Tag Archives: market economy

Trade Facilitation in the Trans-Pacific Partnership


By Michael Merriam

In recent months, research on global trade has been divided over the effects of a long negotiated trade partnership for twelve Pacific Rim nations. Signed by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam, the Trans-Pacific Partnership (TPP) is, by GDP of signatory nations, the largest free trade pact in the history of the world. With many standards and provisions, the agreement’s depths contain articles that deal with a variety of subjects ranging from intellectual property rights to environmental protection. According to the Office of the U.S. Trade Representative, there will be 18,000 different taxes on American products that will be reduced or eliminated by adoption of the TPP. Beyond the benefits to the United States, the increased trade promotion and tariff reduction of the TPP promises to advance job creation, good governance, trade competitiveness, and stable economic growth on both sides of the pacific. Most significantly, the TPP incorporates greater trade facilitation requirements than past regional trade pacts, a hopeful sign for the future of global trade.

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Crunch Time for Egypt’s Economic Reform

via Wikimedia Commons

via Wikimedia Commons

This blog originally appeared in Arabic on CIPE-Arabia.org

Indeed, Egypt is going through a very difficult period. The current economic situation is intrinsically linked to the accumulated weight of poorly addressed economic challenges over the past forty years.  Economic problems were either ignored, or in other instances, their root causes were not addressed in a profound and decisive manner.  On the other hand, undoubtedly, Egypt has all the capabilities to become one of the largest world economies.  This potential has been noted in reports of financial institutions such as the 2010 Citibank report.

The current difficulty stems from fact that there is no alternative to undertaking a comprehensive economic reform program. However, in the short run all Egyptians- the wealthy, the poor, and the middle class, will have to bear the brunt of these reforms. That said, with sound management of reform program, Egyptians will enjoy the fruits of reform in the medium to long run.

There can be no doubt that enacting economic reforms is crucial for Egypt’s progress. Thus, “No,” is my final unequivocal answer to the most critical question of whether Egypt has other alternatives to entering into the loan agreement with the International Monetary Fund (IMF).

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A Trinity of Trade: Africa soon to Launch TFTA

Map of TFTA

By Otito Greg-Obi

Recently, African heads of state gathered together in Egypt to sign the Tripartite Free Trade Area agreement (TFTA) which will join the forces of the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC).

Free trade is crucial to global economies because it reduces tariff barriers which in turn results in trade creation. The benefits of trade for developing nations in general are numerous. To name a few: first and foremost, trade allows for specialization meaning countries can build a comparative advantage by focusing on producing goods with low opportunity costs. Secondly, trade encourages healthy competition which incentivizes businesses to increase efficiency and cut costs. Lastly, trade can reduce dependence on existing markets and stabilize countries affected by seasonal changes in markets.

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Riinvest Institute Celebrates 20 year Anniversary

Riinvest 20th Anniversary 2

CIPE’s long term partner Riinvest Institute for Development Research is celebrating their 20th anniversary this year. To mark the occasion, Riinvest held a conference on May 15 and 16 titled, “Activating the Sources of Economic Growth in Kosovo”. The conference brought together an impressive audience— the President and the Prime Minister of Kosovo*, the Deputy Minister of Finance, the World Bank Country Manager, other high level public officials, academics, business people, NGO leaders, the donor community, and members of the media.

*Kosovo’s newly-elected Prime Minister, Isa Mustafa, is the former President of Riinvest.

Riinvest leaders presented awards to a number of partners, individuals, and organizations who have supported the organization since its inception. CIPE had the honor of being presented the first two awards, one for Executive Director John Sullivan and one for the organization as a whole. CIPE Senior Consultant Carmen Stanila kindly received both awards on behalf of John and the organization.

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Celebrating International Youth Day

We have all witnessed over the last two years that youth are shaping the political landscape of their countries. I have seen young people driving innovations and economic and social entrepreneurship in every region of the world. I believe the best solutions to our shared challenges will come from harnessing the energy and creativity of youth.
– Secretary of State Hillary Clinton

This year International Youth Day highlights the theme “Building a Better World: Partnering with Youth.” The importance of engaging young people in political, economic, and civic spheres is evident just by looking at the numbers: more than one in six people on the planet are between the ages of 15 and 24. Yet these adolescents and young adults are all too often neglected when it comes to opportunities to lead a fulfilling and prosperous life.

One reason is the pace of demographic change: according to the UN Population Division, the number of young people globally has been steadily increasing since 1950 and will continue to rise – with a concentration in low- and lower-middle-income countries – for at least another two decades. As the Arab Spring shows, if governments cannot provide satisfactory prospects for their growing populations, social unrest may follow.

Beyond economic exclusion, which manifests itself in high youth unemployment (or employment in the informal sector), political exclusion of youth is another reason why young people often feel neglected. In many countries political parties and state institutions remain dominated by older officials who may not understand the needs and concerns of youth, and are unwilling to seek out the views of young people. CIPE works with local partners in countries around the world to counteract the exclusion of youth in all aspects of public life and to partner with the next generation of leaders. Here are a few examples:

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State vs. Market – a False Dichotomy

This Economist chart shows the relationship between rule of law and GDP per capita.

Reasonable people can disagree about the role of state in economic affairs, especially in times of crisis, and what types of services governments should provide to citizens. It is up to each society, through its political process, to formulate economic and social policies that fit each country’s unique situation. However, what’s often lost in these debates is a key aspect of the role that any state plays in the economy: establishing the rules of the game.

In a market economy, that means creating and supporting institutions such as property rights, contract enforcement, freedom of enterprise, etc. States must also be able to provide basic infrastructure to facilitate economic activity in order for these institutions to meaningfully function. In most Western countries, the impulse fueled by the global financial crisis has generally been to reduce the size of the state. Yet for many developing countries the real question is not whether to reduce the size of the state but how to make the state perform better, whatever its optimal scope may be.

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The other transition

Egyptians in Tahrir Square during the presidential election (Andre Pain/European Pressphoto Agency)

The turmoil engulfing Egypt’s presidential election has been a stark reminder of the difficulties the Arab Spring countries face with challenging political transitions. In countries where democracy has little precedent and where popular will was long suppressed, the new political opening has brought much anticipated civil liberties but also juxtaposed competing forces and diverging interests. Yet, among all the attention that headlines give to the political process, the story of another equally crucial transition – economic one – is often lost.

It is important to keep in mind that the roots of MENA revolts were both political and economic in nature, including demographic pressures, inefficient public sector, and constrained private sector. In other words, the lack of political freedoms was compounded by the profound lack of economic freedoms. That in turn fueled unsustainable levels of government employment and swelled the ranks of young people like Tunisia’s Mohammed Bouazizi who, without other viable options, strive to earn a meager living in the informal sector. A year and a half after Tunisia ousted its long-time authoritarian ruler, political transformation is underway but the economy struggles.

Many Tunisians who rose in protest against Ben Ali are disappointed with slow progress of reforms. Protestor Beshar Messaoud recently interviewed by NPR says that, economically speaking, things are exactly the same and the government has brought no solutions to the problems that led to the revolution in the first place. Unemployment is officially at 18 percent but it may actually be twice as high. Another interviewee, 35-year-old Laila Turki adds that if Tunisia doesn’t get its act together and improve its economy quickly, it will undermine its chances to build a functioning democracy.

But there are many misconceptions about what is needed for the economy to improve. For one, demands for economic change often focus on populist calls for more entitlements with little consideration given to how a sound economy capable of delivering sustained prosperity to its citizens can be built. What is more, the very understanding of what a true market economy entails has been tainted by decades of crony capitalism in the region. As a recent post on the Institute of Economic Affairs’ (IEA) blog points out, the meaning of “pro-business” in MENA has been warped: the “pro-business” policies of authoritarian leaders were limited to only one type of businesses – the ones connected to the government. That’s not the same as being pro-market, which requires allowing economic freedom for all segments of the society and building institutions that enable competition on a level playing field.

Instead, MENA ruling elites built systems that monopolized economic rents and jealously guarded their own economic privileges. That, in turn, necessitated the suppression of not just freedom of political expression but economic freedom as well. The legacy of that system is clearly visible in Egypt today. During the rule of post-independence leaders Gamal Abdel Nasser, Anwar Sadat, and Hosni Mubarak – all military men – the military has amassed a huge business empire in sectors from agriculture to electronics. Current estimates show that military-connected enterprises account for 10 to 40 percent of the Egyptian economy; meanwhile, more than 40 percent of Egyptians continue to live on $2 a day or less. Therefore, the real question of Egypt’s political transition is whether the formal return to civilian rule will translate into meaningful boost to pluralism on the economic front (pun intended).

The same goes for transitions in other MENA countries as well. Their success will depend on the degree to which the economic undercurrents of political turmoil are better understood and more effectively addressed, and the degree to which the misconceptions about the nature of market-oriented reforms are overcome. As the IEA blog emphasizes, a deeper reflection on the central place of the entrepreneur in economic development is needed, since “the future of the Arab Spring depends on the capacity of the new democratically elected governments to implement measures to prevent crony capitalism, restore the rule of law and promote economic freedom, in order to ensure general prosperity.”