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Poverty

China’s Miracle Demystified

Justin Yifu Lin's picture

Since beginning its transition 30 years ago, China’s economic development has been miraculous.

The average annual growth rate of GDP reached 9.8 percent, far exceeding the expectations of most people in the 1980s or even early 1990s, including Deng Xiaoping who initiated the reforms. Deng’s goal was to quadruple China’s economy in twenty years, implying an average annual growth rate of 7.2 percent per year.

In 1979, China was inward-looking and its trade as a percentage GDP was only 9.5 percent. Now China is the world’s largest exporter and the third largest importer, with trade contributing around 70 percent of GDP. Over 30 years, more than 600 million people got out of poverty.

China’s miracle raises the following five questions.

  1. What was behind China’s extraordinary performance?
  2. Why Did China Fail before the Transition in 1979?
  3. Why Didn’t Other Transition Economies Perform Equally Well?
  4. What Costs Did China Pay for Its Success?
  5. Can Other Developing Countries Replicate the Miracle?

Lumps of coal or a boost to development?

Shanta Devarajan's picture

Driving at night in Cameroon some years ago, I saw schoolchildren sitting under the streetlights doing their homework—because they had no electricity at home.  Today 560 million Africans live without access to electricity.  No country in the world has advanced economically without adequate power supply.

Electricity is essential not just to power factories and offices, but to ensure that milk and drugs are transported safely, and that kids—especially those in rural areas who don’t even have streetlights—get an education.

Is African poverty falling?

Martin Ravallion's picture

Maxim Pinkovskiy and Xavier Sala-i-Martin (PSiM herafter) have confidently claimed that “The conventional wisdom that Africa is not reducing poverty is wrong” and that “African poverty is falling and is falling rapidly.” This sounds like good news. But is it right?

We must first be clear about what we mean when we say “poverty is falling”. What many people mean is falling numbers of poor. However, PSiM refer solely to the poverty rate—the percentage of people who are poor. (There is no mention of this important distinction in their paper.) And it is not falling over their whole period of their analysis, which goes back to 1970. Rather they find that the poverty rate has been falling since the mid-1990s.

Can better roads reduce poverty?

Gael Raballand's picture

This  question  was on my mind when, in the Meme region of Cameroon, I saw motorcycle passengers come to a full stop, dismount, carry the bags of vegetables they were transporting on their backs, and start pushing the vehicle to the side, over a field--to circumvent the huge pool of water interrupting the rural road in front of us. Soon, they were on their way again.
Meme is a remote region with almost four meters of rain per year.  The state of its roads reflects the very limited investment they have seen in the last decade.

The motorcycle story from Meme shows that, even in extreme climatic conditions, the connectivity of roads is maintained.  A road may be impassable for cars, but motorcycles find their way around.  Therefore, most rural populations are somehow connected to markets, whereas connectivity is usually thought of as either 0 or 1.

This means that investments in roads could have a lower-than-expected impact on economic development since most households are already somehow connected.

Economics and science meet in early childhood development

Shanta Devarajan's picture

Economists are skeptical bunch, but they seem convinced of the value of interventions in early childhood (0-6 years) and, conversely, the multiple, long-term and often irreversible effects of the failure to provide infants with nutrition, health care and stimulation. 

For instance, Norbert Schady and Chris Paxson’s found that whereas at age 3 all children (from a sample in Ecuador) had the same vocabulary score, by age 6, children from the poorest quartile scored 50 percent of those from the richest quartile.

Meanwhile, scientists studying the development of the human brain (and body) are reaching the same conclusion. 

In a fascinating presentation, Jack Shonkoff describes the process of brain development that is interrupted, sometimes permanently, by adversity in early childhood.  Overproduction of hormones associated with stress can leave toxic effects. 

He also shows how human contact (as opposed to contact with inanimate objects or no contact) can significantly improve a child’s cognitive development.  A group of pre-schoolers were exposed to a nanny who spoke to them in Chinese for a few hours a week; in a couple of years the children were speaking fluent Chinese.  Another group was exposed to a high-quality video in Chinese, but they didn’t develop any speaking ability in the language.

Right analysis, wrong conclusion?

Shanta Devarajan's picture

During my recent seminar in Geneva, where I was also meeting with the Africa Progress Panel, a couple of members of the audience (which consisted of ambassadors, U.N. staff, civil society and academics) said, “I liked your analysis, but not your conclusions.” 

The seminar summarized many of the points I have been making on this blog:

  • For the decade before 2008, Africa was experiencing sustained and widespread economic growth, thanks to aid, debt relief, private capital flows, high primary commodity prices, and improved macroeconomic policies
  • Despite being the least integrated region, Africa was perhaps the worst hit by the global crisis
  • Contrary to some people’s fears, African governments continued to pursue prudent economic policies during the crisis—even though the visible payoffs to these policies (growth and poverty reduction) had suddenly diminished
  • Conclusion:  Economic policy in Africa, which had been improving before the crisis, and either stayed on course or improved during the crisis, has never been better.

    Since my conclusion followed directly from the analysis, I had three possible explanations for the reaction mentioned above:

The three most important challenges and opportunities for the decade ahead

Shanta Devarajan's picture

 1. Jobs

Throughout the developing world, productive-employment-intensive growth remains a challenge. In Africa, it is almost a crisis, with most of the labor force working in low-productivity, informal-sector jobs, and 7-10 million young people entering the labor force every year. That the unemployment rate in South Africa—the continent’s largest economy—has remained around 25 percent is particularly troubling.

Peace and War in South Sudan

Shanta Devarajan's picture

An article in Saturday’s New York Times entitled “Violence Grips South Sudan as Vote Nears” reminded me of a 2008 research paper by Ibrahim Elbadawi, Gary Milante and Constantino Pischadda which models the relationship between Juba and Khartoum as a “game” leading up to the referendum in 2011. 

Climate Change as a Development Opportunity

Shanta Devarajan's picture

There is considerable evidence that Africa is the continent that will be hit the first, most and worst by climate change. 

Agricultural productivity, already among the world’s lowest, could in several African countries fall by 50 percent in 10 years because of higher and more variable temperatures, which in turn could lead to faster desertification, rising sea levels, and more frequent droughts, floods and typhoons. 

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