Developement, Doha cycle, Carnegie model, and all that !

1. Developement, Doha cycle, Carnegie model, and all that ! Jean-Marc Boussard INRA/CIRAD Paris, France

2. What’s new with the Carnegie model ? • Methodology : • Better data sources and processing • Including recent policy developments • Unemployment considerations • Conclusions : • Benefits of liberalization much smaller • Winners and losers (the poor) • Should not be neglected, because: • Compensations unfeasible • Benefits small even with full liberalization • And yet…

3. And yet, the Carnegie model is unduly optimistic • The basic assumptions : • 1/ All prices equate marginal costs • 2/ All factor prices equate marginal productivity • Remark : implies unskilled wage at minimum subsistence cost, as in Malthus • Is this tenable ? Two remarks : • 1/ Small liberalization benefits means either : • Present situation better than expected, or : • Wrong model • 2/ From a dynamic point of view : • Bankers should lend to the poor, because of high capital productivity • Should result in similar techniques everywhere, and the end of poverty • This is not what one can observe • Bankers lend to the rich, because they are more likely to reimburse.. • Yet, rates of loans to the poor are large • Underscores the high marginal productivity of capital for the poor • A paradox which should be resolved !

4. Resolving the paradox • Neither a farmer, a banker, or any other entrepreneur is sure of the future • Means that risk is important and prevents borrowing • The poor are more risk averse and need borrowing • Higher risk aversion known since Bernoulli • Needs for borrowing a consequence of poverty • Agricultural prices are more volatile • Because of the rigidity of demand • Means that price risk is especially important

5. Agricultural prices are more volatile: Retail price index in large American cities; Base 100 = January 1966 Constant US $ (deflated by implicit GNP deflator); Sources : Economagic.com;

6. Capital accumulation as the central problem of development No development without capital • Real, not financial capital, private (machines, etc.. ) or public (infrastructures, education, etc....) • The only possibility for increasing the productivity of labor • In agriculture, would allow for shifting manpower from food to other goods production, as was done in Europe or in the US. • Poor farmers as development target : • Deprived of capital; • Cannot invest from own income : must borrow • Cannot borrow because of especially large risk • Hence, risk management the key factor • Practiced by European and American governments since the 16th century (Cromwell; Roosevelt) • Ignored from models ! • Forbidden by WTO and international organizations

7. In conclusion : which model for trade and development ? • WTO should devote attention to risk management and long run considerations • Using models capable of evaluating the benefits of stabilization • Models should be designed differently • Dynamic components (for development id a dynamic problem) • Risk components • Financial components including : • Individual borrowing • rate of exchange and FDI’s. • Role of State in investment • In present models, governments are just parasites • Now public investment crucial for public goods (research, roads, etc..), risk bearing and long run commitments

8. Thank you for your attention !