Global Business Roundup: October 14–20
AJR (2001), foreign investment, and aid deliveries
And the Oscar goes to…
If you haven’t heard, this year’s Nobel Prize in Economics was awarded to Daron Acemoglu, Simon Johnson, and James Robinson for their “studies of how institutions are formed and affect prosperity.” This is essentially encapsulated by one paper: Acemoglu, Johnson, and Robinson (2001), a seminal piece in development economics that is controversial for its methodology.
AJR (2001) estimates the impact of institutions on economic development, using European settler mortality rates as an instrumental variable. The authors find that institutions have large effects on income per capita, and a high correlation between colonial and current institutions. They also note that institutions today are not strictly predetermined by colonial policies, and are open to change.
This is important to note as nations with better “institutions” have more secure property rights and less distortionary policies, and will hence invest more in physical and human capital to achieve a higher income level.
On to this week’s Global Business Roundup…
India has decided to administratively allocate its satellite spectrum rather than auction it. This is to the dismay of India’s telecom billionaires who called for an auction, but to the advantage of Elon Musk’s Starlink Inc. Starlink has long been eyeing the Indian market due to its large population lacking internet connectivity. The government’s decision to use the administrative route will likely pave the way for Starlink to enter the market at a lower cost, a move that supports lower prices for consumers but threatens the subscriber bases of local telecommunications companies.
El Salvador has refinanced $1 billion of its debt with a loan from JPMorgan Chase, backed by the US International Development Finance Corporation. According to the country, the purpose of the loan is to buy back bonds and use the savings on debt services to restore a major regional river. This is the latest in a series of debt-for-nature swaps, which allow poor countries to access bond markets at lower interest rates via development-bank guarantees and conservation commitments.
Saudi Arabia has become one of the world’s largest construction sites and a hub for international consultants in recent years. After an eight year global spending spree, the once conservative kingdom is tightening its belt on Vision 2030. As global oil prices fall and domestic inflationary pressures rise, both the kingdom and the IMF have expressed the need to recalibrate investment spending. This, however, would come at the cost of stalling Saudi Arabia’s pace of development.
The World Food Programme warns that it will run out of supplies to provide food to hundreds of thousands of people in north Gaza in a week and a half. In recent days, Israel has launched a massive offensive in the area, preventing the agency from providing any aid for two weeks. Prior to the war, Gaza received roughly 500 daily aid deliveries; it now receives a fraction of that, forcing aid agencies to operate with day-to-day instability. Approximately 400,000 people living in Gaza are facing food insecurity, and are in need of at least 350 aid trucks each day, according to US officials.
Nice. How exactly does the IV play out in AJR (2001)? TIA!
how do you build/have “good institutions” and how useful is that for developing countries to see the importance of democracy when you have China as an example of little to no democracy but with considerable economic growth over the last 20yrs or so?