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Interview with Paul Romer on Mauritius
Via Mark Thoma, here is an interview with Paul Romer about growth in Mauritius. One question is how much Romer's growth theory was needed to generate this advice. Second, I am surprised how little attention he gives to Mauritius being a small country. I don't think that country size makes the advice much different, but perhaps expectations should be adjusted. Most small countries aren't well-diversified and their growth rates depend heavily on real shocks. Singapore is an exception, most of all because its citizenry is obsessed with accumulating human capital and thus it depends upon a general flow of foreign capital rather than specific sectors. I don't see harm in Mauritius trying to follow this same path but I wouldn't expect them to succeed to a comparable degree.
Speaking of small countries, Fred Sautet has an interesting blog post on what happened to the New Zealand reforms. Since the reforms starting in the 1980s, New Zealand has had excellent economic policies, probably better than Mauritius can expect to implement. But New Zealand has not had stunning rates of economic growth. A big part of the answer is simply that New Zealand still depends on the demands for dairy and agriculture. Yes, many parts of the country are booming but the worldwide demand for commodities is a big part of the reason why. The deregulation of agriculture helped but without rising food prices growth would be lower yet. Earlier, it was Britain's removal of imperial preference in 1972 that sent the country tumbling over the edge in the first place. Yes freedom is still better but in general small countries are less of an "economic laboratory" than we might think. Conversely, while there are some good explanations for "the Irish miracle," a small country with a few million people can with good luck grow quite rapidly.
Just think about the determinants of your own family income; probably for most years policy changes are not #1 on the list. A country of 1.2 million people, such as Mauritius, is more diversifed than your family, but not as much more diversified as you might think. When it comes to real factors, Say's Law does hold. Demand for your labor depends on the production decisions of 300 million mostly wealthy and often quite diversified Americans. That offers your income a great deal of protection, relative to what suppliers on Mauritius can expect.
Posted by Tyler Cowen on February 10, 2008 at 07:54 AM in Economics | Permalink
Comments
Romer makes a case that there are large positive externalities from skilled labor:
“The more you have high-skilled workers, the more your domestic high skilled workers will benefit. Think about New York City, Hong Kong, Singapore. Why do so many people go there? It is to be around other people who are highly skilled. High skilled people benefit from being around many other high skilled people, and low-skilled people, whether they are construction workers or labourers, benefit when there is a more vibrant economy fostered by the high skilled people…”
According to Claudia Goldin, 100 years ago, the U.S. led the world in heavily supporting primary and secondary education. The result was both rapid economic growth and a relative reduction in inequality.
Today, the U.S. government is cutting support for education, especially tertiary education, in order to fund other priorities (primarily military).
What are the likely effects on growth and inequality?
Posted by: A student of economics at Feb 10, 2008 10:00:49 AM
One hundred years ago, the US didn't involve itself in education outside of the military academies. It was almost entirely a matter handled at the local level. It should surprise no one that continued federal interference and spending on education has achieved nothing. My dyed-in-the-wool Republican cousins who are primary teachers can't stop bitching about NCLB.
As for the economic growth of the turn of the 20th century, pinning it on one thing is ridiculous. Ireland had full adult literacy for decades even as its economy went nowhere.
Posted by: Joshua Holmes at Feb 10, 2008 11:59:00 AM
Here's what Profs. Goldin and Katz have to say on this (http://kuznets.fas.harvard.edu/~goldin/papers/legacyaea.pdf):
The United States led all rich and industrialized countries in the establishment of mass secondary and higher education, and it led all in Europe by at least several decades for much of the twentieth century. The U.S. advantage in the schooling of its young produced, by midcentury, large differences between the educational stock of its labor force and that of other rich countries, a result that would hardly be surprising except for the fact that the United States had absorbed millions of less-educated immigrants. Only in recent decades have many rich countries caught up to, and even exceeded, the United States in years of education for young persons.
At the same time that the United States led the world in mass education in the twentieth century, it rapidly expanded its economic lead. No single factor can account for the economic dominance of the United States in the twentieth century and most of the favored explanations, be they rooted in technological, institutional, or natural resource factors, are complementary ones. But despite that admonition, it would appear logical that part, possibly a major part, of the economic precedence of the United States came from its enormous lead in education.
See also http://kuznets.fas.harvard.edu/~goldin/papers/virtues.pdf
where they discuss how this came about, including, but certainly not limited to, public funding. They also note that these trends have been reversed in the US since about 1980 (http://www.hup.harvard.edu/catalog/GOLRAC.html)
FWIW, I use "US" to refer to the country, not to the federal government, per se.
Posted by: A student of economics at Feb 10, 2008 12:45:48 PM
it is certainly misleading to assert that the federal government had nothing to do with education.
the federal government may not have *run* education but the land ordinance 1785 and the northwest ordinance 1787 set aside a portion of land in each new township in order to fund local primary/secondary education in states outside the original 13 colonies. the morrill land grant college act 1862 did the same at the tertiary level, turning over federal land to the states so they could establish and fund what became the great midwestern and western (and some eastern ones too: MIT) public universities. though many started with an agricultural / engineering focus they soon diversified.
Posted by: herman schwartz at Feb 10, 2008 12:58:52 PM
According to the National Center for Education Statistics, spending per pupil (in constant dollars) was $5641 in 1980-81 and $9614 in 2001-02. The idea that education is not being supported is ludicrous.
See http://nces.ed.gov/programs/digest/d04/tables/dt04_163.asp
Posted by: Rich Berger at Feb 10, 2008 2:16:31 PM
Three issues for smaller countries:
- A healthy, agreed way to deal with "Tribalism";
- A common Language (need not be the only language);
- A shared vision/purpose (religion, industry, tourism, ...) that lifts most/all boats.
Gary
Posted by: Gary Bridgewater at Feb 10, 2008 3:28:42 PM
ASOE,
It is disingenuous for you to say "They also note that these trends have been reversed in the US since about 1980 (http://www.hup.harvard.edu/catalog/GOLRAC.html)"
That is not at all what the link says. It says that since 1980, demand for educated workers has outstripped the supply, leading to income inequality. As noted, public spending on education during that time has doubled. So clearly public support for education has not slackened, as you assert, nor have you provided evidence that the U.S. has fallen behind other countries in funding.
What exactly is it that you want "the U.S." to do? I certainly think education could be improved, but is increased government "support" (funding?) the solution?
Posted by: Cliff at Feb 10, 2008 3:40:36 PM
This is potentially a much longer discussion, but Claudia Goldin noted that both demand and supply for educated workers increased substantially 100 years ago, but more recently demand increased without a commensurate increase in supply, leading to growing inequality. I suspect economic growth has also been lower as a result. This is in contrast with what happened pre-1980 at least relative to other nations and to demand, if not in terms of dollars.
Unlike the earlier period, the US is now in the middle of the pack in performance and also education spending as a share of GDP among OECD countries. [1] [2] It was far ahead of other countries for most of the early and mid-20th century. This mostly reflects other countries catching up and surpassing the US, not absolute declines by the U.S. It also appears that in some ways, the US education spending may be more inefficient than that in other nations, at least when it comes to tasks like math and science. Perhaps it does as well or better in areas that are more difficult to measure like creative thinking.
What to do? 1) Take education investments more seriously. They are a rare case where boosting economic growth and mitigating inequality are not at odds -- a win-win. 2) Find ways to improve the "productivity" of education -- Romer has argued for this. Perhaps we can learn from other nations or experiments at the local and state level. 3) Devote more resources to education -- it has positive externalities and this is likely increasingly true in the emerging "knowledge economy".
[1] e.g. "Expenditures for primary and secondary education as a percent of gross domestic product (GDP). While the United States had higher expenditures per student for primary and secondary education compared to the other countries presented, the United States placed in the middle of the countries presented based on public expenditures for primary and secondary education as a percent of GDP in 1998. With the addition of private expenditures for primary and secondary education, the United States still placed in the middle of the countries presented based on total public and private expenditures as a percent of GDP—behind France and Canada, about the same as Germany, and ahead of Italy and Japan." from http://nces.ed.gov/programs/quarterly/vol_5/5_2/q6_2.asp
[2] e.g. "In the 2003 OECD Programme for International Student assessment (PISA), the performance in mathematics of 15-year old students in the United States was well below the OECD mean, rankingthe United States in a tie for 21 st place with Poland, Hungary and Spain and ahead of only Portugal,Italy, Greece, Turkey and Mexico. The United States trailed many European countries. Finland,Korea, and the Netherlands were the highest performers, achieving statistically similar average scores that are higher than the average scores in all other OECD countries. (Chart A4.3, p.64) Student performance in problem solving was equally low for the United States. The mean scoreachieved by 15-year-old students in PISA 2003 ranked the United States in tie for 23 rd place withSpain, Portugal and Italy and ahead of only Greece, Turkey and Mexico. It was again well behind the highest performing countries, Finland, Japan and Korea. (Chart A5.3, p.78)"
Posted by: A student of economics at Feb 10, 2008 4:16:13 PM
One obvious implication of all this is to use immigration policy to bring in more educable people and keep out less educable people, such as Canada explicitly does. In contrast, the U.S. has allowed in many millions of people who couldn't hack it Mexico and has concentrated its legal immigration policy on family reunification rather than on finding immigration applicants with high skills. The opportunity cost loss is obvious.
Posted by: Steve Sailer at Feb 10, 2008 6:24:03 PM
SOE-
Your filibuster isn't working.
Posted by: Rich Berger at Feb 10, 2008 7:10:06 PM
Does it appear that the quality of education in the US is positively related to feral involvement?
Graduate schools in the US are massively supported by federal money and US grad schools are undoubtedly the best in the world.
US undergraduate schools receive substantial federal funding and they rank highly when compared to the rest of the world.
primary and secondary schools in the US have little federal support and generally rank poorly in international comparisons.
Just an interesting observation.
Posted by: spencer at Feb 11, 2008 11:19:32 AM
Singapore's economic prosperity depended upon immigration as well as economic freedom. For Mauritius, its market-oriented policies would naturally attract large migration from nearby impoverished countries, and would attract capital along with a growing labor force.
Ireland's economic turnaround depended upon out-migration that, after pro-market reforms, enabled tens of thousands of Irish trained overseas to return with capital, skills, and international networks to and join the new prosperity. My father is in the rock-crushing business and was amazed by aggressive expansion of Ireland-based rock-crushing manufacturing and marketing. These firms were a combination of home-grown and overseas-trained.
A note on Singapore:
(http://www.unesco.org/most/apmrnw13.htm)
"Immigration, as mentioned, has been an important part of Singapore's demographic history. Some, for example Pang (1992), would also argue that the Singapore economy has been built on immigration. At its founding in 1819, there were reportedly only 150 Malay fisherfolks on the island. Migration from China, India and the countries surrounding Singapore was the main contributor to population growth up to the period around World War II (Figure 1)."
Migration continued to fuel Singapore's later economic growth.
Posted by: Greg Rehmke at Feb 11, 2008 4:49:38 PM
