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Growth Without Apology

Shanta Devarajan's picture

 Chhor Sokunthea / World BankFrom time to time, countries experience rapid economic growth without a significant decline in poverty. India’s GDP growth rate accelerated in the 1990s and 2000s, but poverty continued to fall at the same pace as before, about one percentage point a year. Despite 6-7 percent GDP growth, Tanzania and Zambia saw only a mild decline in the poverty rate. In the first decade of the 21st century, Egypt’s GDP grew at 5-7 percent a year, but the proportion of people living on $5 a day—and therefore vulnerable to falling into poverty—stagnated at 85 percent.

In light of this evidence, the World Bank has set as its goals the elimination of extreme poverty and promotion of shared prosperity. While the focus on poverty and distribution as targets is appropriate, the public actions required to achieve these goals are not very different from those required to achieve rapid economic growth. This is not trickle-down economics.  Nor does it negate the need for redistributive transfers. Rather, it is due to the fact that economic growth is typically constrained by policies and institutions that have been captured by the non-poor (sometimes called the rich), who have greater political power. Public actions that relax these constraints, therefore, will both accelerate growth and transfer rents from the rich to the poor.

Some examples illustrate the point.

Why are Direct Dividend Payments so Difficult in MENA?

Kevin Carey's picture

As a wave of newly resource-rich countries, especially in sub-Saharan Africa, looks to the best means of managing resource wealth, one compelling recommendation has come to the fore: to distribute at least some portion of resource revenues to the public through direct dividend payments (DDPs). The case is laid out in papers published at the Center for Global Development by Todd Moss and the World Bank’s Shanta Devarajan and Marcelo Giugale. The DDP proposal has several foundations. Payment technology has increased the feasibility of large-scale transfers, as Alan Gelb and Caroline Decker explain. There are already cases of developing countries scaling up identity card systems associated with cash transfers quite quickly. As for rationale, given the poor track record of public expenditure efficiency, especially in resource-rich countries, it seems clear that general welfare could be targeted more effectively through DDPs, and without any of the distortionary effects or distributional flaws of price subsidies. Finally, from a political economy perspective, DDPs coupled with taxation could restore the accountability of a government to its citizens, which is otherwise weakened by its ability to draw on revenues directly from the source.

Managing Natural Resources: Should we Really Listen to People?

Jacques Morisset's picture

SW-TZ0537a World Bank Few would argue against the need for policymakers to listen to people’s views when it comes to the good management of natural resources. Indeed, if there is one thing that has been stressed from the countless global experiences of mismanagement, it is the need to involve citizens in decision-making processes.
Consequently, the publishing of data is a key agenda for multilateral agencies as well as NGOs. Access to information, including contracts and sharing agreements, is considered best practice. The direct distribution of some of the cash revenues from natural resources to citizens is also often recommended as a means to fight poverty more effectively and increase accountability of decision-makers and politicians. These are good principles based on participatory processes that form the backbone of democracy.

It is close to 18 months since massive reserves of natural gas were found in the south of Tanzania. Two industry giants (British Gas and Statoil) have already arrived in the country. The authorities, with the support of development partners, are busy trying to get all the right measures in place so Tanzania doesn’t suffer the well-known ‘natural resource curse’.
But does anyone know what Tanzanians really want and expect in terms of management of natural resources?

Russia’s Great Deceleration

Birgit Hansl's picture

Russia’s fortune and growth prospects remain tied to its most important economic partners in the Euro area and its main export products: oil and gas. In the last decade Russia grew at around 6 percent (if we exclude the crisis year of 2009 - 4.7 percent on average otherwise).

This high growth was driven by high commodity prices, but it also translated into the non-tradables. Russians enjoyed a higher standard of living and consumed more. The economy still looked strong in 2012 when the country grew at 3.4 percent, especially when compared to Europe, the US and Japan, but also vis-à-vis emerging economies such as Brazil and Turkey. Unemployment dropped to record lows and real wages grew, with poverty decreasing dramatically in recent years.

In the past, given the buoyant oil revenues, Russia followed a pro-cyclical growth model of stimulating domestic demand, partly through public investment projects and partly through increasing public wages and other public income sources such as pensions.

If the prices of oil and gas were to drop in the near future, Russia’s growth model might be in need of urgent adjustment.