The British are coming

Most of us involved in climate  research and policy have thought seriously about the impacts of  ”climate refugees” from Least Developed Countries (LDCs) or Small Island Developing States (SIDS) from the perspective of basic human rights, national sovereignty and international relations. Driven from their homes by rising sea levels that swallow up entire countries or devastating droughts, these thousands or millions of poor individuals could starve, initiate violent conflict or generally disrupt global peace and security. Many developed country leaders are genuinely concerned about this, as they should be. However, there’s one other potentially disastrous source of refugees that has not received much consideration (at least outside of this blog): the UK.

Getting a little too hot and stuffy in old London? Why not set sail (flying’s too expensive because of the EU ETS) for the wild, untamed land of hobbits, orcs, elves and children-biking-friendly-neighborhoods that is New Zealand. Once the British Isles succumb to the rising tides and descend into chaotic, steamy tribal warfare between Manchester and Chelsea supporters, you’ll certainly have the last laugh…on another island.

Anyway, my point is not to belittle the British (as much fun as that is), or make light of the truly dire situation faced by many threatened countries, it is really to call attention to the vast disconnect that still exists between developed and developing countries over the impacts of and solutions to climate change. For LDCs and SIDS it’s not a matter of a slightly higher electricity bill or our inalienable right to consume, it’s a matter of survival. Of course that’s easy to say from a cubicle in Washington, but I think it’s a message often lost in the crunch of “political feasibility”. But god forbid anybody in the US or EU should be asked to give up part of their lifestyle (not “sacrifice” because that’s misleading). I am starting to feel the heat here in DC…Canada anybody???

Dey took er jerbs!, H-1B edition

Michael Clemens at the Views from the Center blog points out that the Grassley-Sanders (!) amendment to the stimulus bill places new restrictions on hiring practices of firms receiving TARP funds; specifically, it will be more difficult for these firms to hire highly-skilled foreigners on H-1B visas.  Seems to me that restricting extremely talented MBA’s and the like from staying in the U.S. is not necessarily the best medicine for firms that are struggling to stay afloat under an anchor of poisonous assets.

In addition, Clemens relates the following:

That’s just one example of a trend we can expect to grow: Last Friday at Columbia University I publicly debated one of rising number of Americans who feel that the crisis is a reason to welcome drastically fewer people to this country, even highly skilled workers. “Buy American”, via immigration policy, is gaining credibility as a solution to the crisis.

His main economic counterpoints:

1. Immigration and unemployment are, if anything, negatively correlated.  In fact, highly-skilled workers (such as those here on H-1B’s) seem to create jobs by improving existing companies and starting their own ventures.
2. Developing nations benefit greatly when their citizens come the U.S. to be trained and work for a while.  They send home remittances and mantain/form networks with their home country, thus accelerating trade, investment, and technological change abroad.  Yes, we are having extremely tough times here, but Clemens urges us to consider the dark outlook for an already-impoverished nation in these global economic circumstances.

Clemens also points us to Bill Kerr of Harvard Business School.  In a recent paper, he found that when H-1B visa numbers went down, so did patent applications filed by immigrants in the U.S.  When H-1B numbers went up, patent applications followed suit.  In fact, he even found “little impact on the invention rates of native U.S. workers.  Most increases in U.S. innovation with higher H-1B admissions come through direct contributions of the immigrants themselves.”

In this case, the trend toward recession anti-immigration sentiment is concerning for all aspects of our economy,  especially as we begin sinking large amounts of money into basic research in biomedical and energy sciences.  Most estimates of highly-educated labor supply find it to be quite inelastic in the short run as one must acquire extensive training to join the science and engineering workforce.  The last thing we need to be doing at this point is restricting extremely talented, creative entrepreneurs from entering our economy and innovating.  To treat an H-1B foreign hire as simply a one-to-one crowd out of an American from his/her job is extremely fallacious.

World Bank: IGCC = clean technology

Oh dear god.  David Wheeler over at the Center for Global Development’s Views from the Center blog writes that the World Bank’s Clean Technology Fund Trust Fund Committee is voting on investment criteria that would make “best available coal technology” eligible for subsidy as a clean technology (it’s a good post).  I believe this refers to higher-efficiency IGCC plants that could hypothetically later be retrofitted for CCS.  I think that at this point, CCS is so untested at large scales that claiming IGCC plants to be low-carbon technology because of this potential extension is completely ridiculous.  Let’s just start clearing space for all the sweet fusion power plants that we might possibly build someday maybe.

I guess can see a situation in which investing in modern coal plants would increase energy efficiency and reduce emissions in the short term, to be replaced/augmented by low-carbon energy technologies (CCS, wind, solar) when the costs and technology uncertainty have decreased in the future.  In addition, it will probably be important for the developing world to have some capacity to start using CCS — if it works, if costs fall, and if there is no sufficiently prevalent superior alternative.  Regardless, under the present levels of uncertainty associated with scaling up CCS any time soon, the path dependency problem of subsidizing IGCC plants under the guise of clean technology is troubling.

Technology transfer is going to have to play an enormous role in solving climate change., but this is probably not the way to move forward.

Exogenous legal institutions as a channel to growth?

Most of the empirical literature on the relationship between legal institutions and growth employs cross-country data, but these data may be of limited use in learning how specific rules and laws affect specific paths of development. This paper exploits policy-induced variation in legal institutions across American Indian reservations to study a specific casual mechanism from institutions to growth. The variation is due to federal legislation, implemented during the 1950s and 1960s, that forced some American Indian tribes to transfer judicial jurisdiction to state courts while other tribes retained jurisdiction. The evidence indicates that American Indians on reservations under state jurisdiction were less likely to be denied home loans during the recent housing boom and the results are robust to corrections for potential selection bias. Other findings indicate that lender market concentration is lower on reservations under state courts, and that more per-capita housing credit has flowed to these reservations in recent years. These findings are consistent with a theory developed here that lenders are more uncertain about creditor rights under tribal law.

That is Dominic Parker on the effect that (exogenous changes in) legal institutions have had on access to credit on American Indian reservations.  The basic idea is that the U.S. imposed a known (i.e., less uncertain) legal framework on some reservations, and the reduction in uncertainty about creditor rights increased credit flows in these places.

The natural extension is to ask whether small countries with bad institutions can get an instant boost if they import the external legal instutions of mature, stable countries.  But it is not clear to me that uncertainty about creditor rights is the relevant constraint in most countries with bad institutions.  Rather, it seems to me that bias and corruption are more likely channels for hindering credit flows.  (In fact Parker is explicit in his paper that he is looking at the reduction in uncertainty about creditor rights, not the removal of bias and corruption, as the channel for improving credit access.)  Can Haiti import not only Great Britain’s legal institutions but also its enforcement capabilities?  The new and exogenous legal institutions have to be credible, and this seems like a much different challenge in many developing countries compared to American Indian reservations.

Here is Parker on whether federal land programs crowd out private conservation.

Protection from a sometimes vindictive mother…

For now, it appears like New Orleans has mostly dodged a bullet with Hurricane Gustav. While power  remains down and there is mild flooding throughout the deserted crescent city, fears that we would witness the second-coming of Hurricane Katrina thankfully did not come to pass. Still, just because New Orleans survived this storm does not mean it will survive another storm that is perhaps a little more powerful and a little more on target, as Andrew Revkin highlights today on DotEarth.

Some of the questions brought up in the aftermath of Katrina and stirred up again with Gustav relate to human infrastructure in the face of a pissed-off mother nature. The flashy question is of course ‘is New Orleans worth saving?’ Another more nuanced, and ultimately more important, question though lingers in the background and that is ‘what can cities do to reduce their vulnerability to extreme weather events?’

The question is not as simple as reinforcing our infrastructure (i.e. building higher levees), because it doesn’t take a hurricane to show us that the systems we have to protect ourselves have pretty significant limits. The floods throughout eastern Missouri earlier this year were perfect examples of supposedly adequate infrastructure failing. Stupid policies, like offering tax incentives to developers who build levees that narrow the Mississippi River’s channel in order to throw up subdivisions and the country’s longest strip mall (in Chesterfield, MO) on former floodplains, don’t buttress these systems from letting people down either. Anyone who has taken any kind of river or hydrology course should be able to tell you that when you reduce a river’s channel, flood water doesn’t have much choice but to go up, and eventually over, the levees that restrict it. I have devised a series of equations that should highlight this concept:

Free money (tax breaks) + developers = new levees + smaller river channel

smaller river channel + high flood waters = broken levees

broken levees = sad people with wet houses

Solving these kind of problems will not be simple, but there may be some solutions on the way, courtesy of the nation-state of California. The state Senate there recently passed a bill that was designed to discourage suburban sprawl as part of the larger efforts to bring the state into compliance with AB 32, the sweeping climate change bill passed in 2006. Here’s a couple things the bill would do, according to the San Jose Mercury News:

The bill would require local governments to plan their growth so homes, businesses and public transit systems are clustered together. The goal is to help California meet the emission mandates spelled out in a wide-ranging greenhouse gas reduction law passed two years ago.

At the same time, it will encourage housing to be built closer to where people work and shop while discouraging the type of suburban sprawl that has characterized California’s development pattern for decades.

It requires local governments to submit regional development plans to state air regulators for approval, making them eligible for billions of dollars in state and federal transportation grants…

…[Sen Darrell Steinberg's] bill requires the California Air Resources Board to work with local governments to set regional targets for reducing heat-trapping greenhouse gases. Those targets would be used in transportation plans for each of the state’s 17 metropolitan regions.

Similarly, the state would create regional housing plans that take into account the transportation plans, putting more homes near rail and bus lines and within a short commuting distance of major employers.

Local governments and transit agencies that comply would get faster regulatory approval, including an easing of the usual environmental review requirements. That provision allows a major concession to developers by making it more difficult for opponents to sue them as a way to stop projects.

No doubt libertarians are shuttering from here to Zzyxx, CA (a real town, I promise), but if the bill passes, it may provide a useful template for other states to emulate. It’s not a huge leap to envision a similar bill discouraging additional developments in major floodplains and coastal areas while limiting the irresponsible growth of communities that are already exposed to elevated risks. Such efforts may not help solve the tricky problem of places like New Orleans, but it could help head off future problems. State senators, start drafting your legislation…

The curse is broken?

Why hasn’t this been reported more widely?

The correlation between resource dependence and slow growth and conflict, therefore, does not imply causation from the former to the latter. Instead, causality appears to be running from weak institutions and conflict to resource extraction as the default sector, which produces resource dependence as the final outcome. Resource dependence appears as a symptom, rather than a cause of underdevelopment.

The authors argue that previous research on the ‘natural resource curse’ has been unable to correctly identify which way causality runs:

The standard resource variable used by Sachs and Warner, as well as by Collier and Hoeffler, is primary exports divided by a measure of national income. It thus captures the resource dependence of economies, rather than abundance. A negative correlation between this variable and growth could mean that resources lead to slower economic growth, as suggested by the curse proponents. Alternatively, it could mean that poor economic development policies–leading an economy to become dependent on its primary exports–dampen growth. Similarly, although a negative correlation between the resource variable and institutional quality may imply that resources undermine institutions, it might also capture that the resource sector is the “default sector” in the absence of decent institutions when nobody is willing to invest in alternative forms of capital. Finally, a positive correlation between the resource variable and conflict may indeed mean that resources trigger conflict. But it may also be the case that conflict makes countries dependent on resource extraction–the default activity that still takes place after other economic sectors (more mobile or, perhaps, better linked to the rest of the economy) have come to a stop. If so, resources are not a curse to development, but rather a safety net to support people and economies even under adverse circumstances.

They argue that economic dependence on natural resources is endogenous in exactly this way and use data on resource endowment — rather than resource exports — as an explanatory variable for economic growth.

When using the new World Bank variable to proxy for resource abundance, we find that the direct effect of resource wealth (particularly the subset of mineral resource wealth) on income growth is positive and significant. All things considered, an increase in subsoil wealth by one standard deviation–roughly the difference between Senegal and Sweden–would have brought Senegal’s growth performance on a par with that of Mozambique or Kenya; not a huge improvement, but certainly not a growth curse.

Similarly, resource wealth also attenuated the risk of conflict. This is due to a positive indirect effect: Resource wealth raises income, and higher incomes, in turn, reduce the risk of conflict. Again, although the aggregate impact of resource abundance is slight–amounting to less than a 5% reduction in the risk of war in case of a standard-deviation increase in resources–it is still statistically significant.

If this result holds up it will be a significant finding in development economics and could overturn almost 2 decades of conventional wisdom on the curse of natural resources.  The full text is here (gated); a non-gated version is here.

Electricity as female empowerment

This paper investigates the employment effects of a mass roll-out of household electrification in rural South Africa. … My findings show that cooking with wood falls sharply in treated areas over a five-year period, and lighting and cooking with electricity increase substantially. IV employment results indicate asymmetric responses by gender: female employment rates increase by 13.5 percentage points in treated areas, while there are no significant male effects. Middle-poor communities respond most to the new option to use electricity, and employment effects are large for women in their thirties and forties who are less constrained by child-care responsibilities.

That is Taryn Dinkelman, graduating from Michigan, in her job market paper. The basic story is that when you spend a few hours per day tied up in home production — collecting wood and cooking — the provision of electricity can free up significant time for other opportunities. Note that the poorest households don’t benefit as much, probably because while connections were completely subsidized in South Africa, the poorest households remain less able to afford the appliances that use electricity. Also note that this is a very large employment effect on the extensive margin: the female employment rate is 7% in her study area.