Wednesday, 29 February 2012

Blog log 2/6

Time flies when you are having fun and/or on sabbatical. At the end of February 2/6 months of my research leave is done and I still haven't visited Stellenbosch! For that report that I have to write later, here is quick blog-log of the things that kept me busy in February:
    1x      Masters’ dissertations examined
    1x      comments about post-grad supervision at the Brain Packet meeting and 2 blog posts
    1x      Meeting for our planned firm survey
    1x      wrote up the economics, IPAP section of the InvestNW project
    2x      comments on radio about the Budget!
  15x       blog posts
 100x      tweets (blame the Budget 2012 for all those)
    1 more  article submitted 
    2 more  articles accepted for publication later in 2012

 The one day extra in February helped.

Brainstorming some "green" tourism research

Following the "green race" paper we have been thinking about green tourism research and I am happy to share a few ideas here. I have also had the opportunity to get feedback from David McKenzie and Berk Ozler at the Work Bank (I'm a big fan of their Development Impact blog). If anyone out there has more ideas, or want to involve us in some interesting work (particularly if you have a huge budget to spend and plan to do the work on a tropical island), please send me a mail.

Tuesday, 28 February 2012

Thinking cities

I have been busy with more WTP stuff today, but came across this cool video via @urbandata on Twitter. FastCompany's Co.Exist site has this wonderful short film on Thinking cities and how cities drive growth and development.
"There’s an enormous realization of the importance of cities. That is true for business, it’s true for government, it’s true for civil society."

Monday, 27 February 2012

Marathons, carbon footprints and willingness to pay

Recently Prof Melville Saayman and I have been involved in some tourism research about the willingness to pay for conservation. Saying that your willingness to pay (or not) will save the world may be overstating the significance of our research a bit, but it is almost that important.

There exists a large international academic literature on aspects of the environment, climate change and tourism. An analysis of the links between tourism and climate change can be grouped into four categories (Fisher, 2007), namely i) the impact of tourism on climate change, ii) the impact of climate change on tourism, iii) adaptation to climate change, and iv) mitigation of climate change. In this last category, studies of the mitigation of climate change, specifically of willingness to pay, have focussed on air travellers’ willingness to pay for carbon offsets (see Brouwer et al., 2008), or tourists’ willingness to contribute to funds for the management and conservation of a particular natural resource (see Casey et al., 2010). Our paper falls in the last category and takes the question of the environment and climate change to a sports event to ask: Are Two Oceans Marathon runners willing to pay for a “greener” race and what are their characteristics?

Most of the participants fly or drive significant distances to participate and spend a number of days in and around Cape Town as tourists. Based on their characteristics, an online carbon calculator shows that the carbon footprint of the average participant is approximately 480kg of CO2, which can be offset with approximately 2.2 trees at a cost of more or less R90 ( In order to examine whether the runners are willing to pay to reduce their carbon footprint in the race, a survey was conducted at the marathon. In total, 502 athletes participated in the survey and data were collected about their demographics, spending and the key question: “Would you be willing to pay more for a more environmentally friendly marathon?”
The paper goes on to provide an overview of the literature, describe the survey, specifically the willingness to pay question and describe the sample characteristics. For the purposes of the blog we can jump to the results.

Of the 502 respondents, 11 per cent skipped the willingness to pay question. Another 27 per cent indicated that they were not willing to pay an additional fee and 62 per cent said that they would. Respondents who were willing to pay in principle were subsequently asked whether they were willing to pay a specific amount of money. Approximately 22 per cent of runners indicated that they were willing to pay R10, 12 per cent were willing to pay R30 and 19 per cent were willing to pay R50. The runners were also asked to name the maximum amount that they were willing to pay over and above the race registration fee. Almost 40 per cent did not answer the question and, for the remaining 60 per cent, the mean amount was R83.

So, who were these green runners?

  • 69 per cent of women said that they were willing to pay, compared to 58 per cent of men.
  • In the age groups 18 to 30 years, 31 to 40 years and 41 to 50 years between 62 per cent and 66 per cent were willing to pay.
  • There is little variation in willingness to pay between the differences in marital status.
  • A greater percentage of Afrikaans speakers (64%) than English speakers (61%) were willing to pay.
  • More of the athletes who had a degree or diploma (69%) or post-graduate qualification (66%) were willing to pay.
  • 72 per cent of the self-employed runners were willing to contribute.
  • Those who travelled further may be more cost sensitive and less likely to make a contribution to mitigation of their emissions.
  • When asked why they would be willing to pay the additional fee the reasons cited most were that they felt responsible for climate change and that they care about the environment in general.
  • The main reason given for not being willing to pay was that people believed that the mitigation programme will have no real impact. This was followed by reasons such as having too little income and not believing in climate change.
The conclusion is that this research presents an opportunity: If people are willing to pay for “greener” and more sustainable tourism experiences, the suppliers of leisure activities and organisers of major sports and cultural events should provide it. It also presents a challenge: segmenting the market and profiling “green” runners, visitors and tourists will require further research.

This leads this paper to make a recommendation for future research. Surveys need to go beyond simple demographics and ask questions about people’s knowledge of and concern about the environment, climate change and mitigation. People may be “green”, independent of their age, education or income. Beliefs and attitudes as predictors of willingness to pay should be explored further in greater detail. There is an interesting research agenda open in this field.

Brouwer, R., Brander, L. and Beukering, P. 2008. A convenient truth: air travel passengers willingness to pay to offset their CO2 emissions. Climatic Change, 90:299-313.
Casey, J.F., Brown, C.B, and Schumann, P. 2010. Are tourists willing to pay additional fees to protect corals in Mexico? Journal of Sustainable Tourism, 18(4): 557-573.

Fisher, J.  2007.  Current issues in the interdisciplinary field of climate change and tourism: A meta-study of articles from 2006 and 2007.  Paper presented at the European Tourism and the Environment Conference: Promotion and Protection, Achieving the Balance. Dublin, Ireland, 11-12 September.

Thursday, 23 February 2012

Support of manufacturing

Yesterday I wrote that the Budget 2012 is noteworthy for its focus on the drivers of growth and support of business. It feels like there is a plan and the Minister has promised funding for a manufacturing competitiveness enhancement programme, industrial development incentives, special economic zones and a lot of infrastructure.

Internationally, specifically in the US, there is a significant debate about whether manufacturing matters and deserves special treatment. I'm slowly starting to read up on this to prepare a SA paper. In the meantime I'll be posting links following the story:
It makes for interesting reading.

Wednesday, 22 February 2012

Budget 2012: Back to the future

Minister Gordhan delivered the 2012 Budget speech in Parliament this afternoon and news services, blogs and Twitter have been buzzing with comments. So this is me trying to get a word in edgewise. I won't try to provide a summary or list all the highlights, but want to mention a few things that makes this budget different.

Overall, there is little to complain about. It seems that the Budget again provides for increased spending, some tax relief and a stable deficit. All this against the background of global turmoil and edgy bond markets! The Mail and Guardian's first article out after the speech: "Gordhan targets the rich in 2012 budget"  is fun for scaring the rich, but completely overblown. For individuals the Budget proposes very modest tax relief and has some proposals for reducing tax arbitrage. The rich will end up paying a bit more, but in the R1 trillion Budget scheme of things, the amounts are small.

Of greater interest to me is what the Budget could mean for the economy at large. In that sense it is a Budget in two parts: Social and Economic. For the social part education, health and spending on social assistance is sustained and increased slightly. Social spending makes up 58% of government spending, up from 48% ten years ago. Almost a third of the population receives social grants and the social wage for a family of four is estimated to be about R3940 pm in 2012. The social spending was also the predictable part of the Budget and a commitment that the government has made since 1994. It should be seen as an investment in people.

To my mind the economic part is the interesting part. Here the focus is on growth and job creation. The question is, how much can one Budget do?

Directly, the influence is small (and that is the way it should be):
  • In Keynesian demand management terms the deficit (4.6% of GDP) means that government spending is stimulating aggregate demand, which should fuel some growth.
  • Spending that is directly aimed at job creation is quite limited: Community work programme (R6.2 billion), Working for water, Working on fire (R7.7 billion), National Rural Youth Service Corps (R900 million) and Arts and Culture job creation (??) (R300 million).
  • In 2011 the Jobs fund received 2500 applications and R1 billion was committed.
  • The youth employment incentive is still under discussion at NEDLAC.
Indirectly the influence can be significant. Today's spending and taxation proposals target the fundamental drivers of growth: savings and investment, human capital and infrastructure. This is the interesting part. I havn't done any exhaustive analaysis but it feels like the Budgets of the mid-2000's were mainly about macro-stability and social spending. Some infrastructure spending was promised, but growing the economy and creating jobs were left to the private sector. Today's budget smacks of a much more active government plan for the economy. Levers of economic change are identified: infrastructure, industrial development and SEZs, R&D, education and skills development:
  • There are approved and budgeted infrastructure plans of R845 billion over the MTEF: R30 billion in the energy sector, R262 billion in transport and logistics.
  • Funding comes from a mix of taxes, debt, user charges and private investment.
  • With key roles for DBSA, IDC, PICC.
The Minister said “No good project will be short of funding”. In this, the Gauteng toll roads may be indicative of future financing approaches: Some sharing of the burden along with the thin end of the wedge.

Where we go back to the future is the extent to which old-school industrial policy got airtime. I have posted on this earlier and a number of the proposals made this afternoon channel the IPAP-2.
  • Under additional allocations for economic services the DTI gets R5.8 billion for the manufacturing competitiveness enhancement programme, and R2.3 billion for industrial development and special economic zones.
  • Support for the business sector includes: SME finance, a procurement accord, incentives for the automotive, clothing & textiles sectors, SEZ’s, R&D tax incentives and a venture capital incentive.
How sensible this drive for industrial policy is, is the topic of another post. For now the challenge acknowledged by the Minister lies in planning and management to ensure delivery.  In 2010/11 only 68% of planned infrastructure spending took place. Today several measures are proposed to improve project implementation and build management capacity. Unfortunately, there is good reason to be concerned.

Tuesday, 21 February 2012

The more things change...

While preparing some comments on this week's Budget Speech I came across this slide. It is from a presentation that Rudolf Gouws made at a BER conference in 2002 and it is scary how everything on it is still relevant 10 years later.

Build-your-own: Budget at a glance

Tomorrow afternoon the Minister of Finance will be reading the Budget Speech in Parliament and this week everyone is opining about it. Chris Hart of Investment Solutions has called it “The most critical Budget since 1994”. He argues for a need for a fiscal policy shift and raises a number of points:

  • Recognition of the difference between poverty alleviation and poverty reduction. He argues that poverty alleviation shifts resources from production/investment to consumption and fosters dependency. The budget should rather pursue poverty reduction outcomes that come from economic growth.
  • The tax base is at the point of exhaustion and spending should be brought in line with available resources. Additional resources can be released by improving government effectiveness and reducing corruption.
  • Government should shift expenditure to make the economy more competitive – i.e. invest in the tax base.
  • Finally he makes a strong case in favour of the role of small business in driving growth and job creation. Government can support SMEs through simplification of tax policy, shifting the tax burden onto consumption, away from savings and investment and deregulation and the removal of obstacles to SME formation and growth.
Cees Bruggemans of FNB has linked his budget comments to President Zuma’s State of the Nation Address and how South Africa is gearing up for a growth boost through infrastructure investment. While more details are awaited on the infrastructure programmes, there has been speculation about financing the spending. In the Mail and Guardian Nickolaus Bauer has wondered about a possible combination of only limited tax relief, a possible increase in the VAT rate and user charges as sources of finance. In a related article Linley Donnelly reported a number of economists’ view that the state can easily borrow the money. Public private partnerships will also play a role.

Instead of offering more opinions of my own, I have decided to put together a little resource for those listening to the Budget Speech tomorrow afternoon. Students love templates, so here is one to build-your-own Budget at a glance:
Key points to listen out for…
Your notes!
Economic outlook:
What does the global economy imply for the SA economy? 
What does that mean for:
o  The need to spend?
o  The ability to collect revenue?

Fiscal framework:
·  Tax collection in 2011/12
·  Spending over R1 trillion?
·   And relative to GDP?
·  Public service wage bill
·  Budget deficit to GDP
·  Public borrowing requirement
·  Government debt to GDP

Spending proposals:
·  Social security, grants
·  Infrastructure investment and maintenance
o  Energy, transport, health facilities, education infrastructure,
·  Expanded public works programme
·  Support of structural change, industrial policy, business development
·  Education
·  Health (NHI?)
·  Local government, housing and community amenities
·  Public order and safety
·  Environmental protection and green economy
·  Science and technology

Tax proposals:
·  Personal income tax
·  VAT
·  Company tax
·  Other taxes?
·  User charges

If you are not watching the broadcast, you can always use Twitter to follow the speech. Along with all the economists, @mailandguardian should be tweeting live. Also, Chris Hart and JP Landman is having a budget face-off that you can follow via @InvestmentSolZA.

Saturday, 18 February 2012

Industrial policy - identifying causal effects

Following up on the industrial policy story, I have come across an excellent blog post that sets the bar for research in this field. John van Reenen writes on the VoxEU blog about a recent CEPR paper by himself and co-authors (Criscuolo et al. 2012) on industrial policy in the U.K.

To evaluate the impact of providing incentives or subsidies to firms is difficult, since such programmes might finance activities that the firm would have undertaken anyway. In addition, looking at what happened to recipients relative to non-recipients, does not tell you what would have happened in the absence of government support. In their paper  they try to identify the causal impact of a ‘Regional Selective Assistance’-programme in the U.K. This programme offers investment subsidies to firms in depressed areas on condition they “create or safeguard employment”. The beauty is that they are able to examine every grant and manufacturing plant over a 20-year period and the experimental variation comes from EU-wide rules changes about state aid laws.

Their find that the scheme was successful at increasing investment.
 Manufacturing employment rose and these jobs seemed to come from lower unemployment rather than being “stolen” from unaffected regions and firms. A 10% investment subsidy causes about a 7% increase in employment, with about half of this arising from growth in existing plants and half from higher net entry.
Government grants to smaller firms (fewer than 150 workers) were effective in increasing investment and employment, but money given to larger firms had effectively zero effect. An explanation is that grants help remove the financial constraints faced by smaller firms, whereas larger firms have deeper pockets.
A possible downside of the scheme was lower aggregate productivity as the grants tended to go to less productive firms and had no impact on improving their productivity.
In South Africa, research like this is limited by the availability of data. Work by myself and Marianne Matthee (forthcoming in JEFS) found that access to finance matters for productivity:
Firms that indicate that access to finance is a constraint to their operations are typically small and less established. They are not able to allow their clients to pay after delivery and they have to pay for their purchases before or on delivery. These firms also hold a smaller stock of inventory. The firms that are constrained by access to finance are less likely to own a generator or use own transport to make shipments. These firms are also less likely to pay for security or to provide formal training. They have lower capacity utilisation and are unlikely to be exporters or to introduce new products in response to competition. All this indicate that they may be more vulnerable to shocks and competition as well as being weaker contributors to employment creation and growth.
The SBP also produces interesting SME research, but at the moment there is still too much talk about industrial policy, subsidies, incentives and the importance of SMEs and too little analysis.

Thursday, 16 February 2012

Industrial policy on my mind

For the last few weeks I have thought about writing a blog post on industrial policy. I am working a report that that interprets the Industrial Policy Action Plan (IPAP-2) for the North West Province, and it seems that we are in fashion. As a preface to the North West Province posts, here is a short primer on the ideas and things I have been reading.

Recently The Economist ran a special report on State Capitalism, entitled The visible hand, The Mail & Guardian argued that South Africa should follow the Chinese model and Johan Fourie commented on both of these. President Zuma's State of the Nation address focussed on infrastructure investment with specific sectoral and spatial implications (and Johan and I also commented on SONA).

Internationally, Dani Rodrik has written that industrial policy is back, in fact, it never really went away. He writes that
"...industrial policy never went out of fashion. Economists enamored of the neo-liberal Washington Consensus may have written it off, but successful economies have always relied on government policies that promote growth by accelerating structural transformation".
Rodrik argues that it is not a question of whether one should have industrial policy, but how it should be practiced. He goes on to outline three principles:
  • Industrial policy is a state of mind, built on collaboration between government and the private sector.
  • Incentives should be temporary and based on performance.
  • Policies need to be transparent and open to new entrants - policymakers should be accountable.
He concludes that the argument should not be about government's ability to pick winners, but about whether they are trying different approaches and letting the losers go.

An example of success comes from the latest edition of The Economist and an article about manufacturers in the British Midlands. Different factors have allowed them to survive and some to thrive, but from a policy point of view:
"...local firms credit two helpful outfits. One is Made in the Midlands, a business network that supports its 250 member firms by putting them in touch, largely online, to help solve mutual problems and share market intelligence. Another prop is the Manufacturing Advisory Service, run through regional development agencies, which provides expert help to small and medium-sized enterprises".
The manufacturers described in the article link to a recent NBER paper by Richard Baldwin. The title is Trade And Industrialisation After Globalisation’s 2nd Unbundling: How Building And Joining
A Supply Chain Are Different And Why It Matters
. He aruges that multinationals and global supply chains have killed import substitution and this requires a rethink of 20th century industrial policies.

All together it makes for interesting reading. More details on SA policies to follow.

Friday, 10 February 2012

SONA and the WHERE of growth and jobs

Yesterday evening President Zuma delivered the State of the Nation Address. When one considers the state of a nation you need to mention a number of things. He started with the familiar challenges of unemployment, poverty and inequality. He mentioned that unemployment is structural and made the case that government have been taking steps and will be taking steps to meet the challenge. These steps include increased spending on social security, infrastructure development to stimulate the economy and the establishment of the National Planning Commission. President Zuma also reviewed some of the progress on the undertakings made in last year’s SONA – it is easy to forget about the Jobs Fund, incentives for new industrial projects, local content procurement regulations and the R10 billion that the IDC set aside for job creation. The president’s overview shows that these things take time to get going, never mind produce any results and I think that this is a key point to keep in mind about this year’s promises.

The address identified a number of key issues for 2012. These are being discussed everywhere (see Carien du Plessis’ list) and I do not want to get into all the details again. The list includes:
  • An infrastructure development drive
This is driven and overseen by the Presidential Infrastructure Coordinating Commission. It includes five geographically focused programmes and social infrastructure programmes. The argument is “The massive investment in infrastructure must leave more than just power stations, rail-lines, dams and roads. It must industrialise the country, generate skills and boost much needed job creation”.
  • The extension of basic services, including housing, housing, electricity costs and water supply.
  • Education – where the President argued that the focus on education is paying off and 300 million rand is being allocated for the preparatory work towards building new universities in Mpumalanga and Northern Cape.
There was also mention of:
  • Health
  • Land reform
  • Crime and corruption
With something as broad as the state of a nation there are many things to mention and commentators found their hobbyhorses in the stable: failures in education and healthcare were glossed over, crime and corruption were mentioned in passing, there was hardly a mention of SMMEs, women or the environment.

My concern is with where economic activity occurs and there are quite a few aspects that have clear spatial implications. Something like the Gauteng-Durban logistics corridor makes sense as it is already a main freight corridor, but there are serious questions about the manganese export channel through the Port of Ngqura. It is also not clear that there are sufficient agglomeration forces at work to establish a successful South-Eastern node to improve the industrial and agricultural development and export capacity of the Eastern Cape region. Government may revitalize Mthatha and add some infrastructure, but what about the pooled labour market and supplier of intermediates that an agglomeration requires? I have similar questions about the “enormous potential along the West coast. Related to the spatial story is the question of provincial and local capacity to deliver. The major infrastructure projects may be driven by PICC, but a large share of everything that the government sets out to do have be delivered at Provincial and local government level and in many aspects they are failing.

I realise that the questions cannot be answered be answered in a state of the nation address, but I do think they should be kept in mind for the Budget Speech on the 22nd of February and for the Department of Trade and Industry’s budget vote.

#SONA Storified

Thursday, 9 February 2012

State of the Nation Address

I hope to post more of an overview with some comments tomorrow, but for now here is the Mail & Guardian's analysis and a quick word cloud to give you an idea of what it was all about (it seems that government wants to take the lead with infrastructure projects!):

Wednesday, 8 February 2012

Geographical economics insights for your post-grad studies

Last week I wrote about how post-grads can come to think like researchers. It involves thinking, reading, writing and analysis, followed by more of each until your supervisor says you can stop. There are steps in this process. The thinking and reading is especially important for figuring out the paradigm, approach and methodology steps. Applying the method and using the instruments is the analysis part of the process, but will also involve more reading and learning. Of course everything needs to be written up with crystal clarity.
Few people are likely to be complete naturals at all this, which means that there is a demand for mentoring and coaching and a supply of books, blogs and "how to" guides. At last week’s seminar Prof Trafford also proposed some stepping stones to developing episteme:

But how would a university, a supervisor or a student go about creating and participating in an environment in which these things happen? Thinking about all this, I wondered whether there might not be some insights from geographical economics:

Geographical economics
Your post-grad studies
Economic activity occurs in agglomerations.

Your research has to take place in an academic agglomeration of the supervisor, other Profs, post-docs, fellow post-grad students and the friendly staff at the library.
You cannot disappear for six months and expect to come back with answers.
Growth is driven by external economies of scale from four sources:
To do more and better research requires:
Infrastructure – lowers the cost of production.
You will need basic hardware to do the work.
A Department or School can upgrade the PCs and software in the post-grad lab. For students this means using your scholarship money to buy a laptop instead of a PS3.
Diversity of intermediate inputs – there are benefits from scale and specialisation.
The literature that you are reading and data for your analysis are the raw materials. The intermediate inputs are the interactions with and feedback from anyone and everyone.
This means having regular scheduled meetings between supervisor and student, attending workshops and seminars. A post-grad can never be too busy for this and when you attend, you need to participate – remember that a good question is a compliment to the speaker and a complement to agglomeration-driven research!
Matching in the labour market – better matching between employers and employees increases efficiency and lowers cost.
Students and supervisors can be matched by interest and by skills. Diversity or specialization can be beneficial, depending on the agglomeration. Students often have a better idea about who they want to work with than supervisors do!
Matching with peers is also important. Get to know the post-doc who has been there and did it, or make friends with the Stata programming whizz.
Knowledge spillovers – ideas and innovations are in the air and drive growth in agglomerations.
These are the spillovers that occur aside from the intermediate inputs and improved matching. It happens when you go for a coffee or a beer and someone mentions the cool new article in AER that they have been reading. This is about research culture and its spillovers.

So, in research agglomerations you find lots of people busy reading, writing, analyzing, presenting their results and providing inputs for one another. But what if you are the only PhD in the village, whose supervisor is busy teaching or managing, if there are no seminars or anyone to have an AER-related beer with? I believe that there are things you can and should do to get closer to the action:
  • Library resources are great for tracking down the peer-reviewed published work, also sign up for a RSS reader and start following blogs. You may not have been at the seminar but the blogs are where the fresh new work is reported and you can make comments as well.
  • Many researchers and academics also tweet. These are the bits of conversations and references to resources that you might otherwise be missing by sitting out in the sticks. Join the conversation.
  • You should actually blog and tweet about your work. Very few people have speaker’s block, buy many post-grads complain about writer’s block. Writing blogs will provide practice in expressing your ideas. You do not have to share great insights yet – write about and interpret the articles you have been reading, or post the code that you have been struggling to program. If someone ever asks what you have been up to, you will have something to show.
  • If you are tweeting and blogging, following other researchers and sending your comments, make sure that you manage your online profile – put up the privacy settings on those undergrad party photos on Facebook and rather start using LinkedIn and SlideShare to promote yourself and your work.
  • Journals may not publish the work that you have right now, but maybe someone will be interested in a book review or even letting you review an article. You are reading anyway so send an e-mail to a few editors and ask if they would keep you in mind.
  • Finally, keep your ears open for workshops or conferences that are close by and inexpensive. That conference in Istanbul sounds nice, but you are more likely to get good feedback at UCT. When you do get the opportunity, make the most of it: make an excellent presentation, have your business card, v card, QR code to your webpage ready, do not disappear from sessions to explore the town, participate, make comments, ask questions and do not skip the conference dinner, network with the young guns and the legends.