Month of February, 2008

Speaking of successful cities (see my previous post), the Cities Alliance is collaborating with the World Bank and the Government of Norway to launch an international essay competition for young people (18-25) which asks, “What can you do to shape the city of your dreams?”  Yes, there are cash prizes and finalists get to travel to Cape Town, South Africa this June, all expenses paid by the World Bank.  Submissions are entirely internet-based, and the deadline for submission is March 23, 2008.  What do you have to lose?

New York City Mayor Michael R. Bloomberg was at the World Bank’s Washington, DC headquarters last Thursday to speak on elements of the Big Apple’s success in attracting “the free, global movement of labor, capital and ideas.”  Bloomberg noted that New York has joined more than 700 other American cities in pledging to meet Kyoto protocol standards for carbon reduction – in sharp contrast to the current U.S.

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.   

According to the Bank's recently published Migration and Remittances Factbook, the Top 10 remittance recipients in East Asia & Pacific in 2007 were: China ($25.7 bn), Philippines ($17.0 bn), Indonesia ($6.0 bn), Vietnam ($5.0 bn), Thailand ($1.7 bn), Malaysia ($1.7 bn), Cambodia ($0.3 bn), Mongolia ($0.2 bn), Fiji ($0.2 bn), Myanmar ($0.1 bn).

As you may have heard, our new World Bank Chief Economist is Chinese, so it was with interest that I watched a short interview of him on Bloomberg about China's economy: 

One key point that I picked up is that he also remains optimistic about China's growth prospects in 2008. He answered a question about China after the Olympics, but in his answer he expressed the confidence in China's domestic economy more generally. World growth prospects have come down as the economies of the US and Europe are starting to feel the impact of the financial turmoil triggered by the sub prime problems in the US.

This will have an impact on China's exports and investment in the tradable sector. However, as Justin mentioned, China's domestic economy has pretty robust growth momentum at the moment and this will help support China's overall growth. And, given China's increasing weight in the world economy, this in turn should also help the world economy.

The year 2007 was an important milestone in modern economic history.  While the U.S. grew well, China contributed more to global GDP growth than the U.S. did.  That pattern is likely to continue for the foreseeable future.  Roughly speaking, the U.S. economy is about four times the size of China’s.  If the U.S. grows at 2% -- which is solid for an advanced economy – and China continues to grow at 10+%, then China will be adding more to global GDP each year than any other country.  The same can be said for global trade: China’s imports have risen 28% in the past year, so that it is an increasingly important source of demand for other countries. 

The growing importance of China in the global economy is the main reason that we have launched this China Development Blog.  There is huge interest in the prospects for China and in what is actually happening on the ground here. 

This is an exciting time to be working on climate change, especially in the Bank.

Various conclusive reports and developments in 2007 (the 4th IPCC report, the Nobel Peace Prize, etc) placed the challenge of climate change firmly in the consciousness of the development community. Following on this, the Climate talks in Bali (December 3-14, 2007) confirmed the roadmap for a global effort at addressing the climate challenge, with an agreement on process that included all key players, notably the USA, in whatever emissions control regime was determined as appropriate after the first commitment period of the Kyoto Protocol. This regime will be largely finalized, hopefully, by December 2009.

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).

A few years ago, the research department at the World Bank did an analysis of what kind of information people were searching for on its website.  It found that the single most searched-for word was "China," more than "poverty" or any other country or concept. 

It is not surprising that there is so much interest in China given its tremendous success with growth and poverty reduction.  China is now the leading source of growth in the world economy, so everyone takes interest in its progress.  But another reason why people are looking for information on China is that, until recently, the country had been quite isolated.  One of the main reasons that China is growing so well is that it is emerging from a long period of self-imposed isolation.  Even with the progress with integration made so far, there is still a lack of knowledge about China in the outside world, and a lack of knowledge about the outside world in China.