Development Strategies. What is the cause of poverty?

Development Strategies


What is the cause of poverty?


Which one

can solve

the problem?


Introduction

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


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


Health and Education

Merit goods with positive externalities

Capital comes from savings Benefits multiply, knock on effects Education for technology


PROBLEM !

No money in poor countries How to set priorities for

primary/secondary expenditures Brain drain Health increase population and

consumption Inappropriate technologies


Microcredit Schemes

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


PROBLEM!

Shift of responsibilitySharksPrivatized for profit


Empowerment of Women

51%+ “Educate women, educate a

generation” Labor source Education ↑ = Income ↑ Education ↑ = Birth Rate ↓ “Glass ceiling” inequalities


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


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


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


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


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


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


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


PROBLEM !

Pro-market is anti-state Market is inevitable dominant

paradigm Gov’t is notoriously inefficient Gov’t failures and corruption


Redistribution

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


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


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


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


PROBLEM !

“IMFs 4 steps to damnation” IMF / WB board members Big banks neglect small people Debt: commercial rates, principle,

interest, refinancing, default Debt forgiveness

Development Strategies. What is the cause of poverty?

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