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Developement, Doha Developement, Doha cycle, Carnegie cycle, Carnegie model, and all that ! model, and all that !

Jean-Marc Boussard Jean-Marc Boussard

INRA/CIRADINRA/CIRAD

Paris, France Paris, France

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What’s new with the What’s new with the Carnegie model ?Carnegie model ? Methodology : Methodology :

Better data sources and processingBetter data sources and processing Including recent policy developments Including recent policy developments

Unemployment considerationsUnemployment considerations

Conclusions : Conclusions : Benefits of liberalization much smaller Benefits of liberalization much smaller Winners and losers (the poor)Winners and losers (the poor)

Should not be neglected, because: Should not be neglected, because: Compensations unfeasibleCompensations unfeasible Benefits small even with full liberalizationBenefits small even with full liberalization

And yet… And yet…

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And yet, the Carnegie And yet, the Carnegie model is unduly model is unduly optimisticoptimistic The basic assumptions : The basic assumptions :

1/ All prices equate marginal costs 1/ All prices equate marginal costs 2/ All factor prices equate marginal productivity 2/ All factor prices equate marginal productivity

Remark : implies unskilled wage at minimum subsistence cost, as Remark : implies unskilled wage at minimum subsistence cost, as in Malthusin Malthus

Is this tenable ? Two remarks : Is this tenable ? Two remarks : 1/ Small liberalization benefits means either : 1/ Small liberalization benefits means either :

Present situation better than expected, or : Present situation better than expected, or : Wrong model Wrong model

2/ From a dynamic point of view : 2/ From a dynamic point of view : Bankers should lend to the poor, because of high capital Bankers should lend to the poor, because of high capital

productivity productivity Should result in similar techniques everywhere, and the end of Should result in similar techniques everywhere, and the end of

poverty poverty This is not what one can observe This is not what one can observe

Bankers lend to the rich, because they are more likely to Bankers lend to the rich, because they are more likely to reimburse.. reimburse..

Yet, rates of loans to the poor are largeYet, rates of loans to the poor are large Underscores the high marginal productivity of capital for the poorUnderscores the high marginal productivity of capital for the poor

A paradox which should be resolved !A paradox which should be resolved !

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Resolving the paradox Resolving the paradox

Neither a farmer, a banker, or any other Neither a farmer, a banker, or any other entrepreneur is sure of the futureentrepreneur is sure of the future

Means that risk is important and prevents Means that risk is important and prevents borrowingborrowing

The poor are more risk averse and need The poor are more risk averse and need borrowing borrowing

Higher risk aversion known since Bernoulli Higher risk aversion known since Bernoulli Needs for borrowing a consequence of povertyNeeds for borrowing a consequence of poverty

Agricultural prices are more volatileAgricultural prices are more volatile Because of the rigidity of demandBecause of the rigidity of demand Means that price risk is especially importantMeans that price risk is especially important

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Agricultural prices are more Agricultural prices are more volatile:volatile:

Retail price index in large American cities; Base 100 = January 1966 Retail price index in large American cities; Base 100 = January 1966 Constant US $ (deflated by implicit GNP deflator); Sources : Economagic.com; Constant US $ (deflated by implicit GNP deflator); Sources : Economagic.com;

Comparing US tomatoes and car prices

0

100

200

300

400

500

600

700

1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

Cars

Tomatoes

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Capital accumulation as Capital accumulation as the central problem of the central problem of development development

No development without capital No development without capital Real, not financial capital, private (machines, etc.. ) or public Real, not financial capital, private (machines, etc.. ) or public

(infrastructures, education, etc....)(infrastructures, education, etc....) The only possibility for increasing the productivity of laborThe only possibility for increasing the productivity of labor In agriculture, would allow for shifting manpower from food to In agriculture, would allow for shifting manpower from food to

other goods production, as was done in Europe or in the US. other goods production, as was done in Europe or in the US. Poor farmers as development target : Poor farmers as development target :

Deprived of capital; Deprived of capital; Cannot invest from own income : must borrowCannot invest from own income : must borrow Cannot borrow because of especially large risk Cannot borrow because of especially large risk

Hence, risk management the key factorHence, risk management the key factor Practiced by European and American governments since the Practiced by European and American governments since the

1616th th century (Cromwell; Roosevelt)century (Cromwell; Roosevelt) Ignored from models ! Ignored from models ! Forbidden by WTO and international organizations Forbidden by WTO and international organizations

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In conclusion : which In conclusion : which model for trade and model for trade and development ?development ? WTO should devote attention to risk WTO should devote attention to risk

management and long run considerationsmanagement and long run considerations Using models capable of evaluating the benefits of Using models capable of evaluating the benefits of

stabilization stabilization

Models should be designed differentlyModels should be designed differently Dynamic components (for development id a dynamic Dynamic components (for development id a dynamic

problem)problem) Risk components Risk components Financial components including : Financial components including :

– Individual borrowing Individual borrowing – rate of exchange and FDI’s. rate of exchange and FDI’s.

Role of State in investment Role of State in investment – In present models, governments are just parasites In present models, governments are just parasites – Now public investment crucial for public goods (research, Now public investment crucial for public goods (research,

roads, etc..), risk bearing and long run commitmentsroads, etc..), risk bearing and long run commitments

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Thank you for your Thank you for your attention ! attention !