Threat or Help? Unskilled Immigrant Workers

The World Bank’s Malaysia Hub has a new brief on the effect of immigrant workers on productivity (excerpt):

Threat or Help? The Effects of Unskilled Immigrant Workers on National Productivity Growth
Sharmila Devadas

While unskilled immigrant workers have relatively low formal human capital, theory suggests that they can still contribute to productivity improvements by helping to increase efficiency and upgrading the skills of the native labor force. Empirical studies indicate that positive productivity effects do occur. This body of evidence does not provide a compelling argument for the closing of national borders to unskilled foreigners on economic grounds.

TL;DR version: The available evidence doesn’t support any negative impact on productivity, with some countries showing a positive impact. Note that this doesn’t necessarily preclude the possibility that reducing unskilled foreign workers will increase productivity, but it does make it unlikely.

Change At The Top Of The World Bank

After 5 years in charge, Robert Zoellick is stepping down:

World Bank President Zoellick to Step Down June 30th

Zoellick Says World Bank Strong, Healthy and Well Positioned for New Challenges

WASHINGTON, February 15, 2012 – World Bank Group President Robert B. Zoellick announced today he would step down at the end of a five-year term in which a transformed Bank played an historic role during the global economic crisis, using record replenishments to provide more than $247 billion to help developing countries boost growth and overcome poverty.

After the disaster that was the Wolfowitz presidency, the worst that can be said about Zoellick’s time at the World Bank is that he was uncontroversial – at best, that he did a great job in reforming the institution and leading it through the Great Recession. As much as I’ve criticised the World Bank in the past – they’re still too enamoured of the big bang approach to development – things are changing and for the better. How much of that is due to Zoellick, and how much to changes in social and political attitudes, I don’t know. But an engaged World Bank, preferably one that will listen as much as it lectures, is a powerful instrument for development.

Here’s hoping they pick someone just as good to take over.

The Value of Twitter, Facebook and Blogs To Economic Development

"In Canada there is a small radical group that refuses to speak English and no one can understand them. They are called separatists…In this country (USA) we have the same kind of group. They are called economists."
Nation's Business (via JokEc)

I was reminded of the above when reading this rather plaintive post on the World Bank’s Development Impact Blog:

The perfectionists versus the reductionists

Women perform 66 percent of the world’s work, and produce 50 percent of the food, yet earn only 10 percent of the income….
--Former President Bill Clinton addressing the annual meeting of the Clinton Global Initiative (September 2009)

Impressive, heart-wrenching, charity-inducing, get off your sofa and go do something heartbreaking.

But Wrong...

Blogging About Economics: Positive Externalities

Once upon a time, four development economists decided to start blogging. At the same time, two of them wondered whether blogging had any impact or was at all worthwhile. To make a long story short, they decided to research the issue, and made an experiment out of the launch of their own blog (abstract):

The Impact of Economics Blogs
McKenzie, David; Ozler, Berk

Summary: There is a proliferation of economics blogs, with increasing numbers of economists attracting large numbers of readers, yet little is known about the impact of this new medium. Using a variety of experimental and non-experimental techniques, this study quantifies some of their effects. First, links from blogs cause a striking increase in the number of abstract views and downloads of economics papers. Second, blogging raises the profile of the blogger (and his or her institution) and boosts their reputation above economists with similar publication records. Finally, a blog can transform attitudes about some of the topics it covers.

The World Bank’s Malaysia Economic Monitor: Talking About Income Inequality

From the World Bank’s blog (emphasis added):

Why Updating Malaysia’s Inclusiveness Strategies is Key

Compare South Korea and Malaysia in 1970 and compare them again in 2009. South Korea was a third poorer back then and is now three times richer. Even more remarkable has been South Korea’s ability to widely share the benefits of this spectacular feat across broad segments of society. South Korea’s strong focus on broad-based human capital development allowed the country to transform itself into a high-income economy, while at the same time reducing income inequality and improving social outcomes.

Malaysia’s inclusiveness strategies have produced some remarkable successes as well. Malaysia dramatically reduced poverty and has all but eliminated hardcore poverty. But the country has been far less than successful in reducing income inequality which, since 1970, steadily fell for two decades but has stagnated at high levels ever since…For Malaysia to remain competitive, it became clear that it needs to compete on value, not cost, and this requires a refocusing on getting the incentives right for innovation, creativity and entrepreneurship.

World Bank President Calling For A New Gold Standard? Say It Ain’t So!

Oh, to be a fly on the wall in the World Bank’s press office:

Call to bring back gold standard

World Bank says it can serve as an anchor to guide global currency movements

SINGAPORE: World Bank president Robert Zoellick has called on bickering G-20 nations to bring gold back into the global monetary system as an anchor to guide currency movements.

Ahead of a G-20 summit this week in Seoul, Zoellick wrote in yesterday’s Financial Times that an updated gold standard could contribute to retooling the world economy at a time of tensions over currencies and US monetary policy.

Development Economics: A Layman’s Primer

It’s really short on the theory, but that’s what makes this World Bank blog post a good primer for development issues:

Pathways to Development: What We Know and Don’t Know
Raj Nallari

Development is about welfare enhancing transformation through economic, social, political, and technological progress. Transformation is predicated on per capita income growth but development is also about progress in reduction of poverty and inequality, individual capabilities, access to social services, and quality of life. Both growth and development are also predicated on distributive politics of how a society is able to deal with vested interests and social conflicts.

During past sixty years, growth spurts have occurred in most countries but generally outcomes have fallen short of expectations. Developed economies have averaged growth rates of 2.4 percent during 1990 and 2008 while developing economies have collectively increased their GDP by an average of 4.7 percent over the same period. For low and middle income countries, physical capital is the principal determinant of growth, while for upper middle income and higher income economies total factor productivity was the most important driver. TFP is a catchall for other factors, which are human capital variously measured, and its quality; technological capability and innovation; managerial skills; organizational effectiveness; institutions affecting incentives, competition, allocative efficiency and governance; and the characteristics of urbanization.

It’s The World Bank’s Turn

There’s already evidence that the IMF’s thinking on its approach towards assistance to developing countries has changed, retreating away from the cookie-cutter policies of the Washington Consensus.

Now we have World Bank mulling the same thing. In a new working paper (don’t believe the disclaimer about this not being World Bank thinking or policy), World Bank Chief Economist Justin Lin argues that the mechanisms and timing of structural change and industrial upgrading merit equal attention to technological diffusion. Again, nothing too controversial and just updating the structural school’s approach to development. Here’s the difference though (from the abstract, emphasis mine):

"As strategies for achieving sustainable growth in developing countries are re-examined in light of the financial crisis, it is critical to take into account structural change and its corollary, industrial upgrading. Economic literature has devoted a great deal of attention to the analysis of technological innovation, but not enough to these equally important issues. Te new structural economics outlined in this paper suggests a framework to complement previous approaches in the search for sustainable growth strategies. It takes the following into consideration:

First, an economy’s structure of factor endowments evolves from one stage of development to another. Therefore, the optimal industrial structure of a given economy will be different at different stages of development. Each industrial structure requires corresponding infrastructure (both “hard” and “soft”) to facilitate its operations and transactions.

Second, each stage of economic development is a point along the continuum from a low-income agrarian economy to a high-income industrialized economy, not a dichotomy of two economic development stages (“poor” versus “rich” or “developing” versus “industrialized”). Industrial upgrading and infrastructure improvement targets in developing countries should not necessarily draw from those that exist in high-income countries.

Third, at each given stage of development, the market is the basic mechanism for effective resource allocation. However, economic development as a dynamic process requires industrial upgrading and corresponding improvements in “hard” and “soft” infrastructure at each stage. Such upgrading entails large externalities to firms’ transaction costs and returns to capital investment. Thus, in addition to an effective market mechanism, the government should play an active role in facilitating industrial upgrading and infrastructure improvements."

Could it be that the World Bank is actually advocating industrial policy? If you’re not familiar with the debate, industrial policy (active government intervention in business and investment) used to be a very bad word in mainstream academic circles outside of a few radical thinkers. Heck, Malaysia has gotten enough criticisms on this issue, both inside and outside the country. Now the World Bank is saying, in effect, that it’s ok. Will wonders never cease?