Natural resources: boon or bane?

More natural resources do not guarantee higher economic growth, shows a National Bureau of Economic Research (NBER) working paper by Achyuta Adhvaryu, assistant professor at the University of Michigan, and co-authors. Africa’s experience shows that resource-rich regions are susceptible to conflicts and hence often experience slower economic growth compared to those not endowed with much resources. The paper finds that conflict in a region is dependent on its own resources and the resources in the surrounding areas with chances of conflict rising with higher inequality. On the other hand, regions where resources are moderately high and conflict is avoided see maximum development.

Cryptocurrencies might find greater acceptance only when credible institutions can guarantee that newer spawns will not erode their value. To illustrate, it took a few big deposit banks to restore public’s trust in money after war-time “debasement” in 17th century Europe, as noted by Isabel Schnabel, professor at the University of Bonn, and Hyun Song Shin of the Bank for International Settlements, in a recent paper. City-states in Europe often debased their currency, i.e. lowered the silver content of their coins, during the Thirty Years’ War (1618-48). This was done to raise the government’s revenue. But people lost faith in coin currency and hyperinflation followed. However, a few banks such as the Bank of Amsterdam (founded in 1609) and the Bank of Hamburg (founded in 1619) issued their own notes which were backed by gold and silver coins. People trusted these banknotes as the quality of underlying gold and silver coins was deemed better than the ones in circulation. Gradually, the arrangement was successful in quelling hyperinflation.

The global financial world remains fragile because there is a shortage of safe debt, which can be used as collateral, argues a recent NBER working paper by Gary B. Gorton and Toomas Laarits of the Yale School of Management. This is worrisome because if lenders have doubts on the quality of bonds (or bills) pledged as collateral, then they might withhold lending at the first signs of stress. The shortage of safe collateral is more acute today compared to the pre-crisis period, notwithstanding increased issuance of bonds by governments in the US and Europe. This is because a lot of these safe government bonds have been mopped up by central banks as part of their quantitative easing. Also, recent regulations in the advanced world, mandating banks to hold more of safe debt, have made a lot of high quality collateral immobile.

Increasing reimbursements to nursing homes for attending to Medicaid-patients can improve the quality of overall care, argues a recent NBER paper by Martin B. Hackmann of the University of California Los Angeles. Medicaid is a government-funded health insurance programme in the US, targeting the poor and needy. Pennsylvania’s experience suggests that a 10% increase in Medicaid reimbursement rate induces nursing homes to raise the number of skilled nurses per resident by 8.8%. This can significantly improve health outcomes. Moreover, increasing Medicaid reimbursement appears to work better at improving quality of care, compared to increasing competition among nursing homes. However, Medicaid’s large burden on government finances remains a concern.

India is also toying with the idea of a similar health insurance scheme for the poor. However, it might be a case of misplaced priorities, argues Gulzar Natarajan, a researcher with Harvard University and a former civil servant. This is because insurance models are inherently suited to address secondary and tertiary healthcare, i.e. specialized services provided in bigger hospitals. However, the pressing problem is of poor primary healthcare, i.e. the first level of contact between people and the health system. Primary care includes immunization drives, efforts to prevent endemic diseases, etc. Poor primary health infrastructure can lead to a higher burden of secondary and tertiary treatment. Thus, the insurance model in India might be unsustainable. Natarajan argues that the expenditure on insurance should not come at the expense of primary care.livemint