The Eurozone: Whatever happened to convergence?
, World Economics, June 2013
This article examines the degree of convergence of the economies of the eurozone since the start of the single currency in 1999. Convergence, both in nominal and real forms, is measured using the coefficient of variation of several economic variables. The results suggest that while there was some convergence on inflation up to 2007, there was no convergence on economic growth, total government debt, budget deficits, unemployment or GDP/head. The financial crisis and global recession of 2007 and 2008 exposed a fault line in so large and diverse a currency union, and this now threatens the long-term future of the euro.
Industrial Rebalancing is Already Here, But Can it Continue?
, World Economics, June 2013
In mid-2012, as China’s economy decelerated, growth in electricity production – traditionally a good proxy for the health of industry – diverged strongly on the downside from official measures of industrial value added. While many analysts interpreted this incongruence as a sign of official data manipulation, detailed output and electricity consumption data tell a different story. Variation in Chinese electricity production since 2008 has been close to an exact function of output growth in a handful of heavy industrial sectors including metals, cement and chemicals, rather than industry as a whole. The underperformance of these electricity-intensive, but relatively low value-added sectors in Q2 and Q3 2012 largely explains the divergence between electricity output and industrial growth that confounded analysts last year. Moreover, the declining profitability of electricity-intensive sectors relative to consumer goods is an initial indication of ‘rebalancing’ in the Chinese industrial economy, which may herald changing data patterns in the future.
A New Challenge: The myriad new opportunities offered by East Africa’s oil and gas basin
, World Economics, June 2011
Over the last five years there has been a noticeable shift in focus among leading oil and gas companies active in the continent of Africa. Rather than focusing on West and North Africa for investment opportunities, there has been a move to explore new prospects in East Africa. The region is rapidly becoming a prominent investment destination in both the upstream and downstream oil sectors. In 2011 several majors including BG, Eni and Petrobras, are planning to sink wells and all of them are investing significant amounts in search of deepwater gas reserves. Alongside these exploration initiatives the author assesses plans for a new pipeline with a capacity of 450,000 barrels a day, to be constructed from Juba in Southern Sudan to Lamu on the Kenyan coast. Increasingly, as the author notes, the region is emerging as a significant location for investment in hydrocarbon resources.
Keywords: Africa, Angola, China, Hydropower, Japan, Kenya, Mozambique, Nigeria, Oil, Oil prices, Oil wealth, Russia, Sub-saharan Africa, Uganda
Malthus Postponed: The potential to promote palm oil production in Africa
& Inna Ali
, World Economics, June 2011
The authors examine the potential to promote palm oil production in the tropical regions of sub-Saharan Africa. Given world population pressures and soaring food prices, the need to grow more food has never been more urgent. Palm oil cultivation offers one possible route to meet this demand; it also has a variety of other uses, notably biofuel. Major investors are committing substantial sums to develop palm oil plantations throughout West Africa. However, this major driver of economic growth has triggered controversy, particularly from environmental NGOs. The article assesses how far these criticisms are valid. In the process, four key challenges surrounding the development of plantation crops are identified. The REDD initiative – aimed at restricting forest land conversion for commercial purposes – is analysed and a number of practical hurdles to successful implementation are highlighted. The authors conclude that large-scale commercial plantation agriculture clearly has a major contribution to make in resolving the rapidly emerging global food crisis.
Keywords: Africa, Agriculture, Angola, Biodiversity, Brazil, Climate change, Ecuador, Environmental sustainability, Indonesia, Investment, Kenya, Land management, Land use, Malaysia, Mozambique, Nigeria, Norway, Power, Sustainability, Sustainable development, Water
Boosting Infrastructure Investments in Africa
, World Economics, June 2011
The absolute and relative lack of infrastructure in Africa suggests that the continent’s competitiveness could be boosted by scaling up investments in infrastructure. Such investments would facilitate domestic and international trade, enhance Africa’s integration into the global economy and promote better human development outcomes, especially, by bringing unconnected rural communities into the mainstream economy. While there are yawning gaps in all infrastructure subsectors, inadequate energy supply is directly correlated to low education levels, poor health outcomes, as well as limited economic opportunities and technology choices. Efforts by government to invest in infrastructure have proved inadequate to close the infrastructure gap. These investment opportunities have not been seized by the private sector due to the unfavourable business environment, poor incentives and regulatory frameworks. Therefore, Africa’s infrastructure challenge is not only in closing the huge financing gap, but also in building the necessary skills and capacity to attract investments. Although scaling up infrastructure investments offers the private sector enormous opportunities, unlocking these investments should be preceded by appropriate policy and structural reforms. The good news is that there is hope, and current developments are signalling an increased awareness by African governments. Development partners should therefore take advantage of the increasing political will for reform through knowledge and capacity building activities, especially, in fragile and post-conflict countries where the need is greatest.
Keywords: Africa, Aid, Bonds, Communications, Competitiveness, Development, Development strategy, Egypt, Energy, FDI, Growth, Growth strategies, Hydropower, Infrastructure, Investment, Kenya, Nigeria, Power, South Africa, Sub-saharan Africa, Supply side development, Tanzania, Transport, Water
Green Stimulus, Green Recovery and Global Imbalances
Edward B. Barbier
, World Economics, June 2010
This paper assesses the extent to which G20 green stimulus initiatives enacted during the 2008–9 recession have instigated a global ‘green recovery’, and how further green recovery policy initiatives by the G20 relate to concerns about chronic fiscal deficits and global imbalances. Implementing further green measures will require G20 economies to commit to increased public investments, new pricing policies, improving regulations, more aid disbursements and other policy changes. Although there may be concern that these additional initiatives could worsen the chronic fiscal deficits and structural imbalances, if properly enacted, such a green economic recovery strategy should help alleviate, rather than worsen, unstably large fiscal deficits, long-term real interest rate rises and inflation, and global imbalances.
Keywords: Climate change, Environment, Fiscal stimulus, G20, G-20, Global financial crisis, Global imbalances, Global warming, Great recession, Green, Kyoto
A Tale of Two Crises
, World Economics, June 2010
The paper argues that many erroneous conclusions derived from modelling are due to mistakes in logic rather than scientific methodology. The widely accepted models predicting the catastrophic consequences of carbon emissions, and suggesting how cuts by the developed world can prevent them, all ignore population growth and distribution, and such data are not used as independent variables in the global warming models. This casts doubt on the probability of the models, and even more on the suggested solutions, as an astonishingly high degree of accuracy in highly complex forecasts over a period of almost a century would be required, without which the extremely costly ‘solutions’ would be either unnecessary or insufficient. Over a 30-year period, forecasts of population are likely to be much more accurate than those for climate. Within such a period, population in the world’s poorest countries will almost double, leading to virtually all the disasters that are predicted to arise from global warming some decades later. Since many measures taken to avoid putative global warming are likely to exacerbate the more rapidly approaching dangers of population growth, it would appear logical to give more consideration to assisting the poorer countries rather than impoverishing the rich.
Keywords: Adaptation, Climate change, Demographic change, Emissions trading, Energy, Environment, Global warming, Green, Greenhouse gases, Growth, IPCC, Kyoto, Mitigation, Population, Stern
Carbon Commitments Must Translate into Real Action
, World Economics, March 2010
The efforts of political leaders to negotiate a global agreement to reduce carbon emissions highlights the importance of consistent action at the domestic level. To gauge the efficacy of any international agreement and subsequent reductions, a clear, consistent and comparable approach to carbon disclosure must be adopted by UK companies. This allows economic benefits, as carbon reporting is an enabler for energy efficiency and a driver for better, cleaner technology in new markets. Furthermore, the pursuit of the perfect reporting framework must not be the enemy of the good, as the urgent need to address the causes of climate change requires immediate action to drive reduction in carbon emissions by UK plc.
Keywords: Adaptation, Climate change, Emissions trading, Energy, Environment, Global warming, Green, Greenhouse gases, Growth, IPCC, Kyoto, Mitigation, Stern, UK
The Oil-producing Gulf States, the IMF and the International Financial Crisis
, World Economics, March 2009
As the finance-strapped International Monetary Fund (IMF) was placed at the centre of coordinating funding and offering ideas to navigate out of the international financial crisis, it became clear that the international community needed to reinvigorate the emerging market economies’ role in the organisation and in the broader international financial architecture. At the time of the Group of 20 (G20) meetings, the Gulf states were viewed as likely contributors to IMF liquidity. Despite the UK’s Prime Minister Gordon Brown’s visit to the Gulf in November 2008, and his claim that the Gulf would assist in an injection of liquidity into the IMF, the Saudi rulers decided to go empty-handed to the G20 meetings in Washington. Unlike the 1970s, when the Gulf came to the rescue of the western and international banking system, today Gulf rulers are more responsive to a new class that is more scrutinising of petrodollar recycling.
Keywords: Bahrain, G20, G-20, Global financial crisis, Great recession, Gulf, IMF, Iraq, Kuwait, Liquidity, Oil, Oman, Qatar, Saudi Arabia, UAE
What is the Economics of Climate Change?
Sir Nicholas Stern
, World Economics, June 2006
A major review of the economics of climate change under the leadership of Professor Sir Nicholas Stern was announced at the end of July 2005, reporting to the United Kingdom’s Chancellor of the Exchequer and to the Prime Minister. The Stern Review on the Economics of Climate Change is due to report in autumn 2006. This article sets out some of the issues the review is considering.
Keywords: Adaptation, Climate change, Emissions trading, Energy, Environment, Global warming, Green, Greenhouse gases, Growth, Kyoto, Mitigation
Can Iraq Overcome the Oil Curse?
Robert E. Looney
, World Economics, March 2006
A growing literature suggests that the oil sector and the allocation of its revenues is the critical variable in shaping both the economic structure and political systems of countries like Iraq. For the most part this literature focuses on the so-called “oil curse” or the “paradox of plenty.” An examination of the Iraqi situation suggests that the country’s current supply-side development strategy will ultimately result in the dominance of “oil cure” effects. In contrast, an alternative demand-oriented approach might be more likely to succeed in the current Iraqi environment.
The Costs of Mitigating Climate Change
& Matt Leach
, World Economics, September 2005
The paper reviews analyses of the costs of mitigating climate change and discusses the implications for policy. The estimated effects of reducing carbon emissions by 40%–60% over the next half century range from –1.0% to 4.5% of world product, averaging 2½%. This would be small in relation to the growth of economic output over the period, which is likely to be several hundred percent higher than it is today. The main reason why the estimated effect is small is innovation: a large number of carbon-neutral technologies and practices is available or emerging that are capable of significant further development. An initiative focussed on encouraging innovation and the diffusion of new energy technologies and practices across countries would provide a new direction for international cooperation based on already significant national policies in many countries.
Hydropower in Bhutan and Nepal: Why the difference?
, World Economics, September 2003
Bhutan and Nepal have followed differing hydropower development strategies.
Bhutan has co-operated with India and power export earnings have helped fund a
broadly successful economic, environmental and social programme. In contrast,
Nepal turned to the World Bank and other donors to fund its power projects.
When World Bank funding for Arun III was withdrawn in 1995, its programme
was thrown into disarray and it remains to this day a net power importer. Nepal’s
current economic, environmental and social malaise can in part be attributed to
these past decisions in the power sector by the Government and World Bank.
Five Centuries of Energy Prices
& Peter Pearson
, World Economics, September 2003
Concerns about rising energy prices tend to occur in times of economic
expansion, to disappear in times of recession. A recurring fear is that, in the long
run, real energy prices will trend upwards. This paper presents evidence from
five hundred years of prices of energy sources for the United Kingdom. Over this
time period, there is little support for any general trend of rising fuel prices—and
some evidence of significant declines. Using this information on prices and
consumer expenditure to weight the series, an ‘average price of energy’ series has
been created. Reflecting the substitution away from more scarce fuels (driving
prices down) and towards more valuable ones (driving prices up), over more than
five hundred years—and albeit with significant long-lived fluctuations—there
seems little evidence of a rising long-run trend in the real price of ‘energy’.