Hong Kong’s costly housing

Jasmine writes*

For 12 years, Hong Kong has been ranked as the world’s most unaffordable city (Delmendo, 2024).  We often hear that this is due to a land shortage, but is that really the reason? In Hong Kong, only 3.7% of the land is zoned for urban housing (Four Facades, 2020). Though rocky terrain is unsuitable for building, there is still a lot of other space. The issue is not a shortage of land, but poor management (Vox, 2018).

Much of Hong Kong’s economic success is credited to low taxes, but low tax revenues force the government to rely more on land sales: Between 19% and 27% of the government’s revenues came from leasing land in 2016 to 2019 (OECD, n.d.).

The government owns all of Hong Kong’s land, which it leases to developers in auctions that set crazy prices, like 20.8 billion HKD to lease 48,000 square meters of land (USD 55,000/m2) for 50 years. Those high prices mean that developers must charge insane prices for tiny rooms (Arcibal, 2021).

This system generates revenue for the government, but it lowers  Hongkongers’ living standards. A median-priced apartment costs 20 times median household’s gross income  (Wong, 2022).

To tackle this problem, Hong Kong needs to free up more space, but those big auction earnings — which are only justified when housing prices are high — make change unlikely. A senior governor official said that “the sheer size of interest groups in Hong Kong is the root of the problem” (Caixin Global, 2021).

Bottom Line: Hong Kong’s housing problem stems not from land scarcity but from an economic dependence on property sales for revenue, which works to control the city’s politics.


* Please help my Real Donut Economics** students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice 🙂

** Why “Real”? In short, because (a) Raworth’s claims to being a “21st century economist” denies that all of her ideas were presented by others in the 20th century and (b) she presents no viable mechanisms (besides “be nice”) for achieving equality and sustainability. My students are more realistic. In long? Read this.

Progress in post-communist Europe

Tomek writes*

Following the fall of Communism and the dissolution of the USSR in 1991, 15 new countries appeared on the world map. Russia, Ukraine, the Baltic states, and the rest joined freshly independent post-communist countries (including Poland, East Germany, and Romania) in transforming from centrally-planned to free-market economies.

Previously bound by a single administration, each state could go its own way. Some of them ended up as relatively healthy democracies (e.g., the Baltic states), some as flawed democracies (e.g., Ukraine), and some as autocratic/totalitarian regimes (e.g., Belarus, Russia). Their development also varied greatly, resulting in vast differences. In 2023, PPP-adjusted GDP per capita of the post-Soviet European countries ranged from 13,901 USD for Ukraine to 49,266 USD for Lithuania (International Monetary Fund). In 2021, the HDI index for these countries ranged from 0.759 for Moldova to 0.890 for Estonia (United Nations Development Programme, 2022).

It would be tempting to attribute these differences solely to historical factors. However, as a report by the World Bank reveals, there are surprising variations among countries with similar economic starting points. For instance, Moldova’s economy stagnated after the implementation of economic reforms, and Armenia’s nearly doubled, even though both suffered a similar initial drop after the transformation.

The report’s authors identified multiple alternative explanations, but some are particularly interesting. First, the speed of the transition matters. Countries where the reforms were implemented quickly (in the form of “shock therapy”), were generally better off than those where the process stretched over a longer time. This might seem counterintuitive – more incremental reforms give policymakers more time to react to unplanned outcomes. However, as the authors show, well-prepared “shock policies” let countries reap their benefits quicker, which lead to a quicker recovery from the initial drop.

However, not only does the speed of the transition matter but so does its extent. As the authors claim, simultaneously promoting growth in new sectors and protecting the old ones is impossible. Growth was significantly weaker in countries where private firms lacked access to loans (loans went to state enterprises), which hindered new firms from entering the market and disrupting the inefficient status quo. In Belarus, for example, private companies comprise only 26% of the market — significantly less than the Commonwealth of Independent States average. Economic transformation was also delayed by other “bumps” in the playing field, such as allowing inefficient state companies to delay paying for energy and covering the resulting losses by raising prices to private companies.

Bottom Line: Quick and extensive reforms in post-Soviet states have been more efficient and less costly in the long term than long and partial reforms. Those countries that implemented “shock policies” suffered a lot initially but then grew more quickly. Countries that moved more slowly stagnated without realizing their potential.


* Please help my Real Donut Economics** students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice 🙂

** Why “Real”? In short, because (a) Raworth’s claims to being a “21st century economist” denies that all of her ideas were presented by others in the 20th century and (b) she presents no viable mechanisms (besides “be nice”) for achieving equality and sustainability. My students are more realistic. In long? Read this.

The perils of the Kopili dam

Madeeha writes*

Established in 1976 and operational since 1984, the Kopili hydropower plant represents the inaugural venture by a public sector unit in Assam. Generating a total of 275 megawatts, with 150 megawatts designated for households, the power plant comprises two concrete structures: the 30-meter Kopili dam, located over the Umrang River, a tributary of the Kopili River in Umrangso, and the 66-meter Khandong dam situated on the Kopili River itself (Wire, 2019). The Kopili Project is under the Northeastern Electric Power Corporation Limited (NEEPCO) which is a public sector of the Ministry of Power under the Government of India.

While the Kopili Hydroelectric Power plant (HEP) has notable successes, such as providing electricity and causing fewer emissions than fossil fuels in northeast India, it faces significant challenges stemming from the construction of the two dams. Himanshu Thakkar (2010) writes that dams have increased the frequency of floods from 2-3 times a year to 5-6 times a year. Additionally, due to dam-induced floods in 2004, 192,000 people in Assam were temporarily displaced, and four people lost their lives (Saikia, 2013).

As the Kopili River’s water is used to generate electricity, the water quality of the river plays a huge role in maintaining the functionality of the Kopili HEP. In 2019, strong acids in the slurry ate away at the pipe meant to carry water at a rate of 12,000 litres per second (Akhtar, 2019).  This caused the pipe to burst, which swept four people to their death. Unfortunately, the lives lost cannot be compensated, and the blame game between different stakeholders doesn’t help either.

V.K. Singh, the head of NEEPCO, holds the acidic water responsible and states that the governments of Meghalaya and Assam had ignored the warnings of the water in Kopili river turning acidic (Akhtar, 2019). On the other hand, the political party Congress, which was in power before 2014, holds the Bharatiya Janata Party responsible for mishandling $28 million in maintenance work that Congress had approved when they were in power (Akhtar, 2019). If the blame game wasn’t enough, the legality of rat-hole mining which makes Kopili River acidic makes accountability on a state and local level even more difficult. NEEPCO blames the state of Meghalaya for allowing rat-hole mining despite the ban from India’s National Green Tribunal Court (NGT). The local community in Meghalaya argues that they have special rights under the constitution and the freedom to use the land they own according to their own needs. Additionally, mining using child labour continues with no environmental impact assessment being held, which was made compulsory in 2006 under the 1986 Environment Protection Act (Akhtar, 2019).

However, most independent experts have agreed that NEEPCO shouldn’t continue the usage of the Kopili HEP knowing the effect of acidic water on its pipes and must be held responsible for the damage it has caused (Akhtar, 2019).

Bottom Line: The Kopili Project has incurred significant costs for the country, both in terms of finances and lives lost. The environmental consequences, which are difficult to fully quantify, are bound to worsen over time. Therefore, urgent repairs are needed for the power plant, and similar projects should be halted until the issues are addressed.


* Please help my Real Donut Economics** students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice 🙂

** Why “Real”? In short, because (a) Raworth’s claims to being a “21st century economist” denies that all of her ideas were presented by others in the 20th century and (b) she presents no viable mechanisms (besides “be nice”) for achieving equality and sustainability. My students are more realistic. In long? Read this.

How to school the poorest?

Filip writes*

In the past two decades, there has been a dispute over the most effective ways to educate children in low-income countries and remote areas.

One side of the barricade argues for traditional methods of educational quality, such as hiring more external teachers, buying more textbooks, and providing flexible grants (Kremer et. al. 2013).

On the other side, research using randomized trials finds that schooling is cost sensitive, which recommends hiring local teachers on short term contracts and using technology such as iPads or laptops to improve in-person and remote schooling outcomes. Information and Communication Technology (ICT) can deliver effective at-home learning (Kamer et. al.2013).

ICT can make learning in developing countries more efficient, for two main reasons. First, due to the limited resources, children of different ages and levels of education must share one classroom, making it impossible for each child’s needs to be accommodated. Second, schools in remote areas and low-income countries often have too few teachers. ICT can replace less effective, one-size-fits-all teaching with more intense personalized learning. ICT can also deliver learning in remote areas, saving the cost of building schools and improving delivery of quality teaching (Sife et. al. 2007).

Many schools in developing countries tried hiring additional teachers, but this costly approach did not bring proportional benefits (Glewwe et al. 2010). In Kenya, on the other hand, the government hired local teachers on short-term, seasonal contracts that were cheaper but also effective, in terms of learning outcomes (Krueger and Whitmore 2001; Banerjee 2007).

Bottom Line: The two most cost-effective strategies for improving learning outcomes in schools in low-income countries and remote areas is to hire local teachers on short term contracts and use more technology.


* Please help my Real Donut Economics** students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice 🙂

** Why “Real”? In short, because (a) Raworth’s claims to being a “21st century economist” denies that all of her ideas were presented by others in the 20th century and (b) she presents no viable mechanisms (besides “be nice”) for achieving equality and sustainability. My students are more realistic. In long? Read this.

Nuclear – The energy of the past?

Nathan writes*

During the early development of civilian nuclear power, everything was promised. It would deliver cheap and abundant electricity to society, ending reliance on fossil fuels and eliminating pollution. Nuclear power, especially fusion (always 20 years away), was seen as the energy of the future and would even become too cheap to meter. Though this was always more hype than fact, the rapid build-up of nuclear power in France following the oil shock of 1973, delivered much on these promises. After OPEC quadrupled the price of oil effectively overnight, France embarked on the Messmer Plan to end its dependence on imported fuel. In 15 years, 48 reactors were deployed at 12 different plants around the country and by 1980, France had overtaken Germany. Though the plan originally called for 170 reactors to be built by 2000, three quarters of the electricity generation in France was already coming from only 50 reactors. Despite efforts by the EDF to stimulate demand, the expected increase failed to materialise, and supply had already surpassed it. As result, France’s nuclear plants operated only at around 60% capacity, something still common today in the summer, when demand is at its lowest.

Though important opposition to the plan had emerged in France, in Germany, where investment had been slower and capacity had lagged, support for a different type of energy system was rising. The movement for an ‘energiewende’ or energy transition, had already gained support after the oil shock and was inherently sceptical of nuclear power. Germany’s relatively decentralised federal system also made local protests against proposed plants more effective. As a result, by the time of the 1986 Chernobyl disaster, the country was far from committed to nuclear power. Being far closer than France and more directly affected by the radiation spread west by the wind, Germany’s nuclear program effectively ended that year. Increasing backlash in France, particularly after Chernobyl, contributed to slowing investment in the 1990s. However, this was largely a result of the program’s own success, fossil fuels had already been almost eliminated from electricity production. More importantly, electricity use, and later, total energy use, had peaked in both countries.

The fate of Germany’s nuclear industry — in limbo since Chernobyl — was sealed by the 2011 Fukushima Daiichi disaster. It convinced even Angela Merkel, previously a supporter of nuclear power, to finally phase out German nuclear electricity by 2022. This accompanied significant investment into renewable energy sources, particularly wind, but also resulted in delaying significantly any possible phase out of fossil fuels, particularly coal and gas, pushing it to depend increasingly on imports from Russia.

In the meantime, in France, discussion was also swinging in favour of a phase out. The 2012 presidential election saw Holland, the eventual winner, support a partial move away from nuclear, aiming to lower its share to half electrical production by 2025, though it was never fully implemented. By 2020, France’s nuclear industry was badly in need of reinvestment: its youngest reactor was 18 years old and the average reactor was older than 34. The two decades of underinvestment seemed to finally come to a head in 2023, just as Germany, to the exasperation of some, finally closed its last reactor: in the midst of a painful energy crisis in Europe, as many as 26 of France’s aging reactors were force to shut down.


* Please help my Real Donut Economics** students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice 🙂

** Why “Real”? In short, because (a) Raworth’s claims to being a “21st century economist” denies that all of her ideas were presented by others in the 20th century and (b) she presents no viable mechanisms (besides “be nice”) for achieving equality and sustainability. My students are more realistic. In long? Read this.

CR’s commodification of nature

Leander writes*

Costa Rica (CR) has long been celebrated as a trailblazer of sustainable development and successful ecosystem conservation. Their pioneering implementation of a national program for the payment for ecosystem services (PES) has received a lot of international attention. CR managed to reverse the deforestation that cost it up to half of it its original forest cover by 1987. As of 2020, its forest cover reached 60% with the PES program being said to play an essential role. Yet, the impact of the PES program on environmental conservation and economic development is not exactly clear.

In the second half of the 20th century, CR had some of the world’s highest deforestation rates, declining from 75% cover in the 1940s to 25% cover by 1995. CR introduced its PES program in 1997, called “Pago por Servicios Ambientales” (PSA). A PES program effectively is the economic evaluation of environmental or ecosystem services, such as carbon sequestration, and is a system of payment incentivizing landowners to conserve the existing biodiversity on their land instead of allowing other uses. The national government expanded the PSA as its popularity  increased, introducing payments for agroforestry to increase incomes of farmers, for example. More than 18,000 families benefitted from the PSA between 1997 and 2019.

However, while it seems like the PSA not only provided a steady income to thousands of families, but was the driving force behind CR’s reforestation success, evaluations of the programs impact do not show such clear results. So far there is no clear consensus on the impact of the PSA; some research shows no clear effect on forest conservation. Instead, other conservation policies, such as the ban on deforestation, are said to play a bigger role in CR’s progress.

Moreover, the PSA has been accused of suffering from unequal access to payments for environmental conservation. The program has been found to generally benefit large landowners and to exclude the rural poor from participation as a result of historical agrarian settlement patterns and the inability of the state to recognize certain property claims.

The PSA program has weaknesses and its impact on employment and economic development are unclear, but it has potential. If the authorities stay flexible and adaptive to changing circumstances and weaknesses are continuously corrected, then the PSA program can improve its efficiency and equity substantially. Upcoming expansions and improvements of the program, such as the Mixed Systems scheme aiming at small landowners and farmers give hope that the PSA might correct weaknesses such as the unequal access to the program’s benefits.

Bottom Line: Costa Rica’s Payment for Ecosystem Services program can boost environmental conservation and economic development if its weaknesses (such as unequal access) are addressed and the program can adapt to changing circumstances.


* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Labour and migration in Malaysia

Ashley writes*

On April 1st 2022, a Memorandum of Understanding was signed between the President of Indonesia, Joko Widodo, and the Prime Minister of Malaysia, Ismail Sabri Yaakob, committing to improving the safety and protection of Indonesian migrant workers in Malaysia. This agreement came about after several reports and complaints were filed on the abuse of migrant workers. At the same time, Malaysia is experiencing a shortage in foreign labour due to government measures to protect locals during the Covid-19 pandemic.

How can we make sense of the contradictions facing migrant workers in Malaysia? How do Malaysia’s migration policies affect labor?

It is estimated that there are two million legal migrant workers and two million undocumented migrant workers in Malaysia, most of them coming from Bangladesh and Indonesia. In total, they account for 15% of workers — a similar share to Indians who are the third largest ethnic group in Malaysia.

This is hardly surprising, given that migrant workers have always been an integral part of Malaysia’s economic development model, especially during its transition from lower to upper-middle income. During the colonial era, Chinese immigrants worked in the tin-mining industry, while indentured Indians from British India worked in agriculture and transport. These early migrant workers contributed directly to the development of industries, infrastructure and as a result, the economy of Malaya, and later assimilated themselves to become Malaysians.

Malaysia’s businesses are still heavily reliant on cheap migrant workers.

Migrant workers are subjected to abuse, discrimination, poor living conditions and other human rights violations. Many are forced to work off their debts resulting from trafficking, face risk of sudden termination, arrest or detention. Since they are also assimilating, it is important to help migrants integrate in harmony with the local population.

Bottom Line: In Malaysia, migrant workers are vital for economic development but their treatment is detrimental for social development. My research seeks to investigate active labour migration policies as a way of understanding this co-existing relationship between economic and social development in Malaysia.  


* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Why do Turkish brides want dollars?

Mimoza writes*

The tradition at Turkish weddings is to pin gold on the bride, in lieu of getting the newlyweds a present, as a way to help them start off their married life in prosperity. However, now due to the high inflation, couples prefer dollars to gold coins.

Turkey has been facing a financial crisis: the Turkish lira has fallen from 3.50 to the US dollar (May 2017) to 18 per dollar (Dec 2021), and inflation reached 68% in April, where it is expected to stay for some time. The COVID-19 pandemic has directly harmed income and employment by reducing travel to a country that relies on tourism for 4% of its GDP and almost 10% of employment.

The COVID pandemic has only been an issue for 18-24 months. President Reccep Tayyip Erdoğan’s counter-productive economic policies are older. His influence of the Central Bank overheated the Turkish economy. Excess growth and artificially low interest rates have spurred inflation and strained supplies of the lira: “Sometimes we cannot find money,” said a 29-year-old bike courier in Istanbul to the New York Times.

Traditional economic theory posits that a weak currency will stimulate foreign investment and exports, thereby producing economic growth. The case of Turkey, however, lines up with structuralist economic theory: inflation and devaluation have increased production costs and constrained economic growth. Turkey, for example, depends on imports of automobile parts and medicine so the devalued currency has raised costs and reduced exports and income.

Devaluation has not only reduced purchasing power for citizens but economic growth. Combined with a multitude of other deviations from orthodox economic policy (i.e., overuse of external financing, not regulating the exchange rate, etc.), the Turkish financial crisis harms the economy and increased political unrest.

Turkish brides must be hoping for enough dollars to keep the lights on.

Bottom line: The Turkish Central Bank needs to employ traditional economic remedies to their financial crisis, i.e., increasing interest rates to decrease liquidity and spending and support the lira. On a longer time horizon, Turkey needs to free its central bank from political interference, if it wants fiscal stability and economic prosperity.


* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

50 years on: Rentier state theory

Hannah K writes*

Like many developing states, Gulf countries like Qatar, Saudi Arabia, and the United Arab Emirates (UAE) have largely resource-dependent economies. However, in contrast to other states, these countries have apparently managed to escape the negative effects of the resource curse (Hollo, 2013).

This blog post aims to provide some basic background information about Rentier State Theory (RST), which is crucial for understanding the Gulf state’s development trajectories. In short, the rentier state is a state that relies on “rents” or income from foreign individuals, governments or corporations in order to sustain its economy (Beblawi, 1987). Resource-rich nations often fall into this category as foreign companies are heavily involved in resource-extraction and export. In the second half of the twentieth century, three key academics reimagined the workings of the rentier state in the context of the Arab world: Hazem Beblawi, Giacomo, and Hossein Mahdavy. All of them predicted that, in the long run, the oil states would succumb to the pitfalls of the rentier state both politically and economically, since rentier states discourage productivity when they “buy” loyalty from citizens (Schliep, 2017).

To critically assess the role of RST in the development of the Gulf States, it is necessary to understand the theory’s main arguments. According to the literature, rentier states cannot diversify their economies. They remain reliant on oil and gas revenues to maintain political stability, and labour market imbalances further pose a big challenge to shift the economy away from natural resources (POMEPS, 2019). Labour market imbalances are exacerbated as societies become prone to a “rentier mentality,” which discourages citizens from taking an active role in political and economic life (Beblawi, 1987). Rentier states that are unable to develop or grow collapse into economic stagnation and political stability because they cannot appease their population (Schliep, 2017).

Now, almost fifty years later, how do the predictions hold up? Arguably, there are some missing elements of RST. The Gulf countries have seen sustained economic growth, but also unprecedented investment in key economic sectors for sustainable development. Somehow, they appear to have escaped the resource curse. Dubai is a prime example, as it has shifted the focus of the economy from rapidly depleting oil and gas exports to becoming a hub for international business, indicating an ability to diversify the economy (Hollo, 2013). These results seem to undermine the idea that political stability is rooted in buying loyalty.

Bottom line: Rentier State Theory simply falls short in explaining the current development trajectories of the Gulf States. There is clearly a more complex system in place that encourages long-term investment into the economy.


* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Unequal energy access in Ethiopia

Jacob writes*

Energy is an integral part of development, anywhere in the world. Research shows, that access to productive energy is crucial for economic growth, but also for education, health, and environmental protection. However, in many countries there are huge inequalities when it comes to access to sustainable and productive energy. In Ethiopia, among the rural population only 51% had access to energy, whereas for urban dwellers it is 93%. Strengthening and intensifying agriculture, the main source of revenue in the periphery, is however crucial for economies and demands an increase of productivity through energy access.

This is the goal of Energizing Development (EnDev), a developmental initiative driven mainly by the Dutch and German developmental agencies. Through market-based measures, it aims to increase both rural supply and demand in energy. In the project “Sustainable Energy for Smallholder Farmers (SEFFA)”, it tries to combat rural poverty and rural-urban energy inequality. Strengthening the private sector to supply better and cheaper products, as well as increasing the capability of customers to pay for installing solar power mini-grids, are on top of the agenda. This is in addition to the social mission EnDev undertakes, which includes empowering women and youth entrepreneurs.

Sounds great, right? However, some aspects of the project are not entirely clear. One of the main aspects of SEFFA is the provision of energy systems through private sector empowerment. But it is opaque how the state is involved in the actual delivery of the project in Ethiopia. Leaving the state on the side, and not increasing its capacity to run similar projects in the future, is dangerous and can in the worst cases even increase inequality in the long run. Additionally, there is low awareness among the rural population about ongoing energy access programs. Other research has shown that empowering marginalized groups among the rural population, most notably women, is crucial for the development of the agricultural sector in rural areas. Increasing their stake in a participatory program is therefore crucial. EnDev’s “target” of having 25% of project beneficiaries being women, does not necessarily ensure active participation, nor does it include accountability mechanisms. As Ethiopia’s economic output has more than tripled in recent decades, it becomes crucial to ensure the equitable provision of services, not only for the duration of ongoing projects but in the form of permanent systemic improvements.

Bottom line: The provision of energy access, which is crucial to development, is unequally distributed in many regions of the world. To combat this inequality and be responsive to social challenges, such as gender inequality, on the long term developmental agencies are required to bring in the state and strengthen capabilities, while identifying the most effective solutions.


* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).