February 2011

Economic development in resource-rich, labor-abundant economies

Tackling poverty and inequality through appropriate growth strategies is at the core of the World Bank’s mission. In my view, achieving sustainable and inclusive growth depends on a well-functioning market and to a significant extent also the degree to which government policies facilitate private firms’ upgrading and diversification into industries that are aligned with an economy’s comparative advantages.

To smooth the way and allow this dynamic process to function optimally, we need to answer many questions that are unique to different types of economies. For example, how is it possible to successfully tap a developing country’s comparative advantage when it is rich in resources and has an abundant labor supply?

The source of the current global economic crisis lies deeply in U.S.-style neoliberal capitalism, or contemporary laissez faire. It could not have been triggered in countries with a social market economy, but only in the conditions of the neoliberal Anglo-American model. The intense shock the world experienced could take place only as a result of the coincidence of numerous political, social and economic circumstances (as well as technological ones, since it would not have been possible without the Internet). The overlapping of these conditions in a specific way, which accumulated the crisis-related phenomena and processes, was possible only under a special combination of values, institutions and policies — are typical of U.S.-style neoliberalism.

Photo: istockphoto.com

By the end of 2009, an estimated 5.2 million people in low- and middle-income countries received antiretroviral therapy (ART). In sub-Saharan Africa, nearly 37% [34%–40%] of people eligible for treatment had access to those life-saving medicines (UNAIDS 2010). This is an extraordinary achievement, considering that as recently as 2003, relatively few people living with HIV/AIDS had access to ART in Africa. The scaling-up of ART in Africa and other regions has saved the lives of countless people and we hope will continue to do so.

At the same time, access to HIV/AIDS treatment might have transformed the perception of AIDS from a death sentence to a manageable, chronic condition, not necessarily different from any other chronic disease. Such a change in perception could lead to change in sexual behaviors. If AIDS is not perceived as a killer disease anymore, it might induce complacency and increase risky behaviors and the mixing between higher- and lower-risk groups in the population. That’s what has been described as the “disinhibition” hypothesis.

Debates over the relationship between trade openness and growth have been going on for around 160 years. A key aspect of that debate is how important growth is for poor countries as they strive to catch up with the best-of-the best in a competitive world. For openness to succeed, you must first put in place ports, roads and other building blocks for prosperity, and you need well functioning bureaucracy to help build the foundation for a strong trade sector. Passionate free-trader Arvind Panagariya, Columbia University Economics Professor and Jagdish Bhagwati Professor of Indian Political Economy, spoke eloquently about this at his February 16 Development Economics (DEC) Lecture at the World Bank. His research has entailed cross-country case studies of what he terms ‘debacles’ and ‘successes’ in Asia, Africa and beyond. On the one hand, Panagariya admitted that free trade is no panacea to overcome stagnation and he acknowledged that trade liberalization has failed to catalyze and sustain growth in many instances. On the other, he argued that there are many more examples of countries failing to stimulate growth through protectionism. Panagariya expressed skepticism about industrial policy, but cautioned that its presence cannot prove either the beneficial or harmful impact of openness on growth. You can watch the interview with Professor Panagariya here.

What can Google Ngram tell us, besides being an intuitive tool? Poverty awareness. “Martin Ravallion of the World Bank traces poverty awareness over the last three centuries and finds we may be at a historical peak”, says Freakonomics in its post ‘Is poverty Awareness at its peak?’. There is more on this interesting finding from Martin Ravallion on VoxEu.

As rising food prices continue to create headlines, Economists and Scientists debate over who the main culprit is on New York Times’ ‘Room for Debate’. For now there is no clear winner, but the consensus is to tackle the situation, as food prices have reached dangerous levels. According to World Bank President Robert Zoellick, the rising food prices ”could hamper political transitions taking place in Egypt, Tunisia, the wider Middle East and Central Asia”. The recently released World Bank ‘Food Price Watch’ estimates that 44 million people have been pushed back to extreme poverty due to the spike in food prices. And as the G20 finance ministers and central bankers prepare to meet in Paris this weekend, the international community calls for their greater role in tackling food price inflation.

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weekly round up

Rising food prices, governance, and other stories this week

Rising food prices have once again grabbed everyone’s attention. Prices for some basic foods are nearing the 2008 food crisis levels. In the post ‘Soaring Food Crisis’, Paul Krugman analyzes the data from USDA World supply and demand estimates, and blames the current price spikes on global harvest failures. However, the main question still remains unanswered – is another food crisis afoot? Answers to this and some other concerns are addressed in the latest World Bank Flash and also in the World Food Program’s ‘Rising Food Prices: 10 Questions Answered’ piece.

Should 16 year old Africans vote? Why not… Africa has the youngest and fastest growing population in the world…where more than 20% are between the ages of 15- 24, argues Calestous Juma in an insightful post on the Guardian’s Poverty Matters blog. Speaking of Africa, in an interesting post, ‘Do informed citizens hold governments accountable? It depends…’ (Governance for Development blog), Stuti Khemani from the World Bank’s Research Group examines the impact of radio access on government accountability in Benin.

South Asia presents a depressing paradox. It is among the fastest growing regions in the world. But it is also home to the largest concentration of people living in poverty. While South Asia is at a far more advanced stage of development than Sub-Saharan Africa, it has many more poor people than Sub-Saharan Africa.

Figure 1: Number of Poor People has increased in South Asia

Source: World Development Indicators, World Bank 2009.
Note: Number of people living on less than US$1.25 a day at 2005 international prices. South Asia includes Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. East Asia Pacific includes China.

The development community hasn’t exactly only just woken up to the fact that development is about achieving something. Projects have had logframes since time immemorial, showing how project activities and spending are expected to lead ultimately to development outcomes—things that matter to people, like health and learning. But the “results agenda” (an agenda that dates back to 2003 but which seems to be gaining momentum) has the scope to be transformative in at least four ways.

1) Work backwards, not forwards
First, it invites us to work backwards from these things that matter and think about alternative ways to achieving these outcomes. Take education. A lot of projects in the Bank and other development agencies have focused on building and rehabilitating schools, with the expectation that this will lead to higher school enrollments. And yet as my colleague Deon Filmer showed a while ago, proximity to a school has very little effect on the likelihood of a child enrolling in school. By contrast, as he and Norbert Schady showed in another paper, providing scholarships to poor children does increase enrollments.

Shanta’s thoughtful comments on our Growth Identification and facilitation (GIF) paper are most welcome. The issues of industrialization and structural transformation are at the heart of economic development. Following comments already made by my co-author Célestin Monga on this blog, let me offer a few thoughts to this exchange.

First, the GIF approach explains the economic success of a very diverse group of countries: China (with 1.3 billion population), Japan (100 million); Taiwan-China (20 million); Korea (40 million); Singapore (5 million); or Mauritius (400.000). The framework has also been applied in large Western countries such as Germany, France, and United States, and small European countries like Sweden, Norway, Finland, and Ireland. The political systems of those economies are also very different, some are democratic and some are authoritarian.

February 2011

Economic development in resource-rich, labor-abundant economies

New Pragmatism versus Failing Neoliberalism

Could easier access to AIDS treatment increase risky sexual behaviors?

Developing Countries, Trade Openness and Growth

Ngram, Poverty, Food Prices, and Open Data

Rising food prices, governance, and other stories this week

The Poor Half Billion--what is holding back lagging regions in South Asia?

Four cheers for the “results agenda"

Choosing countries as models for industrial growth

February 2011

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