investment

Andrew  Leonard posts in his blog an interesting report from journalist Tony Cheng of Al-Jazeera:

China has banned, for environmental reasons, the free hand-out of plastic bags.  As a result, the country’s largest plastic bag factory has closed, throwing 20,000 workers out on the street.  Some see this as posing a dilemma between environment and economy, but I don’t agree that good environmental policies are bad for the economy, just the opposite.  What this case illustrates instead is the dilemma between doing something good for the whole people, but at the expense of adjustment costs borne by a small group – the 20,000 workers and the factory owner. 

Sovereign Wealth Funds (SWFs), government owned investment vehicles typically funded by foreign exchange surpluses or natural resource revenues seem to be in the news about everyday.  Their massive size, rapid growth, and high-profile investments in the U.S. and elsewhere in 2007, has generated this attention.  Some of the SWF investments have been viewed as market stabilizing, for instance the substantial equity investments in large U.S. financial institutions that recently got into financial trouble after the sub-prime mortgage crisis.  However, there is great suspicion from many quarters of the SWFs as being politically motivated and the SWFs currently at the center of the storm are in Asia.   

If you are interested in development economics, here is an interesting puzzle.

According to conventional wisdom, investment is a key ingredient for economic growth. If you invest, you grow - not immediately of course, as everything takes time. If you don’t invest, your economy stagnates.

Basically - so the wisdom goes - the accumulation of physical (e.g.: infrastructure – roads, dams) and human (i.e.: education and health) capital brings about growth and prosperity.

So, what is happening in the Philippines? The Filipino economy is growing fast, but - over the last few years - domestic investment shrunk as a share of GDP. Being an open and growing economy, one must wonder: why the decline? (click on the graph in the top left corner).