Paolo de Renzio and Andrew Rogerson of the Overseas Development Institute argue in Power to Consumers? A bottom up approach to aid reform that for all the fuss about harmonizing aid efforts, competition can be helpful and is a more productive way out of chaos and fragmentation. They propose, for example, that before any donor agency can receive funds from the proposed International Financing Facility, they must be sufficiently highly rated by recipient countries.
The 2005 G8 summit in Gleneagles has come to an end. Despite where you stand on what was (or was not) accomplished, here is what they say about private sector development in the summit’s final statements:
Martin Wolf asks: is aid petrol on a fire, or water on a plant?
There are at least two negative views of aid (needless to say there are many positive ones, too). Both parallel views on the famous 'resource curse': few resource-rich developing countries have grown strongly over the past four decades, while many resource-poor countries have done so. Angola, Nigeria and Venezuela compare poorly with China, Mauritius and Thailand.
The Emerging Markets Group, a consulting firm, organised a recent workshop on Aligning Private Sector Development Instruments with the focus on Africa; I attended. The report is here.
Most of the 'instruments' were cheap money. 'Aligning' them seems to mean, for example, making sure that private firms don't get cheap money when they're small and then run out of cheap money as they start to grow, or making sure the cheap money is spread around equitably.
In the current Economist there is an excellent (and long) article on what the development community has tried to do for Africa, the lessons learnt, and what is needed going forward. The article is a good synthesis of much of the recent academic research, but is also full of very telling concrete examples and tidbits. One of their stronger arguments is that size does matter in development, and that grand macro-solutions can often fail to address the nagging micro-foundations and constraints.
The Economist has a large and very interesting piece on the migration of World Bank thinking towards recognising that 'institutions' are important.
Part of the difficulty, as Dani Rodrik of Harvard University points out, is that typical measures capture institutional outcomes, not institutional forms. The “rule of law”, for example, measures how secure an investor feels about his property. It tells us little about precisely what makes him feel that way.
... and the 4th of July - i.e. no work on Monday and BBQs and fireworks here in the US. For those of you abroad, here are some very safe fireworks. Enjoy the weekend!
IMF Chief Economist Raghuram Rajan and Arvind Subramanian, IMF Head of Macroeconomic Studies, just released a working paper returning to the contentious question of whether or not aid leads to growth. Entitled Aid and Growth: What Does the Cross-Country Evidence Really Show?, the paper finds no robust evidence linking the two. Additionally, the authors challenge the Burnside and Dollar claim that aid works best in good policy environments.
At last weeks US-Africa Business Summit in Baltimore, World Bank President Paul Wolfowitz stressed the important role that the private sector can play in Africa’s future development and growth: