Development Strategies

What is the cause of poverty?

Development Strategies Which one can solve the problem?

Development Strategies Introduction Growth vs. Development Some left behind Many paths to one goal Who has the right answer???

Development Strategies Strategies for Development (site map) Health and Education Empowerment of Women Microcredit Free Trade and Export Promotion Intervention and Import Substitution FDI by MNCs ODA Financial Institutions Redistribution

Development Strategies Health and Education Merit goods with positive externalities Capital comes from savings Benefits multiply, knock on effects Education for technology

Development Strategies PROBLEM ! No money in poor countries How to set priorities for primary/secondary expenditures Brain drain Health increase population and consumption Inappropriate technologies

Development Strategies Microcredit Schemes Mohammed Yunus Grass-roots level Small amounts Women are the best risk Community lending schemes Pervasive growth

PROBLEM!  Shift of responsibility  Sharks  Privatized for profit Development Strategies

Empowerment of Women 51%+ “Educate women, educate a generation” Labor source Education ↑ = Income ↑ Education ↑ = Birth Rate ↓ “Glass ceiling” inequalities

Development Strategies Free Trade Model Specialization in Factor Endowment Trade clearly increases world output BRICs data BOP problems manageable Infant Industry Access to foreign markets, globalization Rise in wages, poverty escape World prices always cheaper, autarky is bad Rewards endowed and efficient countries

Development Strategies Neoliberal / neoclassical philosophy… Supply-side Deregulation, free-market, laissez- faire, globalization Privatization, foreign investment, more competition from FDI Gov’t can do nothing right Efficiency (not equity) Washington Consensus

Development Strategies Export Promotion or Import Substitution Outward-looking Strategy: export promotion Open global system, encourage trade Labor/capital/products move across borders freely, more access to world markets MNC privatization Inward-looking Strategy: import substitution Restrict imports or replace with domestic, learn new technologies, Infant industry protection Reduce BOP deficits Self-reliance, manage own destiny

Development Strategies PROBLEM ! LDCs vulnerability Primary export dependence Prebisch-Singer Theory: measurable decline in Terms of Trade over time, rich-poor gap Solutions include protectionism, import substitution N-S Model of unequal trade Synthetic substitutes weaken LDC exports DC tariff/quota/subsidy anyway Less revenues due to low income elasticity and price elasticity

Development Strategies FDI (Foreign Direct Investment) MNCs, large corporations, global factories, bargaining power, offer highest returns Brings technology, management styles, innovation, possibly tax revenues (more later), modern lifestyles BOP balance as exports rise Managed by foreign policy/embassies

Development Strategies PROBLEM ! Power and influence over govt policy NO tax revenue for tax-free countries “crowding out” of local firms by agreement Repatriation of wages, profits, interest, royalties Creation of elite, expat vs foreign wage differential Social returns may be negative, inappropriate products

Development Strategies Planned vs Market philosophy LDCs represent market failure Instability must be managed Unequal distribution must be righted 5-year focus, mobilization Resp gov’t attracts foreign aid Market has no soul State-sponsored cost/benefit analysis State-sponsored economic signals Public good / public expenditures in any economy

Development Strategies PROBLEM ! Pro-market is anti-state Market is inevitable dominant paradigm Gov’t is notoriously inefficient Gov’t failures and corruption

Development Strategies Redistribution Wealth vs. Income Concentration of wealth Gini coefficient Ownership vs. Rent Africa Model: Mugabe Government intervention

Development Strategies Aid $$$ Public: Official Development Assistance (ODA) i.e.; bilateral or multilateral government funds Private: Unofficial i.e.; charity, UN, NGO, commercial, banks Fills savings-investment gap, technology gap Total amount vs. %GNP “Aid-in-kind” technical assistance or material (noted on Iraq BOP) Washington Consensus “Millennium Account” based on accountability Concessional MDG

Development Strategies PROBLEM ! “Tied aid” based on political behavior, contracts, providing proxy services like anti-terrorism Capital fosters the rich politicos Supports dictators and corruption Postpones reforms Dependence (up to 25% of GNP) % returns to donor in management fees Inappropriate projects

Development Strategies Financial Institutions IMF World Bank Central Banks Rural Development Banks Microcredit: Grameen Bank, small- scale enterprise, women, group lending Bahrain Development Bank and Business Incubator

Development Strategies PROBLEM ! “IMFs 4 steps to damnation” IMF / WB board members Big banks neglect small people Debt: commercial rates, principle, interest, refinancing, default Debt forgiveness