exegesis

Adios, SBIs

2012-01-04T08:23:00.002+07:00

Bank Indonesia is going to scrap the SBI papers (The Jakarta Post, 4/1). The SBIs are short term promissory notes used by the central bank as part of its open-market operations. Thus far, however, these certificates have served more as safe haven to many investors (and even banks) as it carries relatively low risks with more certain yields. Scrapping this will leave the investors with government debt papers - those with higher risks.

As SBI is no longer an effective tool to control the money supply, this move is justified. It obviously will help the central bank cut the costs of its market operation. However, as the alternative, ie the government debt papers, carry higher risks, banks would be more careful. As a consequence, some banks might hedge against the higher uncertainty by keeping interest rate high. These days Bank Indonesia has been urging banks to lower their interest rates, following the consecutive cuts in the central bank's policy rate. While this stands on a shaky ground for justification, the central bankers should realize that scrapping SBI papers might not be in-line with their other objective to reduce the interest rates.

On bonded zones regulations

2012-01-04T08:09:00.000+07:00

The Jakarta Post today (4/1) reported the new regulations on bonded zones. The Ministry of Finance Regulation PMK 147/2011 and PMK 143/2011 have ruled that, among all, 1) bonded zones of less than 10,000 square meters are to be (re-)located in industrial estates, 2) 75% of output should be exported (up from 50%), and 3) firms in bonded zones can do subcontract except for early checking, sorting, final packing or packaging.

The Post reported complaints from business community saying that the regulations are too strict and might backfire to the ongoing practices. They claimed that relocation would mean high costs as they have to re-invest in new plants, etc. I agree. Why doesn't the government just limit point one above to new firms and let the existing ones stay where they are? The businessmen also complain about obligation to export 75% of their outputs. I don't think this complaint is well justified. In fact, the main idea of bonded zones is to facilitate export. So, I actually think it has to be 100%. As for the third point above, I don't think it's necessary to restrict sub-contracting. The firms know what's the most economical way of producing. And they know better than the government. If the production sees it more profitable to sub-contract part of the manufacturing processes out to other firms, then let them do it. The government can just focus on monitoring the flow of goods, namely export.

Picks from The Latest NBER Research (2012-01-02)

2012-01-02T14:17:00.001+07:00

The Competitiveness Impacts of Climate Change Mitigation Policies
by Joseph E. Aldy, William A. Pizer - #17705 (EEE ITI)

http://papers.nber.org/papers/W17705

Abstract:

In order to clarify ongoing debates over the competitiveness impacts of climate change regulation, we develop a precise definition that can be estimated with available domestic production, trade, and energy price data. We use this definition and a 20+ year panel of 400+ U.S. manufacturing industries to estimate and predict the effects a U.S.-only $15 per ton CO2 price. We find competitiveness effects on the order of a 1.0 to 1.3 percent decline in production among energy-intensive manufacturing industries, representing about one-third of the policy's impacts on these firms' output.

==

Organization of Disaster Aid Delivery: Spending Your Donations
by J. Vernon Henderson, Yong Suk Lee - #17707 (PE)

http://papers.nber.org/papers/W17707

Abstract:

This paper analyzes how different organizational structures between funding and implementing agencies affect the quality of aid delivered and social agendas pursued across neighboring villages in a set disaster context. We model the implied objective functions and trade-offs concerning aid quality, aid quantity, and social agendas of different types of agencies. We analyze three waves of survey data on fishermen and fishing villages in Aceh, Indonesia from 2005-2009, following the tsunami. Different organizational structures result in significantly different qualities of hard aid, differential willingness to share aid delivery with other NGOs in a village, and differential promotion of public good objectives and maintenance of village religious and occupational traditions. This is the first time these aspects have been modeled and quantified in the literature. Some well known international NGOs delivered housing with relatively low rates of reported faults such as leaky roofs and cracked walls; others had relatively high rates. For boats, some had very high rates of boat "failure", boats that sank upon launch, were not seaworthy, or fell apart within a month or two. We also document how a social agenda of particular agencies to promote greater equality can be thwarted and distorted by village leaders, potentially increasing inequality.

Trade And Industrialisation After Globalisation's 2nd Unbundling: How Building And Joining A Supply Chain Are Different And
Why It Matters
by Richard Baldwin - #17716 (ITI)

http://papers.nber.org/papers/W17716

Abstract:

Revolutionary transformations of industry and trade occurred from 1985 to the late-1990s - the regionalisation of supply chains. Before 1985, successful industrialisation meant building a domestic supply chain. Today, industrialisers join supply chains and grow rapidly because offshored production brings elements that took Korea and Taiwan decades to develop domestically. These changes have not been fully reflected in "high development theory" - a lacuna that may lead to misinterpretation of data and inattention to important policy questions.

Right diagnosis, wrong prescription

2011-12-28T07:12:00.001+07:00

From Kompas today (28/12) we read that Minister of Agriculture, Suswono, has a solution to Indonesia's low competitiveness in agriculture products. Rightly, he points out that the reason for the low competitiveness is high transportation costs due to poor infrastructure. So, again rightly, the country needs to improve the road infrastructure.

But, now comes the tricky part, he also says that the government is preparing "cheap car for farmers" program. It will sell a 700 cc energy efficient car at the price of Rp 60 million per unit. He believes this will help reduce the costs faced by the farmers - and hence logistics costs will go down, then competitiveness will improve.

Good intention, however, usually comes with unintended consequences. Imagine you're an average farmer. What would you do with such car? I would use it for many activities outside farming. Or I will resell it with some extra margin. Or I will just rent it out in daily basis. So, rather than increasing the productivity of agriculture sector, the car might be good for other things, which leads to lower-than-expected impact on the competitiveness of ag products.

The news also reports that the government is ready for the first 1000 units. Presumably, there will be follow up batches. I wonder if the money can be of better use should it be directed towards improving the road condition, or building railway access to the bulky ag products rather than "cheap car program". We, by the way, experienced a program like this before. It was called "people's car". And it was a major failure.

Pick from The NBER Digest -- December 2011

2011-12-08T09:48:00.001+07:00

ORGAN ALLOCATION POLICY AND ORGAN DONATION DECISIONS

Judd B. Kessler and Alvin E. Roth

The "priority rule," which grants priority on organ waiting lists to those who have previously registered as organ donors, can significantly raise the number of potential donors.
----------------------------------------------------------------------

In Organ Allocation Policy and the Decision to Donate (NBER Working Paper No. 17324), Judd Kessler and Alvin Roth find that an organ allocation policy known as the "priority rule," which grants priority on organ waiting lists to those who have previously registered as organ donors, can significantly raise the number of potential donors. Their results suggest that the priority rule, which is currently used in Singapore and which is being introduced in Israel, is a potentially powerful policy tool for encouraging donor registration.

The researchers devise an experimental game which captures some of the key features of the organ donation problem and collect data when students play this game. Each player begins the experiment with "kidneys" that may, with some probability, "fail" during the game. Players receive monetary compensation for each round of the game in which they remain alive. A player may "die" from "kidney failure" if he cannot obtain donated organs. He may also "die" during the game for other reasons - that creates a potential supply of donors whose "kidneys" may be assigned to still-living players who face organ failure. A player gives up some money if he registers to donate his "kidneys" in the event of death -- this captures what the authors view as the psychic cost of registering as an organ donor. A larger pool of potential donors conveys benefits for all players, because it raises the likelihood that if a player experiences "kidney failure" a replacement organ will be available.

The authors compare the effect of reducing this cost of donation, which in their game is a monetary cost, with the effect of adopting a priority rule. Both approaches increase the number of registered donors, but the "priority rule" performs at least as well as, and sometimes better than, an equivalent decrease in the cost of donation. The authors try introducing the priority rule after subjects have made donation decisions a number of times, as well as at the start of the game. In the latter case, the increased performance of the priority rule is even greater. With regard to actual policy design, Kessler and Roth point out that one advantage of the priority rule over strategies for compensating registered donors, and thereby reducing their costs of registering, is that the priority rule seems feasible and can be implemented without any additional costs to the system.

--Matt Nesvisky

http://papers.nber.org/papers/W17324

Mitigating the crisis?

2011-12-03T07:15:00.001+07:00

Kompas today (3/12) reports that the government is preparing a mitigation scenario to anticipate the impact of the crisis of Eurozone on Indonesia. Good.

But some of the efforts listed in the newspaper might not be feasible. For example, budget absorption. The state budget aims a deficit of 2.1% this year. That translates into around IDR 150 trillion. The last updated data of government expenditure that I have shows by October the net spending totaled to positive IDR 4.8 trillion. Now we've entered December. I don't think the government can meet the deficit target - just like in the previous years.

Secondly, the news mentions about Chiang Mai Initiative Multilateralization. This is still a tall order. In the midst of the Lehman crisis, nobody could use it, due to small scale amount of fund and more importantly, the strict conditionality linked to IMF if you asked a bigger amount. Until CMIM is reformed further, it will not serve as a good shock cushion in the region. We still remember that Korea didn't get helped from Chiang Mai. They got it from US Fed.

Our product is expensive. We demand yours to be equally expensive

2011-12-02T07:23:00.001+07:00

Minister of Trade Gita Wiryawan, as quoted by Kompas (2/12) said that foreign products should not enter directly into "the heart of Java", namely Jakarta. Because, here is his reason: our Pontianak mandarin orange has to take a rough and long way to Jakarta leading to its expensive price. So foreign goods should also experience the same difficulty. The policy to do that is to send foreign goods to a quarantine located far from Java.

So, by Gita's logic, if our product is expensive, we should tell foreign products to be equally expensive. His solution is not to fix the root of the problem, i.e the poor infrastructure and logistics across regions in Indonesia, but rather to punish the more efficient albeit foreign products at the cost of domestic consumers' welfare.

Very bad, Minister.

Addendum: On the same newspaper, Chairman of Indonesia's Transportation Community Danang Parikesit offers a better solution: improve the transportation infrastructure. The Deputy Head of Indonesian Chamber of Commerce and Trade Natsir Mansyur shares this view, namely to improve on the logistics. Way to go, gentlemen.

Picks from The Latest NBER Research (2011-11-28)

2011-11-29T14:42:00.001+07:00

The Euro and European Economic Conditions
by Martin S. Feldstein - #17617 (EFG IFM ME)

http://papers.nber.org/papers/W17617

Abstract:

The creation of the euro should now be recognized as an experiment that has led to the sovereign debt crisis in several countries, the fragile condition of major European banks, the high levels of unemployment, and the large trade deficits that now exist in most Eurozone countries. Although the European Central Bank managed the euro in a way that achieved a low rate of inflation, other countries both in Europe and elsewhere have also had a decade of low inflation without incurring the costs of a monetary union.

The emergence of these problems just a dozen years after the start of the euro in 1999 was not an accident or the result of bureaucratic mismanagement but the inevitable consequence of imposing a single currency on a very heterogeneous group of countries, a heterogeneity that includes not only economic structures but also fiscal traditions and social attitudes.

This paper reviews (1) the reasons for these economic problems, (2) the political origins of the European Monetary Union, (3) the current attempts to solve the sovereign debt problem, (4) the long-term problem of inter-country differences of productivity growth and competitiveness, (5) the special problems of Greece and Italy, (6) and the pros and cons of a Greek departure from the Eurozone.

=====

Diversity and Donations: The Effect of Religious and Ethnic Diversity on Charitable Giving
by James Andreoni, Abigail Payne, Justin D. Smith, David Karp - #17618 (PE)
http://papers.nber.org/papers/W17618

Abstract:

We explore the effects of local ethnic and religious diversity on individual donations to private charities. Using 10-year
neighborhood-level panels derived from personal tax records in Canada, we find that diversity has a detrimental effect on charitable donations. A 10 percentage point increase in ethnic diversity reduces donations by 14%, and a 10 percentage point increase in religious diversity reduces donations by 10%. The ethnic diversity effect is driven by a within-group disposition among non-minorities, and is most evident in high income, but low education areas. The religious diversity effect is driven by a within-group disposition among Catholics, and is concentrated in high income and high education areas. Despite these large effects on amount donated, we find no evidence that increasing diversity affects the fraction of households that donate. Over the period studied, ethnic diversity rises by 6 percentage points and religious diversity rises by 4 percentage points; our results suggest that charities receive about 12% less in total donations. As areas like North America continue to grow more diverse over time, our results imply that these demographic changes may have significant implications for the charitable sector.

Picks from The Latest NBER Research (2011-11-14)

2011-11-14T14:01:00.001+07:00

Substitution and Stigma: Evidence on Religious Competition from the Catholic Sex-Abuse Scandal
by Daniel M. Hungerman - http://papers.nber.org/papers/W17589

Abstract:

This paper considers substituting one charitable activity for another in the context of religious practice. I examine the impact of the Catholic Church sex-abuse scandal on both Catholic and non-Catholic religiosity. I find that the scandal led to a 2-million-member fall in the Catholic population that was compensated by an increase in non-Catholic participation and by an increase in non-affiliation. Back-of-the-envelope calculations suggest the scandal generated over 3 billion dollars in donations to non-Catholic faiths. Those substituting out of Catholicism frequently chose highly dissimilar
alternatives; for example, Baptist churches gained significantly from the scandal while the Episcopal Church did not. These results challenge several theories of religious participation and suggest that regulatory policies or other shocks specific to one religious group could have important spillover effects on other religious groups.

==

Trade Prices and the Global Trade Collapse of 2008-2009
by Gita Gopinath, Oleg Itskhoki, Brent Neiman http://papers.nber.org/papers/W17594

Abstract:

We document the behavior of trade prices during the Great Trade Collapse of 2008-2009 using transaction-level data from the U.S. Bureau of Labor Statistics. First, we find that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade volumes. Prices of non-differentiated manufactures, by contrast, declined sharply. Second, while the trade collapse was much steeper among differentiated durable manufacturers than among non-durables, prices in both categories barely changed. Third, despite this lack of movement in average price levels, the frequency and magnitude of price adjustments at the product level noticeably changed with the
onset of the crisis.

==

Gold Sterilization and the Recession of 1937-38
by Douglas A. Irwin http://papers.nber.org/papers/W17595

Abstract:

The Recession of 1937-38 is often cited as illustrating the dangers of withdrawing fiscal and monetary stimulus too early in a weak recovery. Yet our understanding of this severe downturn is incomplete: existing studies find that changes in fiscal policy were small in comparison to the magnitude of the downturn and that higher reserve requirements were not binding on banks. This paper focuses on a neglected change in monetary policy, the sterilization of gold inflows during 1937, and finds that it exerted a powerful contractionary force during this period. The transmission of this monetary shock to the real economy appears to have worked through lower asset (equity) prices and higher interest rates.

New comment note

2011-10-24T19:00:00.001+07:00

Arianto A. Patunru, 2011. "Comments", a comment to Yung Chul Park and Chi-Young Son, "Renminbi Internalization: Prospect and Implications for Economic Integration in East Asia", Asian Economic Papers, 10(3): 73-4

Upcoming seminar

2011-10-24T10:45:00.001+07:00

Paris conference this weekend here

Crossing or Turning Point?

2011-08-30T00:50:00.001+07:00

Got an email, kind of blessing. Significant change in life path is coming.

Picked from The Latest NBER Research (2011-07-25)

2011-08-02T10:53:00.001+07:00

1. Network Stability, Network Externalities and Technology Adoption
by Catherine Tucker - #17246 (PR) http://papers.nber.org/papers/W17246

This paper investigates how the destabilizing of a social network may increase the scope of network externalities, using data on sales of a video-calling system made to an investment bank's employees and subsequent usage by these customers. The terrorist attacks of 2001 led potential customers in New York to start communicating with a new and less predictable set of people when their work teams were reorganized as a result of the physical displacement that resulted from the attacks. This did not happen in other comparable cities. These destabilized communication patterns were associated with potential adopters in New York being more likely to take into account a wider spectrum of the user base when deciding whether to adopt relative to those in other cities. Empirical analysis suggests that the aggregate effect of network externalities on adoption was doubled by this instability.

2. The Value of Honesty: Empirical Estimates from the Case of the Missing Children
by Sara LaLumia, James M. Sallee - #17247 (PE) http://papers.nber.org/papers/W17247

How much are people willing to forego to be honest, to follow the rules? When people do break the rules, what can standard data sources tell us about their behavior? Standard economic models of crime typically assume that individuals are indifferent to dishonesty, so that they will cheat or lie as long as the expected pecuniary benefits exceed the expected costs of being caught and punished. We
investigate this presumption by studying the response to a change in tax reporting rules that made it much more difficult for taxpayers to evade taxes by inappropriately claiming additional dependents. The policy reform induced a substantial reduction in the number of
dependents claimed, which indicates that many filers had been cheating before the reform. Yet, the number of filers who availed themselves of this evasion opportunity is dwarfed by the number of filers who passed up substantial tax savings by not claiming extra
dependents. By declining the opportunity to cheat, these taxpayers reveal information about their willingness to pay to be honest. We
present a novel method for inferring the characteristics of taxpayers in the absence of audit data. Our analysis suggests both that this willingness to pay to be honest is large on average and that it varies significantly across the population of taxpayers.

Influential papers

2011-08-02T10:22:00.001+07:00

Just came across this ranking of top influential economic papers. In restrospect, I think I wasn't too far off the literature then, luckily. My senior undergraduate thesis ("skripsi") - hence long time ago - built on the works of Lucas (number 1 on the list), MRW (#4), and Romer (#5, #6). But to my surprise, the key reference of all these works (and hence mine), i.e. Solow's neoclassical growth model is not on the list.

RIP: Jamie Mackie

2011-05-06T08:36:00.001+07:00

One of the most enlightened Indonesianists, Jamie Mackie passed away on April 21st, 2011.

Today The Jakarta Post runs a nice obit written by Thee Kian Wie.

I'm grateful to have known Jamie. He once commented on my draft paper. A rarity, for it was like a master giving a tap on a rookie's shoulder.

Rest in peace, Pak Jamie.

A Pick from The Latest NBER Research (2011-04-25)

2011-04-26T10:44:00.001+07:00

Exporting Christianity: Governance and Doctrine in the Globalization of US Denominations
by Gordon H. Hanson, Chong Xiang - #16964 (ITI)
http://papers.nber.org/papers/W16964

Abstract:

In this paper we build a model of market competition among religious denominations, using a framework that involves incomplete contracts and the production of club goods. We treat denominations akin to multinational enterprises, which decide which countries to enter based on local market conditions and their own "productivity." The model yields predictions for how a denomination's religious doctrine and governance structure affect its ability to attract adherents. We test these predictions using data on the foreign operations of US Protestant denominations in 2005 from the World Christian Database. Consistent with the model, we find that (1) denominations with stricter religious doctrine attract more adherents in countries in which the risk of natural disaster or disease outbreak is greater and
in which government provision of health services is weaker, and (2) denominations with a decentralized governance structure attract more adherents in countries in which the productivity of pastor effort is higher. These findings shed light on factors determining the
composition of religion within countries, helping account for the rise of new Protestant denominations in recent decades.

JEL Picks (Dec 2010 issue)

2010-12-29T11:00:00.005+07:00

Designing Climate Mitigation Policy

Joseph E. Aldy, Alan J. Krupnick, Richard G. Newell, Ian W. H. Parry and William A. Pizer

This paper provides (for the nonspecialist) a highly streamlined discussion of the main issues, and controversies, in the design of climate mitigation policy. The first part of the paper discusses how much action to reduce greenhouse gas emissions at the global level is efficient under both the cost-effectiveness and welfare-maximizing paradigms. We then discuss various issues in the implementation of domestic emissions control policy, instrument choice, and incentives for technological innovation. Finally, we discuss alternative policy architectures at the international level. (JEL Q54, Q58)

Full-Text Access | Supplementary Materials [AEA membership required to access all links]

Efficiency and Redistribution: An Evaluative Review of Louis Kaplow's The Theory of Taxation and Public Economics

Robin Boadway

Louis Kaplow proposes a two-step methodology for normative policy analysis and illustrates it using various policy reforms. The first step is to identify efficiency gains when hypothetical lump-sum taxes can undo redistributive consequences. The second step evaluates the redistributive effects using a strictly welfaristic social welfare function. I critically review the foundations for Kaplow's procedure and its reliance on strict welfarism. I argue that basing efficiency gains on hypothetical lump-sum tax adjustment can lead to social welfare reducing policies if such tax adjustments are not carried out. I also indicate some conceptual problems with translating welfarism into policy evaluation when individuals have different utility function, and review one promising alternative approach.(JEL H20, H41, H50)

Full-Text Access | Supplementary Materials

Does Network Theory Connect to the Rest of Us? A Review of Matthew O. Jackson's Social and Economic Networks

James E. Rauch

The ubiquity of networks in our social lives has long been recognized, and their importance in our economic lives is increasingly recognized as well. Yet the literature synthesized in Matthew O. Jackson's Social and Economic Networks, which covers the theory of how networks form, decay, and shape behavior at a general level, has had little influence on either applied theory or empirical work in this area. This is partly because of limitations of network theory as it has evolved in this literature. After describing the network theory presented in the book, I discuss these limitations and make some tentative suggestions as to how they might be overcome. (JEL D85, L14, Z13)

Full-Text Access | Supplementary Materials

Why Isn't Mexico Rich? [this was linked in this blog before as an NBER working paper] Gordon H. Hanson

Over the last three decades, Mexico has aggressively reformed its economy, opening to foreign trade and investment, achieving fiscal discipline, and privatizing state owned enterprises. Despite these efforts, the country's economic growth has been lackluster, trailing that of many other developing nations. In this paper, I review arguments for why Mexico hasn't sustained higher rates of economic growth. The most prominent suggest that some combination of poorly functioning credit markets, distortions in the supply of nontraded inputs, and perverse incentives for informality creates a drag on productivity growth. These are factors internal to Mexico. One possible external factor is that the country has the bad luck of exporting goods that China sells, rather than goods that China buys. I assess evidence from recent literature on these arguments and suggest directions for future research. (JEL E23, E65, F14, O10, O20, O47)

Full-Text Access | Supplementary Materials

Why Have Economic Reforms in Mexico Not Generated Growth?

Timothy J. Kehoe and Kim J. Ruhl

Following its opening to trade and foreign investment in the mid-1980s, Mexico's economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico's real GDP per working-age person. (JEL E23, E65, F14, O10, O20, O47)

Full-Text Access | Supplementary Materials

NBER picks this week: Arrow et al and Baldwin

2010-12-18T09:45:00.001+07:00

Sustainability and the Measurement of Wealth
by Kenneth J. Arrow, Partha Dasgupta, Lawrence H. Goulder, Kevin J. Mumford, Kirsten Oleson - #16599 (EEE EFG)

Abstract:

We develop a consistent and comprehensive theoretical framework for assessing whether economic growth is compatible with sustaining well-being over time. The framework focuses on whether a comprehensive measure of wealth - one that accounts for natural
capital and human capital as well as reproducible capital - is maintained through time. Our framework also integrates population
growth, technological change, and changes in health. We apply the framework to five countries that differ significantly in stages of
development and resource bases: the United States, China, Brazil, India, and Venezuela. With the exception of Venezuela, significant
increases in human capital enable comprehensive wealth to be maintained (and sustainability to be achieved) despite significant
reductions in the natural resource base. We find that the value of "health capital" is very large relative to other forms of capital.
As a result, its growth rate critically influences the growth rate of per-capita comprehensive wealth.

http://papers.nber.org/papers/W16599

Unilateral Tariff Liberalisation
by Richard Baldwin - #16600 (ITI)

Abstract:

Unilateral tariff liberalisation by developing nations is pervasive but our understanding of it is shallow. This paper strives to partly
redress this lacuna on the theory side by introducing three novel political economy mechanisms with particular emphasis is on the role
of production unbundling. One mechanism studies how lowering frictional barriers to imported parts can destroy the correlation of
interests between parts producers and their downstream customers. A second mechanism studies how Kojima's pro-trade FDI raises the political economy cost of maintaining high upstream barriers. The third works via a general equilibrium channel whereby developing
country's participation in the supply chains of advanced-nation industries undermines their own competitiveness in final goods, thus
making final good protection more politically costly. In essence, developing nations' pursuit of the export-processing industrialisation undermines their infant-industry industrialisation strategies.

http://papers.nber.org/papers/W16600

McCulloch on Deaton

2010-12-18T08:52:00.001+07:00

Interesting read:

Angus Deaton's paper is fascinating – and depressing in almost equal measure. Deaton is the nearest thing to God in the field of measuring development. He is perhaps the single most respected economist working in this field having built a reputation over decades for his meticulous unpicking of all manner of development data – when Deaton says something, you listen.

That is from my colleague Neil McCulloch. Read here

Terms of endearment?

2010-11-16T15:41:00.001+07:00

From NBER Research.

Terms of Endearment: An Equilibrium Model of Sex and Matching
by Peter Arcidiacono, Andrew W. Beauchamp, Marjorie B. McElroy - #16517

Abstract:

We develop a directed search model of relationship formation which
can disentangle male and female preferences for types of partners and
for different relationship terms using only a cross-section of
observed matches. Individuals direct their search to a particular
type of match on the basis of (i) the terms of the relationship, (ii)
the type of partner, and (iii) the endogenously determined
probability of matching. If men outnumber women, they tend to trade
a low probability of a preferred match for a high probability of a
less-preferred match; the analogous statement holds for women. Using
data from National Longitudinal Study of Adolescent Health we
estimate the equilibrium matching model with high school
relationships. Variation in gender ratios is used to uncover male
and female preferences. Estimates from the structural model match
subjective data on whether sex would occur in one's ideal
relationship. The equilibrium result shows that some women would
ideally not have sex, but do so out of matching concerns; the reverse
is true for men.

http://papers.nber.org/papers/W16517

Most recent thorough overview on Indonesia's growth dynamics

2010-11-16T15:18:00.001+07:00

From the inbox:

Indonesia's Growth Dynamics

M. Chatib Basri and Hal Hill

Working Paper in Trade and Development No. 2010/10, Australian National University

This paper provides an analytical narrative of Indonesian economic growth over the past two decades. Particular attention is paid to the key economic crisis events of 1997-98 and 2008-09, and how and why Indonesia's response to them was completely different. We emphasize and illustrate how the years 1997-98 were a watershed in the country's economic history and political economy. We underline the country's generally good economic performance, especially the rapid recovery over the past decade, while also highlighting the fact that its economic growth has never quite matched that of the very high growth East Asian economies. The final section analyzes some key policy challenges, including embedding reforms in a highly fluid political environment, maintaining a broadly open commercial policy regime, the regional and international architecture, macroeconomic management, and 'connectivity' and regional (sub- national) development.

The paper is forthcoming in Asian Economic Policy Review

Decentralization: friend or not-yet?

2010-11-16T14:49:00.001+07:00

From the inbox:

Decentralization and Economic Performance in Indonesia

Thomas B Pepinsky and Maria M Wihardja (2010)

Indonesia's 1999 decentralization law gave local governments in Indonesia an unprecedented opportunity to adopt pro-development policies. We estimate the effect of decentralization (enacted in 2001) on national economic performance using a synthetic case control methodology. Our results indicate that decentralization has had no discernable effect on Indonesia's economic output as measured by gross domestic product. To explain this finding, we use subnational data to probe two mechanisms—interjurisdictional competition and democratic accountability—that underlie all theories linking decentralization to better economic outcomes. Our findings suggest that extreme heterogeneity in endowments, factor immobility, and the endogenous deterioration of local institutions can each undermine the supposed development-enhancing promises of decentralized government in developing countries.

Another call for more case studies, I suppose.

From Yokohama for Doha

2010-11-16T14:39:00.001+07:00

Excerpt from APEC Economic Leaders' Declaration as a result of the Yokohama meeting in November 13-14, 2010:

We reaffirm our strong commitment to bring the Doha Development Agenda to a prompt and successful conclusion. Bearing in mind that 2011 will be a critically important "window of opportunity," we direct our Ministers to empower our representatives to engage in comprehensive negotiations with a sense of urgency in the end game, built on the progress achieved, including with regard to modalities, consistent with the Doha mandate. We affirm our commitment to win domestic support in our respective systems for a strong agreement. In our continued efforts to resist protectionism, we agree to extend our commitment on standstill made in 2008 to the end of 2013 to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization inconsistent measures in all areas, including those that stimulate exports. We commit to take steps to rollback trade distorting measures introduced during the crisis. Furthermore, we will continue to exercise maximum restraint in implementing measures that may be considered to be consistent with WTO provisions if they have a significant protectionist effect and promptly rectify such measures where implemented.

Good.

Is being formal good?

2010-11-16T03:12:00.002+07:00

New in inbox:

In this paper we analyze the decision of small and micro firms to formalize, i.e. to obtain business and other licenses in rural Indonesia. We use the rural investment climate survey (RICS) that consists of non-farm rural enterprises, most of them microenterprises, and analyze the effect of formalization on tax payments, corruption, access to credit and revenue, taking into account the endogeneity of the formalization decision to such benefits and costs. We show, contrary to most of the literature, that formalization reduces tax and corruption payments. The benefits of formalization, and therefore the likelihood of being formal, also depend on characteristics such as firm size, as well as the education and ethnicity of the owner.

That is the abstract of a new paper by Neil McCulloch, Günther G. Schulze, and Janina Voss, "What Determines Firms' Decision to Formalize? Evidence from Rural Indonesia" (2010), Discussion Paper Series Nr. 13, Department of International Economic Policy, University of Freiburg, Germany.

China facts 10/23

2010-10-27T04:57:00.001+07:00

Chinese Academy of Social Sciences reports that the number of people above 60 years of age would cross 200 million sometime between 2011 and 2015, while those between 15 and 64 years old drop 23%. China's "baby boomers" generation will start retiring by 2015. Demographic bonus will expire in 2025. The working age population will peak in 2020, totaling 940 million. Population may reach 1.46 billion in 2035 (via China Daily)

Papers to read

2010-10-26T10:39:00.001+07:00

Bend It Like Beckham: Ethnic Identity and Integration
by Alberto Bisin, Eleonora Patacchini, Thierry Verdier, Yves Zenou - #16465 (POL)

Abstract:

We propose a theoretical framework to study the determinants of ethnic and religious identity along two distinct motivational processes which have been proposed in the social sciences: cultural conformity and cultural distinction. Under cultural conformity, ethnic identity is reduced by neighborhood integration, which weakens group loyalties and prejudices. On the contrary, under cultural distinction, ethnic minorities are more motivated in retaining their own distinctive cultural heritage the more integrated are the neighborhoods where they reside and work. Data on ethnic preferences and attitudes provided by the Fourth National Survey of Ethnic Minorities in the UK enables us to test the relative significance of these two identity processes. We find evidence consistent with intense ethnic and religious identity mostly formed as a cultural distinction mechanism. Consistently, we document that ethnic identities are more intense in mixed than in segregated neighborhoods.

http://papers.nber.org/papers/W16465

Why Isn't Mexico Rich?
by Gordon H. Hanson - #16470 (ITI)

Abstract:

Over the last three decades, Mexico has aggressively reformed its economy, opening to foreign trade and investment, achieving fiscal discipline, and privatizing state owned enterprises. Despite these efforts, the country's economic growth has been lackluster, trailing that of many other developing nations. In this paper, I review arguments for why Mexico hasn't sustained higher rates of economic growth. The most prominent suggest that some combination of poorly functioning credit markets, distortions in the supply of non traded inputs, and perverse incentives for informality creates a drag on productivity growth. These are factors internal to Mexico. One possible external factor is that the country has the bad luck of exporting goods that China sells, rather than goods that China buys. I assess evidence from recent literature on these arguments and suggest directions for future research.

http://papers.nber.org/papers/W16470

2020

2010-10-12T15:24:00.001+07:00

According to The Economist, in 2020 the (median) age on an Indian is 28, Chinese 37, American 38, European 45, and Japan 49.

Paper to read

2010-08-23T18:24:00.001+07:00

Does Culture Matter?
by Raquel Fernandez - #16277 (EFG LE LS PE POL)

Abstract:

This paper reviews the literature on culture and economics, focusing primarily on the epidemiological approach. The epidemiological approach studies the variation in outcomes across different immigrant groups residing in the same country. Immigrants presumably differ in their cultures but share a common institutional and economic environment. This allows one to separate the effect of culture from
the original economic and institutional environment. This approach has been used to study a variety of issues, including female labor force participaiton, fertility, labor market regulation, redistribution, growth, and financial development among others.

http://papers.nber.org/papers/W16277

The Duck, The City, and The Chairman

2010-08-17T03:11:00.002+07:00

The Duck, The City, and The Chairman

Posted in Facebook by Arianto A. Patunru on Sunday, October 25, 2009 at 5:11pm

“What’s up, Mister Chairman? Long time no see!”
“Ni-ho-ma? How’re you doing?”
“Great, Chairman. Just finished with a conference on…”
“Crisis? I bet you did! Seriously, don’t you people have anything else to do? This crisis is peanuts! It’s a small, tiny hiccup for China!”
“I reckoned that, Sir. I can’t believe you rebounded that quickly! Approaching two digits again next year? Impressive!”
“That’s okay. Singapore would impress you, too. And look at your own country; it’s also doing very well. So what crisis are you guys talking about? C’mon, we’ve seen harder times, have we not? Don’t be sissy…”
“Yes, Sir…”
“So now, how do you like your visit?”
“Well, it’s fantastic! I didn’t get the chance to see the Great Wall, nor could I go to the Forbidden City – conference was tight. But I sneaked out to Tiananmen Square and …”
“Ah, those stuff. Standard! You can visit them anytime. They’re eternal. But how about food? Now, that is important…”
“Sure thing, Chairman. This great conference organizer took us to Duck King…”
“Wait! Did you just say Duck King? The one in Beijing? The original, authentic, first-timer Duck King? No kidding!”
“You heard me, Chairman. Duck King. The original Peking Duck, Beijing’s most precious gift to the entire civilization!”
“Ah, that is an understatement, my friend. We believe God has created only ten sets of masterpiece in the history of universe. Two of them are Peking ducks and Chinese cooks. They are so good I don’t really care about the remaining eight…”
“Well, that sounds a bit of an exaggeration, Sir. But I won’t argue you on that. As a matter of fact, we have this best restaurant in Jakarta serving Peking duck. Now I feel like I have been cheated the entire time. Why can’t they make it like this here?”
“Hahaha… that’s true. We can make iPhones better than Americans and send them out to the world. We make Lenovos, send them out. We even created the ugly looking Crocs and made you East Asians love ‘em. But listen, dude. You want Pecking duck, you come eat it here. Right in Beijing! Because Beijing, the duck, and the cook are one package, my friend! They’re perfect complements as you economists would call ‘em”
“I guess you’re right, Mr. Mao”
…
“Now what else have you seen?”
“Oh, I have this friend from newspaper. She took us to … let me remember the name … ah, Shichahai! It’s a really cool place, they have…”
“Oh, that! Of course. I love that place too. Where else can you relax, sipping Chinese tea, and listening to Santana? And they’ve got Starbucks, too, you noticed?”
“Yup. Your country is so globalized…”
“Excuse me? Watch your words, young man. You are in the most capitalistic country in the world! Did I say we invented … well, we made iPhone? Do you know we have our own state in US called Walmart? And by the way, that Blackberry you Indonesians are so crazy about? Man, that thing’s ridiculously expensive! Them Canadians are ripping you off. What are they, bloodsuckers? Just be patient, we’ll make it cheaper very soon!”
“Err, I’m sure you will, Sir”
“Trust me. We’re the most efficient neoliberal in the world”
“You think so?”
“Hell yes! Not only that. We have produced all market icons fancied even by them socialist street activists. Did you see those t-shirts with my picture or Che’s on them? They’re bestsellers! Everybody from London to Buenos Aires, from Jakarta to Caracas buy them. Hail capitalism! Now you tell this to Chavez or that guy Morales”
“I’ll do. And ugh, speaking about t-shirt, I saw one with your trade mark logo – except that they replaced your face with Obama’s…”
“Hahaha! Is that right? Well, I don’t mind. I like this dude Obama. I heard he just won an, what, Oscar?”
“No, it’s the Nobel, Sir”
“Whatever. But see? This guy, I knew he’s got talent. Unlike Bush…”
“Alrite, Chairman. I think I should be boarding now”
“OK. Have a safe flight. Say hi to Soesilo”
“Bye”
“Cai jian!”

Phantomizing Keynes

2010-08-17T03:09:00.000+07:00

Phantomizing Keynes

Posted in Facebook by Arianto A. Patunru on Saturday, May 2, 2009 at 1:26pm

17:00 - 18:30

"Maynard, very nice to meet you"
"Same here. What brings you to London?"
"Some conference. How's life?"
"You mean death? Either way I'm good. What conference are you having?"
"Was. Finished yesterday, that's why I'm here now. It was some kind of reassessment of orthodox and heterodox approaches to investment and growth. Great debate there"
"Ah, that. Boring"
"We talked about you a bit"
"That's not surprising. But rather unfortunate. People remember me only when the economy is in crisis"
"Oh don't be too sentimental, Maynard. Take it as a complement: yes there's a lack of demand and yes monetary policy is rather impotent. A vindication to partof your General Theory, I suppose"
"You have problem with my book?"
"Yes, I do, a bit. Wanna discuss this now?"
"Of course not. We're sipping coffee in Trafalgar Square and you want to talk about liquidity trap? No way"
"Right, Maynard. Let's talk about something more fun then. What are you up to?"
"I'm setting up a school. Call it 'I-Told-You-So-School-of-Economics'. Wanna join?"
"Sounds fun"
"Indeed. I'm hiring Krugman as the department head"
"Not Stiglitz?"
"No, I don't really like that guy"
"And what do you do apart from economics?"
"I'm writing a book about my wife Lydia. Just started it. Hey, what about you. What have you been doing. Apart from economics, I suppose"
"I'm rereading Dostoevsky's Notes from Underground and I just finished Gordimer's Beethoven was One Sixteenth Black"
"Great picks. Underground is different from Dostoevsky's other works. You know me, I like everything different. That's actually the strength of my works: different from mainstream"
"I see..."
"But I haven't read Nadine Gordimer. Is she good? Tell me about thisBeethoven..."
"Sure. Here goes..."

***

18:30 - 19.15

"It's getting colder. What's your plan?"
"Nothing in particular. I'm thinking of some play, Maynard. Any suggestion?"
"Play. Good idea. Anything you fancy?"
"Well I guess I'll go see Phantom of the Opera again. What about you? I heard Ian McKellen is playing Waiting for Godot"
"Yeah, but I've seen it. I'll go see Billy Elliot. Elton John does the scores"
"Now that I have seen twice. So I guess we'll go separate ways?"
"Yes. Shall we meet again afterward?"
"Yes, let's say 23:00?"
"OK. Let's do this. Since Billy is shorter than Phantom and the theater is two stations away from here, I'll come back again to this place..."
"Great. Let's meet up in front of Her Majesty's theater"
"OK, enjoy"
"You too, Maynard"

***

23:00 - 23:15

"Sorry for waiting"
"No, you're alright. Just got here. How's the play?"
"Terrific. How's Billy?"
"Not bad at all. Better than the movie. Tell me about Phantom. Who played Christine?"
"Gina Beck"
"Is she good?"
"Very good. She's amazing"
"Really? Better than Sarah Brightman?"
"Better than Sarah Brightman"
"Glad you enjoyed it. Hey let's go to this new cafe over at Piccadilly. I heard it's great"

***

23:15 - 02:05

"Alright. I'm tired. You're staying in London?"
"No, I'm going back to Brighton. Will fly back to Jakarta tomorrow"
"I'll see. OK then. I'm going back to Bloomsbury. Nice meeting you"
"Same here, Maynard. Keep in contact"

AP to PLN, eh?

2010-08-10T07:35:00.001+07:00

So the embarassing blackouts in CGK is solved: the government orders PLN to takeover the power management in CGK from Angkasa Pura.

As if PLN is good.

On redenomination

2010-08-09T07:22:00.001+07:00

We've got too many zeros on our currency vis-a-vis US dollar. Getting rid of some of them wouldn't hurt. In fact it simplifies our life.

This thought has been around for awhile. The recent brouhaha was just another example of government's bad PR.

2010H2

2010-08-06T08:24:00.001+07:00

Growth data for second quarter is out. It's 6.2% yoy. With 5.7% in Q1, the growth of H1 is therefore 5.9%. GOI's target for 2010 ia 5.8% (BI's is 6.0%). Most likely, it's the latter that holds, if not surpassed.

Inflation in June and July has been higher than expected. As August/Sept will observe fasting month and eid days festivities, yearly inflation might also hit the upper bound (set at 6% by BI), hence a need for some tightening up.

As for employment, GOI expects unemployment to drop to 7.6%. With a growth target of 5.8%, that implies an assumption of 400,000 absorbtion per 1% growth. I guess we're not there yet.

Assignment for the upcoming semester

2010-07-27T15:47:00.001+07:00

S1: Introduction to Microeconomics, co-teach with M. Pangestu (Main text: Mankiw)

S3: Advance Microeconomics (Main text: Mas-Colell)

New paper in BIES

2010-03-19T12:52:00.001+07:00

Survey of Recent Developments

Bulletin of Indonesian Economic Studies 46(1):7-31, 2010

Arianto A. Patunru (University of Indonesia)

Christian von Luebke (Stanford University)

Abstract

Recent political developments are slowing reforms. The Corruption Eradication Commission (KPK) and the finance ministry find themselves entrapped in legal inquiries and political wrangling that seem intended to weaken their reforming zeal. KPK's effectiveness has been undermined by legislative changes and the arrests of three of its commissioners. Meanwhile, the costly bail-out of a small bank has provided an opportunity for attacks on leading reformers - Vice President Boediono and the Minister of Finance, Sri Mulyani Indrawati. The president's diffident stance in both instances has played into the hands of the opposition and, although key reformers are likely to remain in office, the political imbroglio has nonetheless eroded confidence in the government.

Year-on-year GDP growth recovered strongly to 5.4% in the fourth quarter of 2009. Government spending has been the key driver, while household spending slowed and investment remained low. Both exports and imports have returned to modest growth. Although 2009 ended with low inflation, Bank Indonesia (BI) has set its target inflation rate for 2010 at double the rate it achieved in November. BI is likely to bow to populist demands to lower nominal interest rates rather than raising them somewhat to prevent inflation accelerating, even though its real policy rate has been consistent with significant acceleration of GDP growth. The 2009 budget outcomes confirm that the fiscal stimulus in response to the global financial crisis has been less than hoped for. As for 2010, high world oil prices will imply huge subsidies, given that the government is unwilling to increase domestic fuel and electricity prices commensurately.

The president announced that virtually all the government's 'first 100 days' program targets have been met. However, half of the 'action plans' amounted to nothing more than issuing or announcing new regulations, plans, blueprints, guidelines, recommendations or policies, or simply preparing drafts of these. No real progress has been made in relation to the most urgent reforms, particularly on energy subsidies and labour market regulation. Realising that the whole population would benefit in net terms, the previous government signed the ASEAN-China Free Trade Agreement (ACFTA) in November 2004. But just when the agreement was to take effect, strong resistance from business and parliamentarians emerged, leading to the government's decision to re-negotiate many tariffs with China. This is disappointing: failing to uphold its commitments under this long-standing agreement makes Indonesia appear unreliable as an economic partner.

Upcoming gig: Asian Economic Panel

2010-03-15T15:36:00.001+07:00

Seoul, Korea next week:

...

3:30 - 5:00 pm

Yung Chul Park, Korea Univ., "RMB Internationalization: Its implications for
Financial and Monetary Cooperation in East Asia"

Discussant
- Arianto A. Patunru, Univ. of Indonesia

- Georges de Menil, Paris School of Economics

- Vu Quoc Huy, Institute of Economics/National Economics Univ.

Details here.

Broken cartel -- don't tell us you're surprised

2009-12-27T07:22:00.001+07:00

It is growingly clear that the political coalition of parties surrounding SBY is breaking up. The parties involved deny. The president asks the members to respect political ethics. And the usual story goes on.

Surprise?

Some quotes from Time (Bernanke's US Issue) that might as well be explaining Indonesia (ie, SMI-Boediono's rescue act and the noise that follows NOW)

2009-12-25T18:04:00.001+07:00

"History is composed not only of what happened but of what didn't happen. The latter, of course, is impossible to really know" (Stengel, "To Our Readers")

"What we don't know is what the economy and our lives would look like if a few individuals had not acted on our behalf and had simply sat on their hands" (Stengel, "To Our Readers")

"Bank runs are even scarier now that they don't require an actual run on an actual bank. Billins of dollars can be withdrawn with a keystroke, and all sorts of nonbank players ar now dangerously intertwined with financial markets" (Grunwald, "Ben Bernanke")

"Now that the fire is out, it's easy to attack the firefighters for getting the furniture wet or holding their hoses improperly" (Grunwald, "Ben Bernanke")

"This wasn't a war of choice. It was a war of necessity" (Grunwald, quoting Tim Geithner, "Ben Bernanke")

"Bernanke has become a political victim of his apolitical success... It's now up to our dysfunctional political system to let him do his job -- and to fix the financial system so that he never has to save the world again" (Grunwald, "Ben Bernanke")

It's expectation, really

2009-12-24T07:53:00.000+07:00

Alright if you insist Bank Century is small, it is small. If you therefore conclude such a small bank could not bring other banks down with it, then we should discuss about another concept: systemic risk.

For wonkish, go google Diamond-Dybvig model.

But let's make it easier. Some people seem to think "systemic risk" here means the bank is related to other banks and therefore can affect the latter in a contagious process. Maybe I'm wrong, but Burhanuddin Abdullah and Anwar Nasution seemed to use this concept in their hearing with DPR's Pansus. According to their logic, since BC is small, it couldn't have systemic risk whatsover.

Some others believe it is expectation that really matters. (I got that impression from for example Boediono's and Miranda Goeltom's responses to questions from DPR's Pansus). As a depositor in Bank A, you, a risk-averse person (and by the way, that's a fair generalization), would feel anxious when you see people run Bank B across the street. No matter how small Bank B is and no matter how unrelated Bank A and Bank B is. The only connection between the two banks is what we call human expectation, driven by the act of observing something that you then expect might happen to you, too. Your reaction can vary. If, by any chance, you have the information that general situation is manageable (eg there hasn't been any news about world struck by crisis or something; or any other relevant information), you might not withdraw your money from Bank A. Yet. But, in many cases, you can't have full information on whether or not the situation is "manageable". It can take only a couple of depositors loudly saying "Gee, that bank is falling! This bank is next, I'm gonna withdraw!". Before you know it, Bank A is rushed, too. Then Bank C, D, so forth. It is therefore "systemic". This latter situation is sometimes affected by your perception on the authority, in this case Bank Indonesia and MOF. When you know (or are told) that BI and MOF are short of liquidity and fiscal capacity to deal with a crisis, your incentive to quickly withdraw and save your money at home rather than bank increases. In other time, you think BI and MOF can handle the situation well (even if Bank B is rushed, their depositors are saved, etc), in which case, your incentive to withdraw is relatively small.

So, it's about expectation. I'm more persuaded by this second understanding about the word "systemic risk".

Dahlan Iskan as new PLN Chief

2009-12-24T07:18:00.000+07:00

The government has just inaugurated Dahlan Iskan as the new chief of PLN. He was the man behind the success of Jawa Pos, a media group. Beyond that, I don't know much about him. I just learned from today's news that he has served as president director of two independent power producers in East Kalimantan and Surabaya (The Jakarta Post, 24/12).

But I fully agree with State Minister for SOEs Mustafa Abubakar's remark: "The leader doesn't need just a technical capacity. It requires also leadership and good management capacity".

Trade war with China

2009-12-22T06:33:00.001+07:00

This growing tension against China in the midst of ASEAN-China FTA should also look at some facts. Indonesia's import from China has grown from 2.4% in 1985 to 7.2% in 2006 (as shares of total import). The corresponding figures of export are 0.5% and 9.8%. Contrast this with our trade with Japan, US (let's make it North America), and EU15. Our import from Japan was 25.8% in 1985 and down to 14.2% in 2006; while export down from 46.2% to 37.3%. Import from US was down from 18.7% to 16.6% and export to them was down from 22% to 18.9%. Finally, import from EU15 went down from 19% to 8.3% while export increased from 6.4% to 18%.

So de facto, we have had an increasing trade with China. Not just import, but also export.

Award for Sorry Thief

2009-12-21T08:49:00.001+07:00

I don't have problem with those NGOs giving an award to Prita for she has become the symbol of consumers' right against lousy business.

But I can't understand why you should give an award to a petty thief. The legal system is weak, yes. Big thieves should be punished big time. But that doesn't mean you can just forgive small thieves. Because thief is thief, regardless of the scale of the theft.

A sympathy for an old woman who "were forced by situation to steal something almost worthless" might sound just. But giving her an award is I think just too much. You're sending a very wrong signal to the populace.

Avatar yes. Copenhagen whatever

2009-12-20T07:22:00.001+07:00

What makes me more sympathetic to Mother Earth is Avatar the movie, not Copenhagen the wooshy wooshy.

Moral's immorality

2009-12-20T07:16:00.001+07:00

On the call for suspension of VP and Minister of Finance by DPR's Inquiry Committe (and thus the President's refusal), Amien Rais and Din Syamsuddin are reportedly disappointed. They argue, even if the call is inconstitutional, it's "moral".

And disrespecting the law and constitution is moral, gentlemen?

Who's afraid of free trade?

2009-12-16T08:59:00.002+07:00

Deputy Minister of Agriculture defends ASEAN-China Free Trade Agreement, saying that it will benefit Indonesia (BusinessNews, 16/12).
Agreed.

15 focuses is no focus

2009-09-17T04:30:00.001+07:00

According to an official at the Coordinating Ministry for Economic Affairs, GOI has decided 15 sectors as the priority in infrastructure development within the next five years (Bisnis Indonesia, 17/9).

Fifteen?

More cushy cushion needed

2009-09-12T07:55:00.001+07:00

The government declares they need an extra Rp 3 to 5 trillion emegency reserve in the 2010 budget to anticipate threatening world oil price. That would add to the currently allocated Rp 5.6 trillion.

As known, the state budget has assumed an oil price of USD 60 per barrel. Now the price stands around USD 70 already. And might even increase in the near future, considering the world economic recovery.

Now the budget also assumes that every USD 1 increase beyond the assumed USD 60 would add Rp 0.1 trillion to the deficit. Now, if Indonesian Crude Price (ICP) is USD 65 per barrel (usually it is USD 5 below the world oil price quoted in US market) then there is an increase of USD 5 trillion on top of the assumed price. According to the elasticity assumption, it should add Rp 0.5 trillion to the deficit. But, why ask Rp 3 to 5 trillion?

Stepping up the ladder

2009-09-10T08:16:00.001+07:00

According to the IFC's Doing Business 2010, Indonesia is the most reformist country in East Asia and Pacific with regard to business regulation as observed in the latest IFC's survey. As a consequence, Indonesia's ranking is up to 122 from 129.

Congratulations.

The P in GDP stands for 'production', remember?

2009-09-09T07:27:00.001+07:00

Joseph Stiglitz questions if statistics "are giving us the right signals" (Project Syndicate/Jakarta Post, 9/9). In the article that reads like advertisement of the chairman of the newly established Commission on the Measurement of Economic Performance and Social Progress, Stiglitz rightly says that GDP is not apt to reflect people well being.

Of course. It's just a measure of production. Yet, that's the best we have now -- for again, measuring production.

We already started "green GDP" here and there, taking account of natural resource depletion and environmental degradation. Despite the rough proxies used, it's a good way to remind us that the business-as-usual production might be harmful to the environment.

But many people push it even more to measure happiness (or in general, well-being). So far I'm skeptical. Production is measurable. So is green production. But happiness? It might be measurable on individual basis, or at least household. You might even come out with measures like aggregare willingness to pay to proxy demand for something (including intangible goods) at community level. But pushing it to grand scale like national GDP will encounter serious aggregation problem.

One of those happiness measures found that the most happy people live in Bhutan. I, for one, don't want to live in Bhutan.

Bye to monopoly, PLN

2009-09-09T07:06:00.001+07:00

The Jakarta Post today (9/9) reports, "Legislature unplugs PLN's monopoly on electricity".

Great.

The mix feeling on Hatoyama's approach to the environment

2009-09-09T07:04:00.001+07:00

The Japanese new premier Hatoyama is environmentally ambiguous. He promises rather progressive emission cut. But he will also cut gasoline tax. Worse yet, he will scrap toll way charges. Of course all this might change as he's not even sworn in yet.

Hopefully Japanese people's expectation for changes turns out good. Otherwise, it's just a regime change but with even more populist, short-sighted policies.

It's the magnitude, for crying outloud!

2009-09-04T07:33:00.003+07:00

First, a disclaimer. Exegesis wanted to shy away from the Bank Century debacle, simply because we had no idea what went on, rightly or wrongly. But then the President took over that Privilege of Shyaway (The Jakarta Post, 3/9). He seems not to bother with this kind of issue, unlike those of Manohara or Prita.

So here's my take (figures and numbers aside). When a crisis struck, you deal with it with a non-normal treatment. Yes, you still need a system; but that system is only for emergency situation, hence a short term handling. When the situation is back to normal, you are also back to normal approach. You don't keep rebooting a computer when you only have a minor hiccup. When a bank is about to go astray, and with it it would take many others down, you're in a crisis situation. You need to make a quick decision. Calling all those House people for a late night consultation meeting is a waste of time.

But then you are using taxpayers money. No matter how urgent the situation is, you should keep remembering that it is not your money you're using to fight the fire. So make no mistake. Pour the water sufficiently, not overwhelmingly.

Now you're in difficult situation. Was it, the situation, systemic? Yes, no doubt. Were taxpayers money misappropriated? That one remains to be proven.

Of course it's the foreigners' fault

2009-09-03T07:52:00.001+07:00

Kompas today runs an article on the first page titled "BI to be Watchful to Banks' Foreign Individual Owners" (BI agar Hati-hati kepada Pemilik Individu Asing, Kompas 3/9)). Knowing Kompas, I'm not surprised by its xenophobic tone. But I was curious who they quoted that statement from. So I read through. Twice. There are two quotes. And no one says so.

It is true that the two major shareholders of the failing Bank Century are Pakistanis with British nationalities. But jumping into a news article with astrong title leading to an impression that all foreign owners are bad guys is a journalistic folly. We still remember that more than ten years ago, when banks money were drained out, it was Indonesians who stole the money and ran away. But no news was titled "Be Careful with Indonesian Shareholders".

If we're efficient we might seem suspicious

2009-09-02T12:23:00.001+07:00

A Bappenas official reportedly says that government spending on infrastructure this year could accomplish 90-95% of the allocated budget (Bisnis Indonesia, 2/9). That would be quite an achievement considering the previous records. But why not 100%? He says "It's tricky. Because people would think there is misappropriation involved".

Scratching your head? Me, too.

Upcoming gig: Asian Econ Panel Meeting

2009-09-01T21:23:00.001+07:00

Asian Economic Panel Meeting
Keio University, Tokyo, September 6-7, 2009

The Global Financial Crisis?
Wing Thye Woo, Warwick McKibbin, Yonghyup Oh, Anwar Nasution

The Political Business Cycle in Japan and Instability of Budget Deficits
Naoyuki Yoshino, Tetsuro Mizoguchi, Renee Fry, Ryuhei Wakasugi

Taxing Pirates: Is It Worth It?
Desiree Desierto, Young Joon Park, Iris Claus

Unconventional Policies of Central Banks: Restoring Market Function
and Confidence
Kiyohiko Nishimura

Crisis Management: Difference between Japan and the USA
Yosuke Kawakami

Technology Development and Employment in China
Fredrik Sjoholm, Nannan Lundin, Changwen Zhao, Bhanupong Nidhiprabha, Wei Zhang

The Different Impacts of US and Japanese FDI on Trade Patterns
Kwong-Chiu Fung, Alan Siu, Arianto Patunru, Prema-chandra Athukorala

The Impacts of Globalization on Employment and Poverty Reduction in
India: The Case of Emerging Big Shopping Malls and Retailers
Kaliappa Kaliraja, Kanhaiya Singh, Shoko Negishi, Yuenpao Woo, Maria Bautista

How Integrated are the East Asia Economies: A Comparison of Integration Indices
Yuenpao Woo, Bo Chen, Chia Siow Yue, Fukunari Kimura, Harry Wu

Experimental Economic Approaches on Trade Negotiations
Han Kyoung Sung, Shigeyuki Abe, Alan Siu

Avoiding Another Subprime-Type Crisis in Financial Markets
Makoto Yano, Chalongphob Sussangkarn, Doo Yong Yang

My two courses this semester

2009-08-27T13:25:00.003+07:00

Program: Undergraduate Economics
Course: Introductory Microeconomics (ECON 10100), aka "Pengantar Ekonomi 1 - PE1"
Instructors: Mari E. Pangestu and Arianto A. Patunru (TA: Rizky N. Siregar)
Classroom: A1-10, FEUI Depok, Mondays, 8-11am
Texts: Mankiw (Principles of Economics, 2008), Parkin (Economics, 2010)
Topics: concepts of economics, supply, demand, elasticity; basic consumer and producer theories, market structures, input markets, efficiency and public policy.

Program: Graduate Economics
Course: Advance Microeconomics (ECON 90103-3), aka "Ekonomi Mikro 3"
Instructor: Arianto A. Patunru (TA: Palupi)
Classroom: PLN-Room, Pascasarjana FEUI Depok, Wednesdays, 13-1530pm
Texts: Mas-Colell et al (Microeconomic Theory, 1995 plus a bunch of journal articles)
Topics: General Equilibrium and Welfare Economics

Office hours: Depok, Mondays before 1pm, Lecturers Room, Department of Economics, FEUI Depok.

Yes, it is sad that our domestic economy is disintegrated. (Mercantilist campaign continues, anyway)

2009-08-27T09:11:00.002+07:00

In what seems to be its campaign against everything import, Kompas again runs a headline today with a bombastic lead and heroic tone urging the stop of food import (27/8). They even use (unjustly, to my impression) Faisal Basri's concern about disintegration of domestic economy as their ammunition to call for mercantilism. I've been in close contact with Faisal Basri lately and we both (and many others) are very concerned about the disconnection across regions in Indonesia. Bang Faisal many times illustrates this problem with the fact that it is far easier to go from Palangkaraya to Pontianak (two cities in Kalimantan) via Jakarta (in Java), than directly. In my papers, I put more emphasis on the fact that our logistic costs are one of the highest in the world (14%, cf eg Japanese's 4%). In addition, a study my colleagues and I did in 2008 on land transportation also concludes in the negative: we are very inefficient due to legal and illegal collections on the street, poor infrastructure, and difficult topography. Finally, our ports are lame and have little incentives to improve since under the current, existing system, one port management (Pelindo) who books a loss should not be worried as it will be subsidized by the other Pelindos (the new shipping law addresses this issue with improvement policy but it is yet to be in effect). Add to that the many hurdles in customs. All and all, the big archipelago is really not an integrated economy, it is merely a constellation of many islands and regions with stark differences in prices, and hence standard of living. What is the solution? As I argue here and elsewhere, it requires logistics reform which includes serious improvement (and repair) on infrastructure especially port and road. I was in Kupang last month with my research team. We saw one obsolete weight station whose capacity was only 10 tons. As a response to that, all big, seemingly overload trucks were not allowed to pass through the station -- they were asked to make a small detour around the station. Only smaller trucks are to be weighted. It's funny and saddening. In another occasion, our researcher who rode with a trucker in a nightshift observed how the truck driver threw a matchbox filled with a 10,000 rupiah bill to an empty inspection station. When asked why he did that despite there was no one asking for it, the driver simply said "it's a custom". Again, nonsensical and saddening. All this contributes to our high cost economy. And again, it calls for reform in the logistics.

But Kompas takes all this problem about disintegrated domestic economy as part of their argument to call for import bans. Yes, they cited Faisal Basri as saying that three months ago we should have imported sugar and now it seems too late because suppliers have increased the price. That is probably true. But then they are back to their whole anti-import campaign. This is misleading. It confuses between facts (say, of the crisis) and recipe for longer term economic development. We have been with this problem in logistics and transportation for a long, long time. It needs improvement regardless of the crisis. Yes, we were hit by crisis but happened to be more resilient partly because coincidentally our exposure to trade is relatively low. But the entire world can not step back to relying only on domestic economies. Because at the same time production network and trade-in-tasks are growing. We don't want to miss the train. Nobody wants. But hey those are two different things. The crisis needs a short-term solution, deviating from normal, longer term development (eg. stimulus). This chain of arguments that (a) A crisis hits us, (b) We're fine because we don't trade too much, (c) Therefore the best way to go is to suppress trade even more and to go domestic instead, (d) So, stop import (while export is okay), and (e) While we're going to autarky, we need to address the logistic and infrastructure issue -- is misleading. It mixes up short term problem and longer term solution.

And banning food import? Even if we were all mercantilists now, have we forgotten that our food import is merely USD 5 billion while our non-oil/gas export stand at more than USD 100 billion? Have we forgotten that we are a giant in the world CPO market?

Gold standard? Now? No way

2009-08-25T08:45:00.005+07:00

Yesterday, as I was having sahoor, an academic cum cleric gave a talk on tv about sharia economy. He mentioned that one of the features of sharia economy is "gold or dinar standard". I'm not sure what he meant by putting gold and dinar side-by-side (maybe he thought now the dinar system is still fully gold-backed, and therefore the two are interchangeable).

A couple of days ago I participated in a seminar held by MOF. At lunch, an official, out of blue, asked my opinion about that same idea, ie gold standard. My response was "I don't think we will ever go back to gold standard. That BI storage will not be able to house the entire gold backing the money in circulation".

Today, Paul Donovan of UBS Investment Bank gives a more sophisticated answer (The Jakarta Post, 25/8). Bottomline is the same: There is not enough gold in the world. Here's his reasoning. Assume that globalization is steady with global trade stays at 20% of the world's GDP. If the the world's nominal GDP grows at 6-6.5%, then the supply of reserve currency should also rise by 6-6.5% to keep the international trade intact. Now, if we are to go back to gold standard, trade growth will not stay at 20%, let alone expand: it will shrink, as the supply of gold rises at 1.5% growth rate.

Dare to stop import?

2009-08-25T07:55:00.000+07:00

Misreading of the crisis aftermath (Indonesia has been quite resilient -- Indonesia's exposure to trade was quite low -- therefore, stop trading, go domestic) is getting pervasive. Kompas yesterday (24/8) ran couple of articles with anti-import tone. Today it continues, featuring Kadin chief in its headline (25/8). As quoted by Kompas, Hidayat says "If the government does not have the guts (to stop food import) and instead play blame gain among each other, we would not be self-sufficient in the next five years".

As I said repeatedly here, our conception of self-sufficent is false. We reached the so-called "rice-self sufficiency" briefly on the back of heavy protectionism.

Interesting paper of the week: Deaton on Aging, Religion, and Health

2009-08-24T18:48:00.002+07:00

Aging, religion, and health
by Angus S. Deaton - #15271 (AG HC)

Abstract:

Durkheim's famous study of suicide is a precursor of a large contemporary literature that investigates the links between religion and health. The topic is particularly germane for the health of women and of the elderly, who are much more likely to be religious. In this paper, I use data from the Gallup World Poll to study the within and between country relationships between religiosity, age, and gender, as well as the effects of religiosity on a range of health measures and health-related behaviors. The main contribution of the current study comes from the coverage and richness of the data, which allow me to use nationally representative samples to study the correlates of religion within and between more than 140 countries using more than 300,000 observations. It is almost universally true that the elderly and women are more religious, and I find evidence in favor of a genuine aging effect, not simply a cohort effect associated with secularization.As in previous studies, it is not clear why women are so much more religious than men. In most countries, religious people report better health; they say they have more energy, that their health is better, and that they experience less pain. Their social lives and personal behaviors are also healthier; they are more likely to be married, to have supportive friends, they are more likely to report being treated with respect, they have greater confidence in the healthcare and medical system and they are less likely to smoke.But these effects do not all hold in all countries, and they tend to be stronger for men than for women.

http://papers.nber.org/papers/W15271

On Local Tax Law

2009-08-24T09:29:00.000+07:00

The newly approved Local Tax Law stipulates the following 5 taxes allowed for provincial governments: vehicle tax, vehicle title-transfer tax, vehicle fuel tax, surface water tax, and cigarette tax. As many as 11 taxes are allowed for district/city governments: hotel tax, entertainment tax, advertisement tax, street-light tax, non-metal mineral tax, parking tax, ground water tax, swallow-nest tax (!), building and property tax, land and building rights entitlement tax (for lack of better translation). The law also allows 30 kinds of 'retribution' (user charges), grouped into 3 types: general service retribution (eg marketplace services), business service retribution (eg terminal and auction place services), and specific licence retribution (eg route permits). Finally, there is a progressive tax on second or more vehicles (with a tariff from 2 to 10 percent).

The above is based on a column by Harry Aziz, Bisinis Indonesia, 24/8). The author was the head of special committee for the draft, from the House side. He mentions that the reasons for progressive tax on vehicles are: inelatic demand of vehicles (I wonder what hi numbers are), fairness principle, local competition principle. He also adds that the collected tax should be earmarked to local infrastructure development. A tall order indeed.

Donate, no. Sell, yes

2009-08-23T08:25:00.001+07:00

A small article in Kompas (27/8) talks about Indonesian Red Cross' difficulty in supplying blood for the needy. They oftentime have deficit than surplus as "there is more demand than supply". Yearly demand for blood is 4.3 million packs, while supply only stand at 1.2 million on average.

So stop relying on donation. Start blood market.

Info: Courses and Office Hours

2009-08-22T18:20:00.001+07:00

The new academic term starts next week. I am assigned to teach Introduction to Microeconomics (undergraduate, co-teaching with Dr. Mari Pangestu) and Advance Microeconomics (PhD program). Info for students, I will be in Depok every Wednesday (Pascasarjana, 1-3pm) and Monday (not every week, as I'll take turns with Bu Mari; Departemen Ekonomi, 8-11am).

Separating underwriters from brokers

2009-08-22T10:48:00.001+07:00

The government via the stock market regulator (Bapepam) is going to revise the Capital Market Law. The revisions include separation of investment management units from underwriting and brokering functions (The Jakarta Post, 22/8).

Not surprisingly, most securities firms react negatively as majority of them mix the two functions. The president director of Trimegah Securities for example reportedly said that the policy would "put pressure on our efficiency programs". He said that Bapepam should instead focus on enforcing good corporate governance.

I think his argument is ill-founded. What the Bapepam is doing is exactly an effort to enforce good corporate governance.

Monitoring sermons except those by...

2009-08-22T09:58:00.001+07:00

The Jakarta Post reported that police would monitor provocative sermons given in mosques and mass gatherings (JP, 22/8). It is to avoid provocative and misleading preaches by clerics that can motivate violence and terrorism.

OK, what have they done to Ba'ashir? Was Ba'ashir's commending the bombers not provocative enough?

Are we going back to financial repression?

2009-08-22T09:41:00.002+07:00

As if the strange deposit rate-cap policy isn't enough, Tony Prasetiantono calls for cut on profit margin (Kompas, 22/8). According to him, the agreement (to force deposit rate down to 8 percent and gradually closer to BI rate) will not be enough, because it only "affects the cost of fund". Sounds as if cost is not part of profit calculation, eh?

Add? For what?

2009-08-21T13:35:00.001+07:00

So the World Bank urges GoI to increase budget allocation for infrastructure (Bisnis Indonesia, 21/8). Good. If only there is no problem in procurement and disbursement. Alas, everybody knows, GoI has not been capable in efficient handling of money. Even for the stimulus intended for infrastructure project (yes, stimulus for infrastructure -- funny), by end of July they could only spend less than 10 percent of it.

Force it down, eh?

2009-08-21T08:34:00.003+07:00

As reported in Kompas (21/8), banks (mainly state-owned) agreed to cut deposit interest rates gradually to get closer to the BI rate. They think this will help "normalize" the movement of deposit and credit interest rates. I'm skeptical. First, as a depositor, one would seek for the highest real rate. If local banks set it low, she would transfer her money to some bank abroad, or convert it to other form of asset. Second, any agreement like this (between banks, in a moral suasion sort of way) is deemed to fail. One or two banks will eventually cheat and the rest will follow. Third, they miss the point. Banks' rates deviate from BI rate not because they just want to be different. It's because they still perceive a sizable risk. Attacking the rates is missing the culprit as it is the risk that needs to be minimized, through a more efficient credit bureau for example. Lastly, if the banks and the government and Bank Indonesia think that this forced rate is good for banks in general, they will be disappointed. Thus far, market has been segmented such that big depositors go to big banks and get interest rate higher than BI rate. The smaller depositors go to smaller banks and are paid interest below BI rate. Forcing big banks' interest down will attract the upper level of smaller depositors and therefore hurt the smaller banks.

Kudos to Pelindo I

2009-08-21T07:17:00.001+07:00

I have been criticizing the management and system of the state-owned Indonesian Port Corporation (Pelindo), esp. on their cross-subsidization scheme. That is, if one Pelindo (we have four) books a loss, the others should subsidize it. This system creates no incentive to self-improve.

So, the news in the Jakarta Post (21/8) that Pelindo I has inked a joint commitment with private firms and local governments on a port development program is a good news.

SME prefers foreign banks

2009-08-20T07:21:00.001+07:00

Kompas (20/8) reported that small and medium enterprises prefer foreign banks to local ones because of easiness in paperworks as well as lower interest rates.

Chair of Indonesian Young Enterpreneurs, Erwin Aksa, urged Bank Indonesia to be critical to this situation, or it will kill the local banks.

Typical.

On Ahmadinejad

2009-08-06T08:30:00.001+07:00

So he's sworn in. I'm grateful my country is no Iran.

Less expansive? Good!

2009-08-06T08:28:00.001+07:00

The 2010 state budget plan is considered less expansive by many, and some call it contractive. I take it as a sign that GoI will focus more on efficiency. That is, to reduce problems in budget preparation, approval process, procurement sluggishness. So it's a good thing.

@ SMERU

2009-08-04T20:29:00.000+07:00

Was at SMERU Research Institute to wish all the best to Sudarno Sumarto for his sabbatical leave to Stanford; and to Asep Suryahadi for his new position as the new Head of SMERU.

Mas Darno, you'll be missed. Keep up the good work. Kang Asep, congratulations. Looking forward to working with you.

Bloghopping eq, moved again

2009-08-03T09:58:00.001+07:00

Now it's Becker-Posner, Jim Hamilton, Cafe Hayek, EconLog, MargRev, Mankiw, Krugman, Env-Econ, and the new addition: Scott Sumner.

The best definition of inflation

2009-08-03T09:09:00.001+07:00

"The rise in aggregate nominal income required to keep aggregate utility constant"

That is by Scott Sumner.

Congratz, Bang!

2009-08-02T08:03:00.001+07:00

Congratulations to Darmin Nasution for his appointnment as Senior Deputy Governor of Bank Indonesia and the chairman of Indonesian Economists Association.

Bang Darmin was a former head of LPEM. We once taught a parallel course on Indonesian Economy (with Faisal Basri -- also a former head of LPEM) at the extension program of FEUI back in 1997. I love Bang Darmin's sense of humor. He's also very tough. Rumor around the office boys and janitors has it, Bang Darmin once challenged somebody for a fist fight over a parking lot in Salemba Campus. He won without the fight, needless to say.

Being Normal

2009-08-02T07:35:00.001+07:00

SB Joedono, a former head of LPEM gave us his wisdom. "The most difficult thing to do is to become normal".

Thanks, Pak Billy.

Kudos to Pak Hadi

2009-07-23T07:34:00.001+07:00

As many of you have heard, one of the Indonesian finest economists, Hadi Soesastro was awarded a doctor honoris causa degree in economics from the Australian National University.

I took Economics and Technology course from Pak Hadi sometime in 1993. I recall we had class often in CSIS (Tanah Abang) as Depok is too far. Then we became friends in seminars and conferences after I came back from US in 2004. We were also active in the Indonesian Economists Association (ISEI). Along these times, I keep learning a lot from Pak Hadi. I admire his vast knowledge as well as his international reputation.

Congratulations, Pak Hadi. It's long overdue.

Proud of students

2009-07-22T08:54:00.001+07:00

These last weeks have been full of examining students' thesis defense. I'm impressed, especially by the senior college students (S1 Level, as opposed to the master's and PhD programs -- not that the latter two are lousy; they're great too, but not as impressive). Some of them write very well (some in proficient English, though not required). I'm also proud that many of them have left the "must have a regression or two no matter what"-paradigm. Instead, they demonstrate a lucid understanding of basic principles of economics. Yes, I have a very big hope on our S1 graduates. Keep up the good work, young fellas!

Sentence for the knive

2009-07-22T08:37:00.001+07:00

The Economist this week runs a series of article reassessing the use of macroeconomics. In one of them, it says financial economics might be blamed for the recent crisis. That is akin to blaming a knive for a murder downtown.

Better proxy for human capital variable

2009-07-07T09:06:00.001+07:00

Got problem in choosing good proxy for human capital in your estimating regression? Try school intensity (Duflo 2001, Comola and de Mello 2009 -- thanks for the paper, guys). It is the share of population born after 1963 multiplied by the number of schools built per children under SD Inpres program during 1973-78. The rationale is simple: the cohort of individuals born in districts that benefited from the program was more likely to stay longer at school and to earn more once joining the labor force.

Upcoming gig: 20th Annual East Asian Seminar on Economics

2009-06-21T21:34:00.001+07:00

Commodity Prices and Markets

New paper on Indonesian Agriculture

2009-06-15T23:31:00.001+07:00

Forthcoming in Choices 24(2), 2009

Agriculture in Indonesia: Lagging Performance and Difficult Choices
by Richard Barichello (Univ. of British Columbia) and Arianto A. Patunru (Univ. of Indonesia)

Abstract
Indonesia's agriculture is significant in several world markets and continues to employ large numbers of the population, but is facing numerous difficult choices. Lagging productivity, conflicts across high farm prices, politics, and poverty, and environmental challenges combine to give reason for a reform of policies in this sector. We identify six major issues, chosen from the perspective of their political importance as well as what we judge to be their importance to the country's agricultural development prospects. It is striking how similar they are to those in other agricultural sectors around the world, especially in the OECD countries. Producer- consumer food price conflicts, slow productivity growth, public support of biofuels programs, environmental conflicts, and poverty reduction have generated the key policy debates within the sector.

Money Illusion

2009-06-09T11:54:00.001+07:00

Scott Sumner blogs! (HT: Dave Beckworth)

Eichengreen-O'Rourke, 2nd installment

2009-06-09T11:42:00.001+07:00

Here at Vox.

Upcoming gig: Salzburg Global Seminar

2009-06-05T11:40:00.003+07:00

Freeman Foundation Symposium 2009: Strengthening Cooperation Between the US and East Asia
Salzburg, Austria, June 6-11, 2009

Session One: The State of The Asia-Pacific Region
Charles Morrison, East-West Center, Honolulu, HI

Session Two: The Financial Crisis and Impact on Asia-Pacific
Peter Petri, Brandeis International Business School, USA
Gong Min, Xiamen University, China

Panel Discussion on Economic Recovery
Kenneth Cukier, The Economist
Mireya Solis, American University, Washington, DC
Arianto A. Patunru, Dept. of Economics, University of Indonesia

Session Three: Northeast Asia - Politics and International Relations
Ryo Sahashi, University of Tokyo
Fan Jishe, Chinese Academy of Social Sciences, Beijing, China
Balbina Wang, National Defense University, Washington, DC

Session Four: China's Rise and Roles
Sun Zhe, Fudan University, Shanghai, China
Carolyn Cartier, University of Southern California, USA
Zhang Yanbing, Tsinghua University, Beijing, China
Todd Hall, Harvard University, Cambridge, MA

Session Five: Southeast Asia - Politican Change and International Relations
Thitinian Pongsudhirak, Chulalangkorn University, Bangkok
Kim Trinh, National University of Singapore
Dian Fatwa, Radio Australia, ABC
Savanphet Thongphane, ASEAN Secretariat, Jakarta

Session Six: Global Issues and the Role of the Asia-Pacific Region
Open discussion

Session Seven: Perceptions, Media, and Public Diplomacy
Zhou Qingan, Tsinghua University, Beijing
Hugo Restall, Far Eastern Economic Review, Hongkong

Session Eight: Obama's Asia Policy - Change and Continuity
Open discussion

Demokrasi Niscaya Mengecewakan, Tapi...

2009-05-13T03:16:00.000+07:00

Demokrasi Niscaya Mengecewakan, Tapi...

Posted at Facebook by Arianto A. Patunru on Thursday, May 14, 2009 at 6:17pm

(Catatan untuk diskusi dan peluncuran buku Demokrasi dan Kekecewaan, Salihara, 13 Mei 2009 -- dengan sedikit revisi pada typos -- AAP)

Demokrasi Niscaya Mengecewakan, Tapi...

Arianto A. Patunru

Saya awam sungguh akan Rancière atau Badiou. Akan le politique atau la politique. Tapi kegusaran Goenawan Mohamad (GM) akan wujud laku demokrasi di Indonesia menarik untuk direnungi. Tentu saja para penanggap terbaik telah tersedia manis di buku baru ini, Demokrasi dan Kekecewaan. Mengulang mereka bukanlah efisien. Saya ingin mengganggu saja. Bahwa memang demokrasi bisa mengecewakan.

Tahun 1785. Ahli matematika Marquis de Condorcet menunjukkan sebuah cacat demokrasi pada sahabatnya, ekonom Jacques Turgot. Ada 300 rakyat yang akan memilih presiden: SBY, JK, atau Mega. Para pemilih itu berkerucut menjadi 3 kelompok, masing-masing 100 orang. Kelompok 1 lebih menyukai SBY ketimbang JK dan JK ketimbang Mega. Kelompok 2 paling suka JK disusul Mega lalu SBY. Kelompok 3 lain lagi; urutan preferensi mereka adalah Mega, SBY, lalu JK. Masuklah demokrasi: Siapa yang bakal menjadi presiden terpilih? Antara SBY dan JK, SBY lebih populer: di Kelompok 1 dan Kelompok 3, ia lebih disukai ketimbang JK. JK hanya unggul di Kelompok 2. Berarti dua pertiga rakyat, atau 200 orang akan memilih SBY, dan hanya 100 untuk JK. Kesimpulannya, antara SBY dan JK, SBY-lah yang akan menang. Bagaimana dengan JK versus Mega? Tampak bahwa mayoritas lebih suka JK ketimbang Mega: antara JK dan Mega, pemenangnya adalah JK. Terakhir, SBY versus Mega. Prinsip transititivitas dalam ilmu ekonomi berkata: Jika SBY lebih disukai ketimbang JK dan JK lebih disukai ketimbang Mega, maka tentulah SBY lebih disukai ketimbang Mega. Ternyata tidak: demokrasi lewat voting mayoritas dan satu-orang-satu-suara itu melanggar prinsip transitivitas. Relatif terhadap Mega, SBY hanya disukai di Kelompok 1; sementara Kelompok 2 dan Kelompok 3 lebih memilih Mega. Suara mayoritas demokratik mengunggulkan SBY ketimbang JK, JK ketimbang Mega,namun: Mega ketimbang SBY. Selamat datang di Paradoks Condorcet.

Apakah demokrasi memang sedemikian murungnya? Sebagian kita berkata, dunia Condorcet tadi terlalu naif dan menggampangkan. Dalam dunia nyata para pemilih punya otak. Dan mungkin ideologi. Kata pembela demokrasi, coba masukkan ideologi ke dalam cerita Condorcet, maka analisis rasional anda akanmusti membuang skenario yang tidak logis. Mari kita coba. Untuk berbicara ideologi, baik mungkin kita contohkan partai ketimbang individu. Bayangkan opsi PDIP, PD, atau PKS. Kelompok 1 yang sangat nasionalis lebih suka PDIP ketimbang PD, apalagi PKS. Kelompok 2 yang tidak suka ultra-nasionalisme lebih senang PD ketimbang PKS, dan masih lebih bisa menerima PKS ketimbang PDIP. Kelompok 3 cenderung alim dan islami. Mereka lebih suka PKS ketimbang PDIP, tapi lebih suka PDIP ketimbang ... PD. Sebentar, kata anda. Bagaimana mungkin pendukung PKS secara ikhlas memilih PDIP yang ”sungguh abangan” ketimbang PD yang lebih moderat, masih puasa dan jumatan? Di sini, informasi tentang demografi ideologi yang linier (maksudnya, ketiga partai seolah bisa dijejer di spektrum mistar garis lurus) membantu anda (dan mungkin, pemilih sendiri) untuk memprediksi keluaran pemilu. Logika itu berkata, Kelompok 3 sesungguhnya tidak eksis. Maka dengan hanya dua kelompok tersisa, anda tahu bahwa persaingan PDIP versus PD akan berakhir seri, PDIP versus PKS seri, dan PD versus PKS dimenangkan PD. Kesimpulannya: PD menjadi pemenang pemilu, sekalipun transitivitas sedikit dilukai. Ideologi linier menyelamatkan demokrasi dari Paradoks Condorcet. Atau tidak?

Betulkah ideologi terdistribusi linier macam itu? Jalin-kelindan partai-partai papan atas belakangan ini memberi jawab negatif: ideologi tidaklah linier. Bahkan mungkin sekali ideologi sesungguhnya tak pernah ada. Ada pemilih PDIP yang kecewa melihat partainya mesra-mesraan dengan Prabowo, ada simpatisan PKS yang kaget melihat panutannya mengusung Soeharto serta bertandang ke SBY. Dan besoknya kecewa. Lalu gonta-ganti pasangan lagi. Lusanya berubah lagi. Jika ideologi (atau ketiadaan ideologi) gagal membendung Paradoks Condorcet, demokrasi bakal macet. Siap-siaplah kecewa.

Sengkarut demokrasi itu bahkan kian gelap di tangan ekonom Kenneth Arrow. Berhujjah Arrow: Jika sebuah tata sosial voting bersifat transitif, ”konsisten pada kebulatan suara”, dan”bebas tetek bengek”, maka pasti ia adalah: kediktatoran. Jika anda lebih suka SBY daripada JK dan JK daripada Mega, maka anda haruslebih suka SBY ketimbang Mega; ini adalah transitivitas kita tadi. Jika semua orang di negara ini suka dengan Mega, maka apa pun mekanismenya, Mega pasti jadi presiden; itu adalah konsistensi kebulatan suara, unanimity. Jika anda lebih suka SBY ketimbang Mega, maka kehadiran Prabowo atau Wiranto sebagai alternatif tidak boleh menjadikan anda tiba-tiba berbalik memilih Mega ketimbang SBY – struktur preferensi anda mesti bebas dari alternatif yang tidak relevan terhadap pilihan awal; ini yang saya sebut serampangan sebagai ”bebas tetek bengek”. Dan lembar-lembar matematis Arrow membuat dunia semakin dismal: tidak mungkin sebuah tata sosial dengan sistem voting bisa sekaligus transitif, unanimous, bebas tetek bengek, dan non-diktator pada saat bersamaan. Inilah Teorema Ketakmungkinan Arrow. Ia membuat demokrasi sedih sungguh. Ketakmampuan sistem voting menghindari perangkap Condorcet dan Arrow menjadi sistem demokrasi plural-penuh rentan akan pilah suara, vote splitting. Anda dan kawan-kawan anda mendukung Golkar, karena tahu bahwa JK akan maju jadi presiden. Tiba-tiba Ical Bakri atau Akbar Tanjung juga mencalonkan diri. Suara Golkar terpecah. Akibatnya Golkar kalah, tak satupun dari mereka jadi presiden. Alhasil, demokrasi internal di Golkar mandeg.

Cara demokrasi macam itu – voting mayoritas – juga tumpul belaka dalam penyediaan barang publik. Tiga puluh keluarga di Kampung Salihara memerlukan lampu di jalan-jalan mereka Biaya menerangi jalan sekampung adalah 99 juta. Jika rakyat Salihara memutuskan untuk ”melampui” jalan, semua keluarga harus sawer sama rata. Ada 3 kelompok keluarga di sana (maka biaya per kelompok adalah 33 juta). Kelompok A adalah mereka yang melihat lampu jalan wajib hukumnya. Mereka sesungguhnya rela mengeluarkan uang sejumlah total 90 juta untuk keperluan tersebut (ekonom menyebut ini ”harga reservasi”, harga tertinggi yang tak anda ucapkan sebelum transaksi, namun rela terima jika terjadi). Kedua kelompok sisanya, B dan C, ternyata punya prioritas lain di atas lampu jalan. Harga reservasi mereka masing-masing 30 juta. Di sini voting kembali akan berakhir gelap: Kelompok A tentu setuju pelampuan jalan, mengingat biaya yang harus mereka tanggung (33) jauh di bawah “harga reservasi” mereka (90). Namun Kelompok B dan C akan menolak, karena biaya bagi mereka 3 juta lebih tinggi daripada jumlah yang mereka rela bayarkan (30). Mayoritas, 2/3 dari rakyat Salihara, dengan begitu akan menolak rencana pemasangan lampu jalan. Desa Salihara akan tetap gelap, ekonomi tetap sembab. Dan itu karena demokrasi.

Kita hampir putus asa. Dengan segala buram demokrasi di atas, akankah ia bisa terselamatkan? Syukurlah jawabnya: mungkin bisa. Di sebuah kampung lain bernama Internet, ternyata Paradoks Condorcet serta Kemuraman Arrow bisa diatasi. Sistem itu bernama voting berentang, range voting. Alih-alih mencontreng SBY, JK, atau Mega, berilah mereka skor dari 1 sampai 10. Seperti ketika Anda menilai buku di Amazon.com atau filem indie di YouTube. Tidak nyaman mungkin untuk mempanjangbeberkan bukti matematisnya di sini, namun beberapa ilmuwan ekonomi politik serius telah setuju bahwa ada solusi atas kedua masalah demokrasi di atas. Kuncinya adalah, anda bisa memberi angka yang sama kepada SBY dan JK – atau kombinasi apapun; sesuatu yang tidak boleh dalam sistem Condorcet dan Arrow. Transitivitas dan unanimitas menjadi lebih lunak, alternatif baru tidak akan mengganggu urutan preferensi, dan semua ini mungkin terjadi tanpa kediktatoran. Alhasil, pilah suara nan kacau itu takkan terjadi.

Atau biarkan pasar yang ambil alih. Tengok kembali Kampung Salihara yang masih gulita saban malam. Jika saja kelompok-kelompok keluarga di sana boleh bertransaksi bebas, maka niscaya akan ada tangan gaib yang merelokasi iuran. Kelompok A yang ngebet lampu bisa memberikan sebagian uang mereka kepada Kelompok B dan C sedemikian rupa sehingga kedua yang terakhir ini bersedia mendukung proyek pelampuan. Misalkan Kelompok A memberi 4 juta kepada masing-masing mereka. Maka, Kelompok A praktis mengeluarkan uang sejumlah 33 + 4 + 4 juta, alias 41 juta – masih jauh di bawah reservasi mereka. Akan halnya Kelompok B dan C, kini defisit 3 juta di masing-masing mereka dapat tertutupi oleh sumbangan 4 juta dari Kelompok A. Reservasi mereka seolah disubsidi, naik dari 30 juta menjadi 34 juta, dan karenanya mampu membayar iuran 33 juta. Alhasil, benderanglah Kampung Salihara. Gerobak ekonomi berdecit lagi bahkan ketika malam. Satu kosong untuk pasar. Benarkah?

Namun, sebelum kita tersenyum terlalu lebar membeli kedua kabar baik di atas – voting berentang dan pasar – saatnya kini untuk melihat caveat emptor. Yang lebih mudah adalah untuk voting berentang. Dengan empirik di jurnal ilmiah dan internet kita bisa percaya bahwa demokrasi masih bisa diandalkan. Namun sebagian kita tetap kecut kuatir. Jika memang voting berentang dapat mengenyahkan Condorcet maupun Arrow, apakah ia steril terhadap, lagi-lagi, main mata para pimpinan parpol? Mungkin tidak, tapi mungkin ini sudah bukan tanggung jawab demokrasi lagi. Atau bolehkah ini termasuk ke dalam apa yang disebut Herbert Kitschelt dan Ihsan Ali-Fauzi sebagai ”partai non-partai”?

Kedua, tentang pasar. Ada gundah dalam GM dan beberapa penanggap akan ekonomi pasar bebas. Bahwa laissez faire telah mati dan saatnya kini bagi ”kompromi Keynesian”. Keynes memang menulis obituari untuk laissez faire, namun obit itu cenderung hiperbolik; dan hiperbola tentu saja adalah gaya Keynes (sebagaimana Chairil Anwar berhak untuk marah pada masa, gaya, dan tempatnya sendiri). Namun Keynes tidak pernah menafikan pasar dan kerja pasar ke titik nol. Ia berusaha menyelamatkan kapitalisme. Dalam itu ia benar; dan juga salah. Salah, bahwa perangkap likuiditas abadi adanya. Benar bahwa ketika itu, seperti hari ini, dunia kekurangan permintaan agregat. Mengharapkan pasar sendirian menutup senjang permintaan-penawaran dalam jangka pendek mungkin musykil. Pasar memang bisa melakukannya, tapi lambat dan menyakitkan. Atau paling tidak, mencurigakan.

Jika Kelompok B dan C di Kampung Salihara tadi mafhum bahwa Kelompok A bersedia mensubsidi mereka, timbullah risiko moral. Mereka akan berlaku seolah harga reservasi mereka adalah ... nol, sembari mengharap semua biaya ditanggung Kelompok A dan mereka tinggal menunggang gratis. Tapi kita tahu, takkan ada lampu, karena total dana 90 juta tidak mencapai total biaya 99 juta. Lampu hanya bisa ada ketika kedua kelompok penunggang gratis ini juga merogoh kocek mereka sendiri masing-masing 4,5 juta, demi menutup senjang 9 juta. Berapa lama proses ini berlangsung? Bisa lama. Kalau ia tentang lampu, kita bisa sabar. Negosiasi di Kampung Salihara biarlah berjalan pelan tapi pasti, menuju keseimbangannya yang damai: 90-4,5-4,5-Benderang. Atau keseimbangan ceria yang lain di antara itu dan 39-30-30-Benderang, tergantung kuat-kuatan tawar. Ada banyak sekali kemungkinan di spektrum ini. Namun butuh waktu untuk mencapai salah satu saja. Waktu yang mungkin lama. Lagi, jika itu lampu, kita tunggu. Tapi jika ia obat penangkal flu ganas, stimulus fiskal peredam krisis ekonomi, berapa lama kita menunggu? Tentu jangan lama betul, kalau kita tidak rela melihat flu ganas itu merayap, krisis ekonomi itu menyayat. Di sini kemudian kita buka sedikit ruang bagi pemerintah. Jika negosiasi antar pelaku ekonomi bakal terlalu mahal, jika sebuah barang publik dinikmati gratis sekelompok orang dan dibiayai oleh kelompok lain yang terzalimi, maka pemerintah bisa membantu ”relokasi”. Pemerintah perlu membantu. Hanya, membantu adalah kata kerja sementara. Dan seringkali pembantu perlu dibantu. Topik untuk diskusi yang lain, mungkin.

Kompromi Keynesian dengan begitu bukanlah pilihan biner antara pasar dan negara. Ia adalah tentang sempit-lebarnya pintu kita buka buat pemerintah, untuk masuk ke ruang bernama pasar. Di sini sepertinya kita perlu arif dan hati-hati: di dalam ruang itu ada proses-proses bernama demokrasi. Biarkanlah mereka bergerak dinamis tanpa pernah sampai. Sebab sekali ia sampai, ia bisa jatuh pada kesesatan atau kesetanan logika serta penghianatan preferensi konstituen. Cukup ia menjadi alat, menjadi kendaraan. Ia adalah piranti distribusi antara elit kekuasaaan dan warga negara. Elit membutuhkan rasa kuasa, dan uang. Warga negara mencari uang, atau kesejahteraan (yang selalu bisa ”diuangkan”).

Penengah di antara kedua gaya tarik-menarik ini mustinya adalah demokrasi: sebuah alternatif rasional yang lebih murah ketimbang revolusi – dengan segala kekurangannya. Ia bandul yang bergerak, dan sebaiknya bergerak, menjaga ekuilibrium dinamis di antara negara dan warganya. Lewat GM, kita tahu bahwa Laclau dan Moffe itu akan setuju dengan ini: kwasi-stabil, equilibrium yang bergerak. Kalau ia berhenti, ruang itu menjadi kaku. Konsensus, seperti dikuatirkan Robertus Robet. Mungkin memang kita bisa lebih nyaman denganproses bor Bill Liddle pada kayu keras, ketimbang ketika kayu itu akhirnya tembus berlubang – sampai, dengan kata lain. Rocky Gerung kuatir bahwa masalah demokrasi sebenarnya adalah ketegangan antara politik elektoral dan politik kewarganegaraan. Tapi justru demokrasi adalah jembatan di antaranya.

Tentu, kalau ia, demokrasi, bergerak terlalu liar, kita gugup. Maka kadang-kadang pintu itu kita buka, mengundang pemerintah untuk sesekali memperbaiki bandul, lalu keluar lagi dan menonton dari balik kaca. Asal demokrasi bergerak. Gerakan itu mungkin yang bisa menenangkan GM dari mimpi buruknya akan ”kurva lonceng” demokrasi. Baik atau buruk, bukankah SBY dulu datang dari ekor kurva? Betul bahwa seiring pergerakan hari, SBY pun merapat ke massa di tengah kurva lonceng. Sebagaimana Felipe Gonzáles Márquez atau bahkan Hugo Chavez.

Kita yang di dalam ruangan coba menikmati saja (atau kata Rizal Panggabean: terima dengan rasa dongkol dan sebal). Jika kita resah dengan kurva lonceng yang berat di tengah, kita ingat saja bahwa kurva itu masih punya ekor di kiri-kanannya, tempat di mana angsa hitam bermunculan mendadak. Apakah demokrasi Superman-Beckham-Papanya-Cynthia lebih baik daripada selingkuh di pucuk-pucuk pimpinan antarpartai? Kita tidak tahu. Mungkin tak perlu tahu, dan tak perlu buru-buru menjawab Dodi Ambardi: menjadi pelaku sejarah atau pencatat sejarah. Karena kepolosan tampaknya masih bisa berhelat. Tinggal pandai-pandai kita menangkap kairos.

Jakarta, 13 Mei 2009

That myth again

2009-04-29T12:01:00.001+07:00

Told you so. Swasembada beras is a myth.

2009 PAPI Workshop

2009-04-15T17:21:00.001+07:00

Upcoming event.

Very, very useful resources

2009-04-10T10:38:00.001+07:00

For those studying or doing research on commodity futures markets. Compiled by Scott Irwin of UIUC.

Thanks, Scott!

Publishing as Prostitution?

2009-04-03T22:50:00.002+07:00

Survival in academia depends on publications in refereed journals. Authors only get their papers accepted if they intellectually prostitute themselves by slavishly following the demands made by anonymous referees who have no property rights to the journals they advise. Intellectual prostitution is neither beneficial to suppliers nor consumers. But it is avoidable. The editor (with property rights to the journal) should make the basic decision of whether a paper is worth publishing or not. The referees should only offer suggestions for improvement. The author may disregard this advice. This reduces intellectual prostitution and produces more original publications.

That's Bruno S. Frey in Public Choice 116:205-23, 2003. Amusing read. This post's title steals the paper's.

Overheard in the Politician's Room

2009-04-03T11:02:00.001+07:00

"Welcome Gentlemen, thank you for coming"
"What's this for? We're busy"
"I know. We appreciate your giving us your precious time. You know we have been very..."
"Oh, cut the crap. What is it?"
"OK. Here's the thing. The situation is dire, as you are all well aware. And we need trust from the people... You know, election and all..."
"So?"
"So, we need you in two things"
"Yes?"
"First funding..."
"Hey, you call us here for that? We've been giving you money like forever. That's not news anymore"
"Alrite. Thank you for that. The second one is far more important... Wait I should say equally important"
"Quick"
"Yes, it's eergh we want you to understand that we will have to bash you, the wealthy, in public..."
"Hah? What do you mean?"
"You know, in this time, it is very important to be seemed as being supportive to the unlucky -- the poor that is. The world situation is bleak because of what Madoff and his ilk was doing..."
"What the hell does it have to do with us?"
"Well, you're rich. To average people, you're guilty by association"
"Damn"
"I know. But please understand. This is just a ... well, game, if you like. We're gonna say in public that you, the rich, are the roots of all evil... Pardon my language... But off course we don't mean that"
"Say again?"
"We'll call you evil. We need to do that to gain support from the general population, especially the poor. But we don't mean it"
"OK, I don't care"
"Thank you, Gentlemen... May God bless you"

Lame Police Doesn't Understand What Law Is For

2009-03-22T07:35:00.000+07:00

A little news in Kompas today (22/3/2009). Chief of South Sumatra Police Department gave an award to a driver who killed two robbers by crashing them with his car. See the problem? Yes, you don't need the police. Average citizens, go kill the bad guys.

Equally saddening is the tone of the news. The journalist who wrote sound proud of that killer driver.

Sustainable development and economic valuation

2009-02-27T06:07:00.003+07:00

Below is my address to the East Asia's Sustainable Automobile Society in a meeting in Bangkok last week.

Ladies and gentlemen,

Economy and the environment are not independent one another. In fact, economic activities take place in environment and their outcomes are both affected and affecting the environment. This is true particularly because both consumption and production – the two basic economic activities – use resources from the nature as their inputs. Furthermore, those activities generate both output and waste. The capacity of the environment to assimilate waste will determine the future condition of the environment and hence its ability to support economic activities. Finally it should be mentioned that economic activities end up at the provision of utility to economic agents. Here too, the environment can have direct impact. That is, amenity may or may not enter directly into one's utility function. Recognizing the interrelationship between environment, natural resources, consumption, production, and utility is necessary to put economics into the realm of sustainable development, i.e. development that strikes the balance between economic activities and environmental preservation as well as between generations.

In order to appreciate the role of the environment and natural resources in economic context, one needs to have a framework. This framework would preferably be able to lend itself into the widely used cost-benefit analysis. Here the problem lies: it might be easy to calculate the cost of improving the environmental condition (e.g. building up a giant air purifier, water treatment, etc). But that is just half of the materials to come up with sensible cost-benefit assessment. To justify spending of public money for say, cleaning up the air, there has to be a justification to the proposed costs. That is, we need to calculate the expected benefit of such action. Alas, this is no easy task. Measuring the economic benefits of consuming food or clothes is easy, for they are 'market goods': goods traded tangibly and have price tags on them. The direct proxy of their benefits is simply their market price. But for environmental goods, this is not the case. One needs to apply a particular technique to attach a value to such 'non-market' goods as a proxy of the benefit that later can be contrasted against the cost. That is the objective of economic valuation.

Economic valuation can be based on two different sources of data. First, stated data set. This information is obtained via direct question to respondents. Second, revealed data – information obtained by observing what an economic agent does. There was a time when economists tend to be skeptical on the former, as economics is a 'science of observation'. However, experience has dictated that not every time and for every case historical data are available. This is particularly true for the cases of non-market goods such as environmental quality. Therefore, economists have to rely on stated data: surveys, questionnaires, interviews are employed. Recently, there has been an increasing amount of researches using both resources in combination. One message from these studies is that whatever data resource is employed, what matters is how one can come up with a sensible measure of the value of improving the quality of the environment. The principle here is that, you can not preserve the environment if you have no idea what it is worth. To know the value, you need to calculate how much benefit people will enjoy on top of the cost of the improvement. That again is the use of valuation.

Thank you

Stimulus for works

2009-02-26T07:57:00.000+07:00

The GOI claims that its Rp 73.3 trillion stimulus will create 3m employment, assuming an employment-growth elasticity of between 431 and 450 thousands (The Jakarta Post, 26/2/2009). It seems that GOI expects workers to come to its infrastructre projects that will take Rp 12.2 tr from the stimulus, on top of the Rp 90 tr already allocated in the 2009 state budget. With all this, GOI expects to see a poverty redux from 15.4% last year to 12-13% this year, assuming growth between 4.5 and 5%.

Two notes. First, growth will likely be at 4% and that means employment and poverty targets might be missed. Second, setting targets is one thing, attempting to reach them is quite another. GOI has set so many targets but it is seldom crystal clear how they will achieve them. For one, infrastructure is said to be the champion, but at the same time populist moves such as fuel subsidy increase keeps coming. Also, arguably under DPR's resistance, GOI can't implement more effective modes for stimulus such as direct cash transfer.

More redux?

2009-02-26T07:27:00.000+07:00

DPR is asking further cut in fuel price from Rp 4,500 to Rp 3,500.

It's DPR. So you judge yourself.

Paper pick: Jacks et al on Commodity Price Volatility

2009-02-25T09:28:00.001+07:00

Commodity Price Volatility and World Market Integration since 1700
by David S. Jacks, Kevin H. O'Rourke, Jeffrey G. Williamson
NBER Working Paper - #14748, 2009

Abstract:

Poor countries are more volatile than rich countries, and we know this volatility impedes their growth. We also know that commodity
price volatility is a key source of those shocks. This paper explores commodity and manufactures price over the past three centuries to answer three questions: Has commodity price volatility increased over time? The answer is no: there is little evidence of trend since 1700. Have commodities always shown greater price volatility than manufactures? The answer is yes. Higher commodity price volatility is not the modern product of asymmetric industrial organizations - oligopolistic manufacturing versus competitive commodity markets - that only appeared with the industrial revolution. It was a fact of life deep into the 18th century. Does world market integration breed more or less commodity price volatility? The answer is less. Three centuries of history shows unambiguously that economic isolation caused by war or autarkic policy has been associated with much greater commodity price volatility, while world market integration associated with peace and pro-global policy has been associated with less commodity price volatility. Given specialization and comparative advantage, globalization has been good for growth in poor countries at least by diminishing price volatility. But comparative advantage has never been constant. Globalization increased poor country specialization in commodities when the world went open after the early 19th century; but it did not do so after the 1970s as the Third World shifted to labor-intensive manufactures. Whether price volatility or specialization dominates terms of trade and thus aggregate volatility in poor countries is thus conditional on the century.

Forced apology

2009-02-24T07:25:00.000+07:00

So there they are. The arrogant guys at Commission VII of the House win. They have successfully forced the bullied Karen Agustina of Pertamina to apologize for something she did right. Effendi Simbolon, Sonny Keraf and their ilk, shame on you.

Feenstra's newest

2009-02-18T22:02:00.001+07:00

New paper by Feenstra:

Over the last three decades, the value of Chinese trade has approximately doubled every four years. This rapid growth has transformed the country from a negligible player in world trade to the world's second largest exporter, as well as a substantial importer of raw materials, intermediate inputs, and other goods. This paper provides an overview of the microstructure of Chinese trade, its macroeconomic implications, trade disputes with other WTO member countries, and the role of foreign firms.

Bullying Karen

2009-02-17T07:31:00.000+07:00

If the story in the Jakarta Post today (17/02/2009) is true, I'm with Karen Agustiawan, the new chief of Pertamina. It is reported that Sony Keraf, deputy chairman of Commission VII stopped the hearing while Agustiawan was still responding to the House's queries.

I'm sick of DPR's demand for respect. They do not deserve one.