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A very interesting study from @WorldBankECA (full study
https://bit.ly/2YOrei4 ). Much to agree with but also some points about which I am more than a little sceptical. /Thread
/ https://twitter.com/eurasianet/status/1357461186330075139
https://bit.ly/2YOrei4 ). Much to agree with but also some points about which I am more than a little sceptical. /Thread/ https://twitter.com/eurasianet/status/1357461186330075139
1. On the e-rate issue, paper is surely correct. Remittances can induce a sort of Dutch disease effect (as can ODA flows).
2. Ditto the impact on labour supply in sending countries (remaining spouses may have more domestic burdens, young people more opportunity to study, etc).
2. Ditto the impact on labour supply in sending countries (remaining spouses may have more domestic burdens, young people more opportunity to study, etc).
3. There should also be an effect on wages--if a large part of the work force leaves, because it finds higher wages abroad, that will generate upward pressure on wages at home. So far so good. BUT
4. The focus on unit labour costs (ULCs) as key to competitivness looks misguided: per “Kaldor’s Paradox”, there is no evidence of relationship between growth of ULCs and growth of output. A lot of evidence points the other way, implying a v different set of causal relationships.
5. In many analyses, the lower ULCs are, the more competitive an economy is deemed to be. This may make sense at the firm level, but meaning of aggregate ULCs is not so clear. This amounts to saying that the lower the labour share of income, the more competitive an economy is.
That cannot possibly be true. Hence, policies to lower (aggregate) unit labor costs are, effectively, polices to lower the share of labor in total income (and to weaken domestic demand). Therefore...
6. I would turn it around. Thinking this through in a Heckscher-Ohlin framework makes more sense. H-O posits that a country will export goods that are relatively intensive in the factors that it has in abundance and import goods that are intensive in its scarce factors.
7. In the countries under study, domestic conditions and institutions were such that even those countries with an abundance of relatively cheap, low-cost labour could not suddenly occupy niches as exporters of labour-intensive goods.
8. As a result, much of that labour moved abroad: countries exported labour rather than labour-intensive products.
9. The question, then, is not how remittances undermine competitiveness but how domestic institutions and policies so hobbled local firms’ competitiveness that labour moved abroad rather than finding work at home. /end/
