Economics 172 Issues in African Economic Development Lecture 21 April 11, 2006

Economics 1722 Outline: (1)Easterly (2001) on structural adjustment (2)Leonard and Strauss (2003) (3)Kremer and Miguel (2004) (4)Cotton and international trade in Africa

Economics 1723 Countries received dozens of loans without actually implementing any reforms (e.g., Zambia, Ivory Coast) Lenders (like the World Bank) have incentives to make large loans, but few incentives to carry out evaluations of their programs There is basically no cross-country empirical evidence that increased foreign aid improves economic performance in less developed countries (despite claims by Jeff Sachs) Easterly (2001) on failed reforms in Africa

Economics 1724 In fact foreign aid may have negative effects on economic policy, local politics, and ultimately growth: “Over time, foreign aid also contributes to weak states. Rather than developing domestically oriented institutions, Africa’s state officials orient their actions externally. … Western aid is sometimes thought of as a restorative response to colonialism and the slave trade. However, Africa’s high levels of ODA [overseas development assistance] had effectively extended colonial patterns of governance.” (page 30) Leonard and Strauss (2003) on debt and aid

Economics 1725 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: Kremer and Miguel (2004) on financial sustainability

Economics 1726 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 Kremer and Miguel (2004) on financial sustainability

Economics 1727 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 1728 Cost-sharing has been widely advocated for poor countries (WB 1993) 25 of 50 Group 1, 2 schools free treatment in of 50 Group 1, 2 schools cost-sharing in 2001 (1) Cost-sharing and deworming take-up

Economics 1729 Cost-sharing has been widely advocated for poor countries (WB 1993) 25 of 50 Group 1, 2 schools free treatment in of 50 Group 1, 2 schools cost-sharing in take-up rate in free treatment schools was 75%, in cost-sharing schools only 18% (1) Cost-sharing and deworming take-up

Economics No significant impact of health education on any worm prevention behaviors (e.g., hand washing, wearing shoes, playing in Lake Victoria) –No impact for older girls –No impact in neighboring schools There has been rapid depreciation of health education knowledge in several other experimental studies (2) Health education impacts

Economics People strive for consistency in words and deeds  Verbal commitments bind people to follow through, and give them a sense of ownership over the project (3) Verbal commitments and take-up

Economics People strive for consistency in words and deeds  Verbal commitments bind people to follow through, and give them a sense of ownership over the project A random subsample in the 2001 Pupil Questionnaire were asked whether they would take the drugs Verbal commitment had no effect –1 percentage point drop in adoption (3) Verbal commitments and take-up

Economics Observational (non-experimental) estimates –Wells have no effect on worm infection –Latrine ownership reduces worm infection (4) Water and sanitation

Economics 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 (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) Development in the international context

Economics (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 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 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 Tens of millions of Africans (in Benin, Burkina Faso, 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 –This leads the world market price to drop, perhaps by 10-20% 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%. They estimate that 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 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

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Economics Map of Africa