The variation in investment among developing countries is truly remarkable. Over the course of the 30-year period between 1980--2010---a period of relative calm in the global economy that is often referred to as the "Great Moderation"[*]---the investment rate in developing countries ranged from a whopping 90 percent (Armenia in 1990) to a dismal 1 percent (Liberia in 2003). This variability is more than twice that of variance in economic growth---a topic that has preoccupied many more generations of researchers---and much of this variability stems from the developing world.
In recent decades, Least Developed Countries (LDCs) have been using their natural-resources as collateral to access sources of finance for investment, countervailing the barriers they face when accessing conventional bank lending and capital markets. Depending on whom you ask, such financing models have been alternately vilified and sanctified in the global development debate.
International long-term private finance to developing countries has changed dramatically in the wake of the global financial crisis. Caught in “post-crisis blues”, as my World Bank colleagues Jeff Chelsky, Claire Morel and Mabruk Kabir called it in a recent Economic Premise, some traditional sources of long-term finance are strained, and alternatives have not been able to adequately compensate. Private financing of infrastructure has been particularly hurt.
The Chinese economy has changed dramatically over the last three decades. While its per-capita income was only a third of that of Sub-Saharan Africa in 1978, it has now reached an upper-middle income status, lifting more than half a billion people out of poverty. The numbers are dramatic: per capita income has doubled for more than a billion people in just 12 years. What was once a primarily rural, agricultural economy has been transformed into an increasingly urban and diversified economic structure, with decentralization and market-based relations rising relative to the traditional government driven command-based economy.
Ninety years ago, in his A Tract on Monetary Reform Keynes famously wrote “In the long run we are all dead”. That observation recently stirred a lot of debate for all the wrong reasons, after Niall Ferguson obnoxiously claimed that Keynes did not care about the future because he was childless. Whether Keynes cared about the long-term future or not (and whether he had children or not) is completely irrelevant in this context, as many (e.g. Brad DeLong and Paul Krugman) have pointed out.
The actual context in which Keynes wrote this observation was a discussion about the quantity theory of money, which states that doubling the supply of money will only double the prices, but will have no consequences for other parts of the economy. This is the classical dichotomy between real and nominal variables. Keynes argued: “Now in the long run this is probably true”. But “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” So, Keynes’ point was obviously not that the future doesn’t matter. His point was that simple theories that might describe long-term relationships are just not good enough to deal with current issues. In the short run, changes in money supply can have all kinds of important consequences beyond the price levels. Economists will have to make their hands dirty and delve into the complicated dynamics of the here and now.
As the Carnival in Brazil kicked off last weekend, Brazilians were ready for a party. They have reasons to celebrate. Despite a lackluster GDP performance in the last two years, unemployment rates remain at record low levels.
The World Bank has been tracking the world's progress against poverty since the late eighties, but the release of 2008 data was the first time in which all regions of the developing world showed a decline in the number of people living below poverty lines!
If it weren't for the economic performance of China, Brazil and other emerging markets, the global economic slump following the 2008 financial crisis would have been much worse. Not by chance, prospects for the global economy became gloomier this year when those economies showed signs of decreasing resilience against the downward pull from advanced countries.
At the World Bank Spring Meetings last week, there was a very interesting discussion, moderated by Femi Oke, on the topic of “Investment, Infrastructure, and Integrity,” On the panel were a few worthies from the private sector, Karan Bhatia, of General Electric, Peter Solmssen of Siemens AG, and Julio Rojas of Standard Chartered Bank, along with Rashad Kaldany and Janmitra Devan of the World Bank. They were joined by the Minister of Finance of Indonesia, Agus Martowardojo, and the Secretary of Finance of the Philippines, Cesar Purisima.
The issue is a prickly one: How to promote clean business in large infrastructure projects? It is unavoidable for the World Bank, the private sector and governments to be involved in infrastructure, so it is essential that the reputation of the infrastructure sector be tied to integrity. At the same time, the response to corruption has to be pragmatic. The challenge is to figure out the balance and respond appropriately and make “risk-based” decisions, versus “rules-based” decisions. The panelists alluded to the role of knowledge and the open dissemination of knowledge on private-sector business dealings and in government contracting and procurement to spur accountability and governance in this arena. There was agreement that the World Bank’s open agenda would be helpful in pushing this forward.
The panel was asked to share their individual “principles” to achieve integrity.
In my previous blog entry, I mentioned the expected growing engagement between Brazil and Sub-Saharan African countries in 2012, to exchange knowledge and further economic and social development.
- Sub-Saharan Africa
- south-south partnerships
- slave trade
- Private Sector Development
- Nutrition and Population
- Latin America & Caribbean
- latin america
- international trade
- Information and Communication Technologies
- Agriculture and Rural Development