Mostly Economics

I was reading this interesting paper from Paola Giuliano and Antonio Spilimbergo. It says:

Do generations growing up during recessions have different socio-economic beliefs than generations growing up in good times? We study the relationship between recessions and beliefs by matching macroeconomic shocks during early adulthood with self-reported answers from the General Social Survey. Using time and regional variations in macroeconomic conditions to identify the effect of recessions on beliefs, we show that individuals growing up during recessions tend to believe that success in life depends more on luck than on effort, support more government redistribution, but are less confident in public institutions. Moreover, we find that recessions have a long-lasting effect on individuals’ beliefs.

The paper is much like the inflation memories paper I had pointed a while ago. So, jsut like inflation, people tend to have memories for recession as well.

All these papers again point to the need to remember history not just from the angle of macroeconomic events but also the impact it had on people. However, much of our research only sees consumer/producer as a forward looking rational agent. In reality, people make their decisions based on the past experiences as well. It is a very important ingredient in their decision making.

I am terribly late on this issue, but nevertheless… I just read about it a while ago as it was on my pending list for a while. Anyways, Paul Romer ( I am told he is always a prospective Nobel Prize candidate for his work on growth theory) of Stanford University has brought this idea of building Charter Cities as a new model for development.

The project details are here, FAQs are here and there is a blog as well where he is debating and discussing the idea. So what is it?

Charter cities offer a truly global win-win solution. These cities address global poverty by giving people the chance to escape from precarious and harmful subsistence agriculture or dangerous urban slums. Charter cities let people move to a place with rules that provide security, economic opportunity, and improved quality of life. Charter cities also give leaders more options for improving governance and investors more opportunities to finance socially beneficial infrastructure projects.

All it takes to grow a charter city is an unoccupied piece of land and a charter. The human, material, and financial resources needed to build a new city will follow, attracted by the chance to work together under the good rules that the charter specifies.

Action by one or more existing governments can provide the essentials. One government provides land and one or more governments grant the charter and stand ready to enforce it.

He offers a few examples as well –

Case 1: Canada develops a Hong Kong in Cuba
Case 2: Indonesians flock to a manufacturing hub in Australia
Case 3: States in India compete for the chance to build a charter city

Although the concept is interesting, it is hardly anything novel. For instance in India, we have tried to create similar charter cities in form of Special Economic Zones (preceded by Export Processing Zones.  Though Romer’s concept is far more bigger talking about a complete city and just focused on one form of economic activity.

However, there are numerous problems getting them started – land litigation issues,  etc etc. It was a big bubble around 2007 and we just don’t know what happened to the SEZs which had been started at so many places in India.

The developing economies have too many of such issues and is always difficult to get them going.

The broad idea is also similar to what Paul Romer’s idea of growth theory- organising existing resources more efficiently to produce better outcomes (see this for some idea). So, instead of looking at fancy ideas to drive growth and development, just re-organise the various resources (land, labour etc).

Urbanomics has a nice critique saying it might not work.