, or effective only for controlling corruption with respect to labor purchases (which are observed by the community). Since only one-fourth of the road project is composed of labor, this is not very effective on controlling overall corruption.

Here's what you take home (from the author's conclusion):

By contrast, increasing grass-roots participation in monitoring the project affected only missing labor expenditures, with no impact on materials and, as a consequence, little impact overall. These results suggest that grass-roots monitoring may be more effective for government programs that provide private goods, such as subsidized food, education or medical care, where individual citizens have a personal stake in ensuring that the goods are delivered and that theft is minimized. For public goods where incentives to monitor are much weaker, such as the infrastructure projects studied here, the results suggest that using professional auditors may be much more effective. This does not mean that empowering community members to discipline service providers has no role in an anti-corruption approach. In fact, the results suggests that the audits were most effective when the village head was up for re-election, which suggests that local level accountability may be an important mechanism for disciplining public officials. However, the results suggest that grass-roots monitoring alone may not be sufficient, and that for detecting corruption professional monitors may also important. The results in this paper present the results from a short-run intervention. If auditors are bribable, over time villages may develop repeat relationships with auditors which may make bribing auditors easier than in the one-shot case examined here. This might suggest, for example, that frequent rotation of auditors – or lower probabilities of audits combined with higher punishments – may be optimal.

One good deed leads to Dutch disease

Dutch disease manifests in many forms. Here is the latest incarnation from Zambia (via Mahalanobis).

In short: the debt write-off (under the rubric of the MDG) effectively transfers foreign exchange to Zambia, causing a currency appreciation and hurting exporters.

Earlier I had written about a similar Dutch disease in the Philippines. Now I realize that the latter form is less of a problem than that experienced by Zambia, or other countries afflicted by the "natural resource curse".

The reason is simple: remittances wind up in the hands of private individuals (families back home), who allocate the funds based on market incentives. However in Zambia, the transfers are disposed of by the government; similarly in resouce-driven appreciations, state-owned companies typically get the bulk of the bonanza.

I am very suspicious of government acting as if it were a market entity, when it is actually shielded from market incentives. There is no guarantee that the foreign exchange earnings will be used for the right purpose, whether investing in human development directly (welfare programs and safety nets) or indirectly (investing in profit-making enterprises). So the Zambian government (and other recipients of the MDG debt write-off) better be careful that the long-term gains from their investment more than offset the short-term repercussions of the Dutch Disease.

Inane proposals on migrant labor

Why restrict the overseas Filipino professional? So asks this Inquirer columnist, who talks about a full page ad put out by Fair Trade Alliance. I didn't read the ad myself, but I have a pretty good idea what it would say ... and Mr. Pagalangan relates the gist of it: keep them home.

What the %^&*@#$$?!!!

The skilled Filipino worker gets paid higher wages outside. His or her well-being goes up; as a fellow Filipino this should count for something, no? Even if he or she happens to be living abroad? What is more, he or she remits income back to the Philippines, increasing the well-being of the family. So far so good.

The cost? We back home get deprived of some cheap skilled workers. Well, time to get real folks - other people overseas are willing to pay for our workers. And we pretty well have to learn to match these wages if we want to keep them here.

What about our health care, and all those "critical professions"? Same thing. It's the price system at work. You get what you pay for - whether it's food, drugs, or people. Any suppression of the price system (say, by inane regulations on overseas work), is going to backfire. Probably the regulation won't work as workers, placement agencies, and public officials themselves circumvent its obvious stupidity. Worse still, it may work - and in the medium to long term you will see fewer people investing in quality education and training. (Those prospective high wages abroad have got everything to do with all that studying!)

How about "return service"? I've got a better idea. Why subsidize all that higher education anyway? Do away with tertiary education subsidies entirely. All that money is better spent on providing quality education at the primary and secondary level. Then let the professional - who has invested in their own human capital - make their free choice about where to work.

Disclaimer: I had a brief stint abroad (in Malaysia, 2 years) doing research in an agricultural research center. I probably have a vested interest in this issue. So? The idea is still $%%^&$#!! stupid. And I'm still right.

Fish - one of the most active sectors in agriculture today

Fish is an important source of food and livelihoods in Southeast Asia. Fish provides a large share of animal protein intake, from 40% in the Philippines and Thailand to 57% in Indonesia and Cambodia. Low value fish in particular is a major component of the diets of the poor. Fisheries are also a significant source of livelihoods for communities on coasts, riverbanks, and floodplains, which cover a large bulk of the populations of Southeast Asia.

Recently the fisheries sector has been undergoing unprecedented changes: production in the region has grown rapidly, averaging 4.2% average annual growth from 1980-2003, compared to a 2.7% average annual growth over the same period for all other agricultural products. Fish has spearheaded the globalization of agriculture, following the reduction in import barriers and duties and the harmonization of food safety standards under the World Trade Organization (WTO) Agreements. The share of fish all agricultural exports reached 20% in 2003, compared to only 6% in 1980. The value of fish exports in 2003 (US$ 8.6 billion) is far in excess of exports of fruits and vegetables (US$3.5 billion), cereals (US$ 2.7 billion), coffee, tea, and cocoa (US$ 2.3 billion), and poultry (US$ 1.2 billion). For example, Vietnam is well-known as a coffee and rice exporter: however the export value of these two crops combined was less than US$ 1 billion in 2003, compared to fish exports of US$ 2.4 billion in the same year.

However rising global demand for fish has placed tremendous pressures on aquatic ecosystems and wild stocks. The "live reef food fish trade" is a case in point: consisting mostly of groupers, snappers, and wrasses, this trade involves exports of reef fish mostly to Hong Kong - China to meet a nearly insatiable demand for live fish. Unfortunately extraction of reef fish is both too heavy, and often done in an unsustainable manner (e.g. reliance on cyanide fishing).

What is the future of global fish trade, given rising demand and dwindling stocks? Not so bright - higher prices are in the offing, including for fish consumed heavily by the poor. (And there are ways to project the magnitude of these price increases, and even the impact of these future trends on economic well-being). But while gloomy, the situation is not hopeless. Yet. (I think.)

Unintended consequences

A common prescription to save fish stocks is to "throw it back", pertaining to immature fish that have been caught by fishers. Interesting point I didn't think about: well that strategy may have its drawbacks, according to a Scientific American article cited by Mark Thoma (posting in the Environmental Economics blog). The unintended consequence is that fishing selects in favor of small fish - leading to a gradual evolution of populations with smaller individuals. And these individuals seemed to be duller and weaker than those that end up on our dinner table.

The answer? Not throw back any fish at all! Well in tropical Asian fisheries, the entire "trash fish" industry is built on the idea of landing and selling everything. Unfit for human consumption? There's a great big aquaculture industry (shrimp, grouper, milkfish) waiting to gobble it all up.

Of course this is an ecological no-no, so the article suggests throwing back some big ones too. I can imagine environmentally-conscious fishers doing that. Especially those using hook and line, or longliners.

Kidding aside, I think nothing beats cutting down on fishing effort, period, by whatever means - state command-and-control; individual transferrable quotas; community-based controls; whatever it takes. Otherwise we would be looking to a future of - not just smaller and dumber fish - but none at all.

Singapore - after decades of liberal trade and investment

Okay so I'm stuck here in Singapore on an eight-hour wait for my connecting flight. An airport display informs you of the following factoids:

Did you know that Singapore makes:
1/3 of all hard disks?
1/3 of all hearing aids?
20% of all photoflash lamps?
Oil and gas equipment?

About 26% of GDP is accounted for by manufacturing, of which nearly 40% is in electronics, 26.4% is in chemicals, 17% in mechanical engineering, and 7.6% in biomedical products.

Of course we all know that Singapore is a global transport hub. One-third of the world's oil passes through Singapore; it has the 3rd largest oil refinery hub; it has 50% of the world market for fast ferries. It is the world's number 1 in shipbuilding repair, cornering 20% of the world market. Changi airport exemplifies this excellence: all cargo is cleared within 13 minutes; the airport has been voted best airport by "Business Traveller" for the last 17 years.

Was this achieved because the government closed off the economy to foreign investment and trade? You gotta be kidding. It's one of the freest economies in the world, next to Hong Kong. One of the beauties of the market is how it identifies export winners in such detailed niches that no planner or economic model could possibly foresee. Well okay, a world transport hub, maybe; but friggin' hearing aids? Photo flash lamps?

Okay lots of people are complaining about the repressive political environment. However what is important is total freedom - economic and political. Some countries have lots of political freedom but place plenty of economic restrictions. Time to realize that these restrictions fall within a continuum of repression. So before we say in the Philippines fault Singapore for this and that, tell me, how long does it take for you to register your real property in the Philippines, grease-free, in the Philippines?

Cultural attitudes towards science and pseudo-science

Answer first:

1. Which nationality is more likely to believe that astrology or fortune-telling is scientific? Chinese, South Koreans, Europeans, or Americans?

2. Which nationality is more likely to support public funding for science? Chinese, South Koreans, Europeans, or Americans?

3. Which nationality is more likely to say that science does more good than harm? Chinese, Europeans, or Americans?

Now peak at the answers here. And read the whole thing while you're at it.

Those silly Confucianists. (Crash!)

Game theory satire

Whenever I read an article or book on technical economic theory, I often get the impression that I am in a fantasy world no less imaginative than Middle Earth or Narnia. By a long chain of assumptions, we are assured that this is an "approximation" of the real world.

Often this kind of imagineering (to borrow a phrase from Disneyites) is essential. One wonders though whether sometimes economists have gone overboard with it.

Check out this satirical piece on the toilet seat problem. Are some articles in Econometrica or Journal of Economic Theory no less absurd than this piece of toilet humor (bad pun, sorry!)?

BTW, am headed off for a workshop in Malaysia next week (on the live reef food fish trade) and (you guessed it) I am ducking my blogging duties. Expect light posting over the next couple of weeks. (I'll explain what "live reef food fish" is - that's good for at least one post already!)

Economic growth - forever

Many environmentally-minded people have the impression that fixed natural resources, in principle, makes perpetual economic growth impossible. This seems to make sense from an input-output perspective: growing output requires growing input (true); however some of the required inputs are fixed (true); hence output must stop growing eventually.

However the mistake is this: growing output requires at least one growing input. If the growing input can substitute for the non-growing inputs, then it is mathematically possible for the limiting point (zero natural resources) to be reached at time infinity - with economic growth happening all along the way.

What can be this perpetually growing input? In human history, economic growth has typically been driven by technology. Technology ultimately is based on human intelligence, or information processing.

It seems that the ability to discover new stuff is limitless. That is, it seems that humans will also be able to discover new things that the market values. This is the crucial point: economic growth is not just a matter of piling up new stuff by weight. Then certainly economic growth is limited. Economic growth is a matter of piling up new stuff by market value, based on subjective assessment of individuals, collectively summed up in the market price. This process holds the key to perpetual economic growth.

Scattalaxis has another way of putting it. In addition to the economic sphere and the biosphere is the "noosphere" (was this originated by de Chardin?) The products of the noosphere appear to be limitless, as valued by the noosphere itself.

Now all of these are possibilities are based on theory. On the other hand perhaps humans will run out of innovations, or perhaps inventions are not as substitutable with natural resources as we think. For example, perhaps it is not possible to find a cheap substitute for oil-powered transportation.

In the long run, my money is on the human mind.