Economics 172 Issues in African Economic Development Lecture 22 April 13, 2006

Economics 1722 Outline: (1)Kremer and Miguel (2004) (2)Cotton and international trade in Africa* (3)Ethnic diversity and African development (Laitin 1992)

Economics 1723 The structure of foreign aid programs is also important There has recently been a strong push towards “financial sustainability” in local development projects, and against continued subsidies for drugs: –Cost recovery from beneficiaries –Health education –Local “ownership” of projects Contrast with standard public finance approach that advocates ongoing subsidies to overcome externalities Kremer and Miguel (2004) on financial sustainability

Economics 1724 Observational (non-experimental) estimates –Wells have no effect on worm infection –Latrine ownership reduces worm infection But latrine costs quite high –$ per child-year of infection averted –Drug subsidies are more than 100 times more effective in terms of reducing infections (4) Water and sanitation

Economics 1725 (1)Foreign aid and development (Easterly 2001) (2)Debt and development (Leonard and Strauss 2003) (3)The design of development projects financed by aid (Kremer and Miguel 2004) (4)International trade and development – the case of cotton in Africa Development in the international context

Economics 1726 Many people have extremely strong views about either the positive or negative impacts of international trade on economic development Opponents of the current world trade regime have pointed to the case of cotton Cotton as a lens into international trade

Economics 1727 Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government Cotton as a lens into international trade

Economics 1728 Map of Africa

Economics 1729 Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government –World price US$0.42, US farmers received US$0.72 Cotton as a lens into international trade

Economics Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government –World price US$0.42, US farmers received US$0.72 –Three times annual USAID assistance to Africa –This leads the world market price to drop, perhaps by 10-20% Cotton as a lens into international trade

Economics Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government –World price US$0.42, US farmers received US$0.72 –Three times annual USAID assistance to Africa –This leads the world market price to drop, perhaps by 10-20% –Brazil has won two rounds of legal battles against the US in the WTO Cotton as a lens into international trade

Economics Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%. Micro-evidence on cotton prices and poverty

Economics Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%. They estimate that national poverty would increase 7% Micro-evidence on cotton prices and poverty

Economics Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%. They estimate that national poverty would increase 7% Meatu district in Tanzania is another cotton growing region. Farmers and the owners of the local cotton ginnery are hard hit when cotton prices fall, as they have since the mid-1990s Micro-evidence on cotton prices and poverty

Economics Sub-Saharan Africa is the world’s most ethno- linguistically diversity continent 14 of the world’s 15 most diverse countries are in Africa (the one exception is India) Next topic: ethnic diversity and development

Economics Sub-Saharan Africa is the world’s most ethno- linguistically diversity continent 14 of the world’s 15 most diverse countries are in Africa (the one exception is India) What language should be chosen as the national language of such diverse countries? (Laitin 1992) Next topic: ethnic diversity and development

Economics Whiteboard #1

Economics Whiteboard #2

Economics Whiteboard #3

Economics Whiteboard #4

Economics Whiteboard #5

Economics Map of Africa