May 05, 2003

Q&A: Global Investment and Development

Question: how can investment in information technology be adjusted so that it is good for the entire developing world, and not just for the industrial core and for small enclaves like Bangalore?

Answer: It's a huge problem. Investment in the developing world depends on (a) financiers placing large bets on developing-country growth, or (b) developing countries successfully exporting to earn the hard currency to buy the capital equipment they need. It's hard to see the first happening as long as large U.S. budget deficits and huge U.S. trade deficits mean that the U.S. is not just the only working cylinder for global growth but also a vacuum cleaner sucking up every loose financial dollar. As far as the second--Pervez Musharraf of Pakistan asked for one important thing in October 2001: an increase in Pakistan's textile export quota. He didn't get it, even though a Pakistani working in a textile factory is one who is not studying in a fundamentalist madrassah.

Posted by DeLong at May 5, 2003 04:41 PM | TrackBack

Comments

Have you just applied the "lump of labour" fallacy to global finance--namely that there is only so much money to go around? Yes, the US has a huge net capital inflow; there are huge outflows, though. (Unfortunately they almost entirely go to the two other parts of the G-3. Your analysis also ignores Europe, which places far more of its capital in the developing world than the United States does.

The second point is spot-on, almost. The US should have done away with quotas a long time ago, and it should embrace unilateral free trade. In the short-run, though, such a policy would worsen the current-account deficit. Sigh. Sometimes you can't win.

Posted by: Damien Smth on May 5, 2003 05:52 PM

"He didn't get it, even though a Pakistani working in a textile factory is one who is not studying in a fundamentalist madrassah."

Exactly. What's disturbing is that in some circles nowadays even to make such a connection is to risk being branded a supporter of Islamic fundamentalism: as if the attempt to explain the reasons for its appeal constitutes an endorsement of Islamic fundamentalism.

Posted by: Invisible Adjunct on May 5, 2003 06:46 PM

Those aren't the only possibilities. For instance, consider the methods used by Japan after that was opened up. Sure, the methods may not all be realistic - but the point is that neither are those two, and the object of the exercise is to lay out all the options and see why they aren't realistic and what could change about that. So things like local raising of capital and retaining of earnings should be on the list; any other approach is selecting what is up for consideration.

Posted by: P.M.Lawrence on May 5, 2003 06:53 PM

DeLong has dropped the other shoe in a brilliant critique of the Bush fiscal stimulus and Glenn Hubbard's feeble defense. Hubbard suggests that foreign investment will replace the fall in our national savings. William Gale has noted that this still means a reduction in U.S. GNP growth as now those profits from capital located in the U.S. will be owned by foreigners. But the more important point is that our lack of savings means less overall world investment. And Bush's economists call this a growth package?

Posted by: Hal McClure on May 6, 2003 10:14 AM

"The more important point is that our lack of savings means less overall world investment."

Just so....

Posted by: anne on May 6, 2003 12:07 PM

Would it be possible to offer a tax cut to the "rich" if you made it a requirement that they purchase American bond debt with the money?

Posted by: nkirsch on May 6, 2003 07:55 PM

Would it be possible to offer a tax cut to the "rich" if you made it a requirement that they purchase American bond debt with the money?

Posted by: nkirsch on May 6, 2003 07:56 PM

nkirsch, if I correctly understood other posts on tax cuts, that is what the rich do with their money, and it add to the total debt.

DSW

Posted by: Antoni Jaume on May 7, 2003 11:54 AM
Post a comment