Lelo Nxumalo

In a recent post on the World Economic Forum website (See here ), Daron Acemoglu summarizes findings from his recent work on what really causes economic downturns . His focus is on the US economy and starts by showing that the distribution of post war growth in America has generally not followed the normal distribution. I was curious what this would look like for Malaysia (where I am currently working) so I ran the Normal Q-Q Plot in R and this is what I found. Data from the World Bank's WDI database Malaysian real per capita income growth between 1960 and 2013 has largely followed a normal distribution but there are significant tail risks. The plot above shows that large negative downturns are more common than the standard normal distribution would suggest. The downturns correspond,  in descending order of severity, to 1998 (Asian Financial Crisis), 1985 (Commodity Shock), 2009 (Great Recession), 1986 (Commodity Shock continued), 2001 (Dot Com Bust), and 1975 (...

One of the many things I learned from graduate school was the importance of having a theoretical framework within which to situate a perceived problem you seek to address. Not every problem is amenable to such conceptual grounding so it is worth articulating one for yourself so that you don't get led astray in your pursuit of feasible policies. Many of the issues I discuss in my blog can be viewed from policy frameworks used in public policy schools. Other frameworks I have had to acquire from personal research. To that end, one book that I think will stand the test of time is  Why Nations Fail by Daron Acemoglu and James Robinson (2012). The  key message in this tome (it is 546 pages long) is that  n ations fail because their extractive economic institutions do not create the incentives  needed for people to save, invest, and innovate. Extractive political institutions support these economic institutions by cementing the power of those who benefit fr...