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A doubling of poverty, even if only for a year or two, has an impact on infant and child mortality, on schooling rates, and other welfare variables that have long-run consequences. I once calculated that the elasticity of mortality rates with respect to real rice prices (in Sri Lanka and Bangladesh) is about 0.1; that is, if rice prices rise by 10 percent, the mortality rate rises by 1 percent. It’s not hard to understand why: poor people die more frequently when their already diminished nutrient intake gets cut back. They "exit" the population, and thus do not show up in the calculated per capita income a decade later.
My own take on the likely long-run impact is somewhat akin to Vijaya Ramachandran’s comment on the setback to the global cause of accountability and good governance. Except that I think the bigger problem may be on the reputation of market-based solutions. The crisis is likely to cause a serious erosion in the confidence of policymakers in developing countries to prefer market-based approaches to development instead of state-managed approaches.
The "market" now has a bad name, as it did after the Great Depression. Last time this happened, poor countries opted for state planning and an over-reliance on poorly designed and implemented regulations which resulted in several decades of poor economic management and low per capita income growth.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
There are two good reasons to harness the market power of iconic brands. First, policymakers and researchers with evidence-based arguments on migration are struggling to combat the hateful rhetoric of the tabloids. Second, the private sector has an important role to play in ensuring global economic prosperity. Among other things, it should use its power to fight the misinformation, ignorance, and hate directed towards the world’s most vulnerable people.
Rory Stewart MP gave a wise speech about how Britain can play a role in global peace and stability. In my brief response to the Minister, I suggested twelve policies which are within our control which would help create conditions for stronger, more peaceful, more prosperous countries to thrive, and so reduce the risks of future conflict and instability. Here they are.
Emerging market currencies have seen a lot of action over the last few months. India’s rupee has fallen 20% against the dollar, the Indonesian rupiah and the Brazilian real are floundering after falling 15%, and Turkey’s lire has slipped 10%. I invited CGD senior fellows Liliana Rojas-Suarez and Arvind Subramanian to explain what’s driving the fluctuations. Since these economies have mosty been performing pretty well—consistently growing faster than the rich countries—to the untrained eye, the currency slides seem dramatic and unexpected.