Current trends in development

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Current trends in development

• ICT4D Context, Strategies, and Impacts

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The economic development challengePopulation
living on less than 1 PPP a day 1993

• of people (million) share of popln
• East Asia Pacific 450 28
• Europe Ctrl Asia 5 4
• Latin Amer Caribbean 90 23
• Middle East N Africa 3 4
• South Asia 500 42
• Sub-Saharan Africa 200 38

Note PPP, purchasing power parity Source World
Bank, 1998
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Evolution of development thinking GOALS OF
DEVELOPMENT

• GDP
• GDP per capital
• Non-monetary indicators (Human development Index)
• Mitigation of poverty
• Entitlements capabilities
• Freedom
• Sustainable development

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Evolution of development thinkingECONOMIC
SOURCES OF GROWTH

• Natural resource endowments
• Factor endowments labor, physical capital, human
  capital
• Technology learning-by-doing
• GROWTH AS A FUNCTION OF 3 FACTORS
• Physical capital accumulation
• Human capital accumulation
• Productivity growth (technological change)

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Evolution of development thinkingSOURCES OF
CHANGE

• Learning empirical and theoretical
• Changes in ideology political elites
• Changes in international institutions
• Changes in domestic institutions, constraints,
  and aspirations
• Culture of economics discipline KISS
• keep it simple stupid --demands simple
  explanations and universally valid propositions

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Deeper (institutional) determinants SOURCES OF
GROWTH

• Geography location
• Integration trade, migration, capital flows
• Institutions socio-political arrangements,
  formal and informal
• Organization of production
• gt No simple correlations
• gt Multiple feedback effects unclear direction
  of causality
• Dani Rodrik,ed. In Search of Prosperity
  Analytic Narratives on Economic Growth
  (Princeton U Press, 2003)

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Evolution of development thinking GOVERNMENT ROLE

• Keynesianism and planning 1940s-1970s
• Minimalist government 1980s 1990s
• Government and market complementary 2000s
• Focus on getting institutions right
• Secure and enforceable property rights
• End corruption establish independent judiciary
• Improve bureaucratic capacity reduce regulation
• BUT HOW?? What about distributive conflicts?

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The Washington consensus

• John Williamson, Latin American adjustment How
  much has happened? 1990
• Wave of reforms in Latin America, Sub-saharan
  Africa, later in Eastern Europe
• Massive privatization of state owned enterprises,
  deregulation, trade liberalization--market
  fundamentalism (getting the prices right)
• Growth below expectations in all cases,
  transition crisis deepened in former socialist
  economies . . .

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End of Washington consensus

• Experience of 1990s
• Collapse of output in transition economies
• Limited and fragile growth in Sub-Saharan Africa
• Financial crises in Latin America, East Asia,
  Russia, Turkey
• Latin American growth slows, Argentina crashes
• BUT at same time
• India, China and East Asian rapid growth w/out WC
• Absolute reduction in living in extreme poverty

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Learning from reform

• World Bank Economic Growth in the 1990s Learning
  from a Decade of Reform (2005)
• Conventional reforms focus on static efficiency
  not dynamics of growth
• Objectives of reform (market incentives, macro
  stability) dont imply any unique policy actions
• Different contexts require different solutions to
  same problems cant just copy policy reforms
• Exaggeration of rules over discretion in
  government behavior
• Reform efforts should be selective, focus on
  binding constraints in growth, not laundry list
  of reforms

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Alternative I Institutions

• Need for deeper institutional change to achieve
  goals gt Second generation reforms
• Institutions fundamentalism getting
  institutions right
• BUT
• Institutions are by definition deeply embedded in
  society, so very difficult and slow to
  changeexcept in aftermath of war, civil war,
  revolution, or other major political upheaval
• Largely unverifiable, impossible to fulfill
  policy agenda

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New and old Washington consensus

• Original W. Consensus
• Fiscal discipline
• Reorient public spending
• Tax reform
• Financial liberalization
• Competitive exchange rate
• Trade liberalization
• Openness to foreign invest.
• Privatization
• Deregulation
• Secure property rights

• Augmented W. Consensus
• Corporate governance
• Anti-corruption
• Flexible labor markets
• WTO agreements
• Financial standards
• Capital-account opening
• Exchange rate regime full
• Independent central bank
• Social safety nets
• Targeted poverty reduction

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Limits of institutional fundamentalism

• 1. No strong causal connection between
  institutions and economic growth in research
• Compare growth, investment rates, in Russia
  (Western style private ownership) and China
  (state ownership, TVEs) in 1990s
• 2. Research focuses on long-term economic
  performance, level of income, not growth rate
• Rapid growth starts in China in late 1970s and
  India in early 1980s with minimal institutional
  change significant institutional reform after
  growth begins

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Alternative II Foreign aid

• United Nations Millennium Project (2005) Sachs et
  al
• Comprehensive and simultaneous increase in
  public investments, capacity building, domestic
  resource mobilization, and official development
  assistance along with a framework for
  strengthening governance, promoting human rights,
  engaging civil society, and promoting private
  sector.
• Significant increase in foreign aid doubling of
  annual offiical development assistance to 135 b.
  in 2006to finance investments in human capital,
  infrastructure, develop technologies to transform
  health and agriculture gt need for a big push
  due to low-level equilibrium poverty trap

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Practical agenda for growth strategies

• A more cautious, experimentalist approach
  consisting of three sequential elements
• Diagnostic analysis of significant constraints on
  growth in particular setting
• Design policy to target the identified
  constraints appropriately (requires creativity
  and imagination)
• Institutionalize the process of diagnosis and
  policy response to ensure continued growth (esp.
  Need to maintain productivity growth and to
  strengthen institutions for conflict management)

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Growth diagnostics

• Problem Low levels of private investment and
  entrepreneurship
• Possible causes
• Low returns to econ activity
• Low social returns
• Low appropriability (govt failure? Mkt
  failure?)
• High cost of finance
• Bad international finance
• Bad local finance (low saving? poor banks?)
• Etc.

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New approaches to development

• Challenge How to fit these alternatives into a
  broader view of long term development?
• Microfinance
• Social capital
• ICT4D

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Microfinance microenterprise

• 2005 The International Year of Microcredit UN
• Microcredit (mI-Kro'kre-dit) noun programmes
  extend small loans to very poor people for
  self-employment projects that generate income,
  allowing them to care for themselves and their
  families. - Microcredit Summit http//www.gdrc.org
  /icm/
• The Grameen Bank in Bangladesh aims to provide
  credit to those in extreme poverty. 94 per cent
  of those who meet the bank's criteria and take up
  loans are women. Grameen borrowers keep up
  repayments at a rate of around 98 per cent. The
  Bank lends US30 million a month to 1.8 million
  borrowers.
• World Bank estimates at there are now over 7000
  microfinance institutions, serving some 16
  million poor people in developing countries. The
  total cash turnover of MFIs world-wide is
  estimated at US2.5 billion

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Social capital

• Social capital refers to the norms and networks
  that enable collective action.
• Increasing evidence shows that social cohesion
  social capital is critical for poverty
  alleviation and sustainable human and economic
  development.
• Sources of social capital families, firms,
  communities, public sector, associations
• http//www1.worldbank.org/prem/poverty/scapital/ho
  me.htm

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ICT4D

• A new way to fight poverty
• A response to the digital divide
• A money-making opportunity for firms
• Can technology help reduce poverty?
• How can it best serve the poor?

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The new institutionalism

• Hernando DeSoto The Other Path The Invisible
  Revolution in the Third World (1989)
• Poor can become engines of growth, but free
  market not sufficient requires modern
  political and legal/judicial institutions
• Third world mercantilism is main obstacle to
  liberating the energy of the informal sector
• Mercantilism bureaucratic and excessive
  regulation that benefits an elite discourages
  wealth creation by sanctioning red tape,
  corruption kills incentives