Tuesday, May 17, 2011

Institutions and growth (China vs. India)

While China is now wealthier than India and still growing faster, India's long run prospects may be greater. Institutions are the key. As discussed in the WSJ link below, China may hit a wall at about $15,000 per capita unless it reforms it institutions (private property, courts, press etc.). India's democracy will make it easier for it to reform its institutions. Today's election results in India suggest that voters are increasingly desirous of transparent, corruption free government.

WSJ (5-16-11) "Politics Plays Part in Achieving Rich-Nation Status" by Mark Whitehouse

WSJ (5-17-11) "Greater Expectations in India" by Ruchir Sharma

Here listen to one of the economists cited in the WSJ article,  Daron Acemoglu (MIT), talk about why countries differ in wealth:

Monday, May 16, 2011

Hyperinflation Zimbabwe Style

A recent article in the WSJ prompted me to make an eBay purchase - of 100 trillion dollar bills in Zimbabwe currency, the highest units of currency ever printed. Someone is making a fortune on these now defunct bills that are worthless in Zimbabwe. However, I think they will make a nice prop for class. (see WSJ 5-11-11, "Zimbabwe's 100-Trillion-Dollar Bill Is a Hot Collectible"). 

People in Zimbabwe now use the U.S. dollar or South African rand to conduct transactions. Zimbabwe is not alone in using the U.S. dollar as currency. Some countries use the U.S. dollar as their official currency (ex: Ecuador, El Salvador, and East Timor). Other countries set a fixed exchange rate between the local currency and the U.S. dollar, and accept dollars in transactions (ex: Panama, various Caribbean islands, and Lebanon). In yet more countries, the U.S. dollar is not the official currency or linked by a fixed rate, but is still accepted in transactions (ex: Peru and Uruguay).

To get an idea of what it was like to live through hyperinflation in Zimbabwe watch,

Uploaded onto YouTube by  on Aug 19, 2008