Extended Project Qualification- the HIPC Initiative

As well as my three A-level subjects, I am completing the Extended Project Qualification (EPQ) which, in terms of UCAS points, is roughly equal to an AS Level. I decided to complete this project in order to better my university application, but also as it was one of my first opportunities to study a subject of my choice in depth. I chose to focus my project on the effectiveness of debt relief and in particular for Zambia. The title of my project is "Is the HIPC Initiative a Successful Method of Economic Reform? The Case of Zambia". The project will involve writing a dissertation which attempts to answer my research question. I will also have to complete an activities log and present my project once completed, all of which will be assessed. 

In order to complete the dissertation, I have had to complete large amounts of research as before I began the project I knew next to nothing about both the Zambian economy and the HIPC initiative. When starting my research, I found it challenging to find a source of information on the initiative and how it works, as most sources were either too vague or unreliable. After much more further research, I feel I was successfully able to compose a summary of the process. 

The World Bank provides debt relief to the poorest nations through the Heavily Indebted Poor Countries (HIPC) Initiative which was launched in 1996 by the World Bank’s International Development Association (IDA) and the International Monetary Fund (IMF). Its formation occurred as a result of the unsustainable debt burdens carried by many low income countries, which was sparked by a mass increase in global oil prices that began in 1973.

The initiative calls for the voluntary provision of debt relief by all creditors, and it aims to provide a fresh start to countries with a foreign debt that places too great of a burden on export earnings or fiscal revenues. It aims to reduce the constraint on economic growth and poverty reduction that had previously been imposed by debt build-up in these countries.  

The first stage of qualification for debt relief through the HIPC Initiative is the decision point. At this point, the country must have a current record of satisfactory performance in IDA and IMF supported programmes, a Poverty Reduction Strategy in place and debt burden indicators that are above thresholds set by the HIPC Initiative. Creditors, including the World Bank and the IMF begin to provide debt relief at the decision point of relief, however many of the creditors maintain the right to revoke relief thus far in the process. The provision of the debt relief, as well as further relief depends on implementing policies within the relieved country in order to ensure that money that would have otherwise been spent on debt payments is then redirected to poverty alleviation efforts. 

Debt relief then becomes irreversible at the completion point. The country agrees on measurable objectives that will trigger entry to the completion point, some of which will relate to progress in social sectors such as education and healthcare and others which relate to improving governance or fighting corruption. This is done to ensure that the assistance of debt relief will be beneficial. Once a country has successfully passed the completion point, it will graduate from the Initiative.

As of April 2013, 35 of the 39 countries eligible for the HIPC Initiative had reached the completion point. If all 39 eligible countries reach completion point the total debt relief provided by the World Bank and participating creditors is estimated to be US$38.9 billion and $112.8 billion respectively.

Is Germany's future bright?

With the election taking place today, the odds are for another so called,"Great Coalition" between Merkels party (CDU) and Social Democrats (SPD), her main opponents. Both parties have very different views about Germany's future so will a change in parliament have an effect on their economic growth?

It was revealed last month that Germany had an increase in GDP for the second quarter of 2013 putting them as the world's fastest growing industrialised economy. This has came at the right time for Merkel and her campaign. Many voters have been uncertain with what she is more focused on, her country or the Eurozone. The statistics will help put people at ease along with demonstrating her party are not just concerned for what is happening elsewhere in Europe but also care for the growth of their country too. 

Despite this, lack of investment in infrastructure, education and development is a concerning issue that will need to be addressed. It's also apparent that there's an excessive reliance on their export market. A collapse or downfall in this would have catastrophic consequences which is something Germany cannot afford to happen. 

This leaves us with the question of, will a change in parliament help to abate these problems listed above and enhance growth, or, do very much the opposite? 

My verdict:

I feel that the German people have strong trust in Merkels campaign and what she has already achieved for the German economy so far as leader. If she can take care of the problems within the German economy, such a improving education (an example of a supply-side policy) this will benefit the future of their workforce and increase the number of skilled workers. At this point in time, Germany have not one university in the worlds top 50. 

However, with a new "grand" coalition looking to be the likely result of the vote, it could cause potential threat to Merkels plans for the future of not just Germany, but Europe. Merkel and Steinbrueck  (Leader of Social Democrats) have worked together, with him being Merkels finance minister during 2005-09. Could this bond from four years ago be re-sparked? Is a bright future for Germany to follow? I guess time shall tell. 

The Cobra Effect

Throughout completing my Economics A-level, there are four topics that I study. These are: Markets in Action, The National and International Economy, Transport Economics and The Global Economy. Although generally, the syllabus covers a very broad range of economic concepts and theories, there are many that without extra reading, I otherwise would never have heard of. An example of this is the Cobra Effect, which I was not aware of before listening to this Freakonomics podcast: http://freakonomics.com/2012/10/11/the-cobra-effect-a-new-freakonomics-radio-podcast/

The cobra effect occurs when an attempted solution to a problem actually makes the problem worse, therefore creating unintended consequences.

This concept was named after a failed initiative in colonial India. The government were concern about the number of venomous cobras in the Delhi and so offered a bounty (reward) for every dead cobra. However, people soon began to breed cobras in order to later receive the money. When the government became aware of this they scrapped the initiative which led the cobra breeders to release all of their cobras that were now worthless. As a result, the cobra population was actually increased. 

An example of the Cobra Effect occurring is mentioned in the Freakonomics podcast. In Mexico City, a policy was implemented in order to attempt to reduce the pollution caused by the large number of cars being driven in the city. The system meant that cars could only drive on certain days, depending on its number plate. For example on Monday, no cars were allowed to be driven with number plates ending with 1-4. The unintended consequence of this policy was that people who needed to drive every day bought a second car in order to be able to do so. Second cars being brought were often older, and less clean than newer cars. As a result, pollution in the city was increased rather than reduced.  

Why cosmetic brands always win

I was walking home the other day listening to a song by passenger with the lyrics "Ain't it funny how the kids walk by they’ll do anything to make themselves look older. While the women spend their money on anything that makes them look young".

When I arrived home I did a little research on the topic and there were hundreds of articles and posts about the subject, this one in particular was very interesting: http://www.mint.com/blog/consumer-iq/splurge-vs-save-which-beauty-products-are-worth-the-extra-cost-0413/?display=wide

The beauty industry itself is worth nearly 400 billion US$ with 85% of it being female consumer based. But it's not just the amount that's spent it's how inelastic certain products are. Because quality is a key factor to these products, cheaper versions aren't necessarily more appealing (pardon the pun). Therefore, if the industry were to raise their product prices it isn't likely to affect the consumption of their goods. In terms of consumer surplus, it will still remain high even if prices rise. 

For the older generations anti-ageing products is a big market. Such products as anti-wrinkle creams and serums to nourishing hand lotion are expensive. Some top brands charge well over £100 for a 30ml tub of cream which shows how good advertisement really is and how any sort of biased statistic or well memorised phrase from a good-looking celebrity in a photo-shopped television advert can grasp a woman's mind (and money).

The Unconventional Use of Economic Theory

I have recently read the book “Freakonomics” written by Steven Levitt and Stephen J. Dubner.  This book showed me for the first time an unconventional use of economic theory, much differing from that I was used to from following the syllabus of my AS levels. The book successfully makes economics interesting to non-economists and explores topics such as the role legalised abortion has played in reducing crime and the economics of drug dealing, such as the surprisingly low earnings of crack cocaine dealers. Such diverse, controversial and somewhat bizarre studies and comparisons have broadened my initial idea of what economics as a subject contributes to society.

Since reading the book a few months ago, I have become increasingly interested in studies and theories similar to that of Steven Levitt.  One article I have found that differs from that of “traditional economists” is called Why Do Tall People Make More Money? and is written by Steven E. Landsburg, an unconventional economist much similar to Levitt.  This particular article focuses on the relationship that exists between a person’s height and salary, and Landsburg attempts to provide an explanation for the peculiar relationship and via the work of three economists from the University of Pennsylvania.  

“So, what's the deal? Why do the tall tower over the short in more than just physical stature? Does height breed respect, so that tall people get showered with riches? Or does height breed self-esteem, so that tall people are more likely to assert themselves? In other words, do tall people succeed because of how others see them, or do tall people succeed because of how they see themselves? “

The work of the students seemed to suggest that it is self-esteem in adolescence, in this case caused by being a tall adolescent, that led to such people to be more likely to grow up as high paid workers. The logic behind this seems to make sense; tall teenagers think of themselves as leaders amongst their peers and resultantly end up with a leader position in later employment. However as with many economic theories, this is difficult to prove.  Persico, Postlewaite, and Silverman, the three economists from the University of Pennsylvania that are mentioned in the article seem to come as close as possible to achieving this without the use of a drastic and very long-winded experiment.

Does having a motor vehicle affect your academic performance?

Does having a motor vehicle affect your academic performance? 

Having done some research on this topic I've found a lot of information stating that there is a logical belief that good grades relates to driving privileges. However, if I'm to be controversial, I feel that owning a car or moped potentially is not advantageous for achieving high grades. People I know who had been driving since last year and through year 12 didn't obtain the grades they were predicted or had wanted to attain. 

I myself have been wanting a car ever since passing my test in March but due to the financial side of things its been out of the question. Running costs, maintenance and of course insurance are all drawbacks. Those lucky enough to have a car will need some sort of way to fund these elements of owning a vehicle. The majority wouldn't have parents willing to pay for everything so a job would be needed. Having a job will then take up at least one day of your weekend and possibly a weeknight that could mean work doesn't get finished on time or to the best standard possible. 

The benefits of having a car are numerous. Getting to college/school becomes easier and less stressful and gives you the freedom that you don't necessarily have when relying on your parents or public transport. 

Does this freedom actually entail long-term drawbacks? Is the independence of having your own car really that beneficial if it compromises your chances of future success?