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economic growth

Five steps for reorienting governance work in development

David Booth's picture

Men carrying railroad track in MadagascarIn response to feedback he received on a recent post on the myths of governance in development, David Booth of ODI offers some ways to reorient governance work for more effective change.

My Five myths blog questioned several assumptions about governance and development that continue to influence the international agenda despite having little basis in research or historical experience. The animated debate that followed has confirmed that it is a good time to be raising these issues. It also challenged me to spell out some of the practical recommendations flowing from this necessary ground-clearing.

I believe five steps would take us a long way towards a governance-for-development practice with solid grounding in evidence and experience.

Blog post of the month: Five myths about governance and development

David Booth's picture

Cyclists in VietnamEach month People, Spaces, Deliberation shares the blog post that generated the most interest and discussion. In March 2015, the clear winner was "Five myths about governance and development" by David Booth of the Overseas Development Institute.

In some areas of development policy, deep-rooted assumptions are extremely hard to dislodge. Like science-fiction androids or the many-headed Hydra, these are monsters that can sustain any number of mortal blows and still regenerate. Capable researchers armed with overwhelming evidence are no threat to them.
 
The importance of good governance for development is one such assumption. Take last month’s enquiry report on Parliamentary Strengthening by the International Development Committee of the UK parliament. It references the UN High Level Panel’s opinion that ‘good governance and effective institutions’ should be among the goals for ending global poverty by 2030. It would have done better to reference the evidence in 2012’s rigorously researched UN publication Is Good Governance Good for Development?
 
Here are five governance myths about which the strong scientific consensus might – eventually – slay some monsters.

Five myths about governance and development

David Booth's picture

In some areas of development policy, deep-rooted assumptions are extremely hard to dislodge. Like science-fiction androids or the many-headed Hydra, these are monsters that can sustain any number of mortal blows and still regenerate. Capable researchers armed with overwhelming evidence are no threat to them.
 
The importance of good governance for development is one such assumption. Take last month’s enquiry report on Parliamentary Strengthening by the International Development Committee of the UK parliament. It references the UN High Level Panel’s opinion that ‘good governance and effective institutions’ should be among the goals for ending global poverty by 2030. It would have done better to reference the evidence in 2012’s rigorously researched UN publication Is Good Governance Good for Development?
 
Here are five governance myths about which the strong scientific consensus might – eventually – slay some monsters.

The High Density of Brazilian Production Chains

Otaviano Canuto's picture

International trade has undergone a radical transformation in the past decades as production processes have fragmented along cross-border value chains. The Brazilian economy has remained on the fringes of this production revolution, maintaining a very high density of local supply chains. This article calls attention to the rising opportunity costs incurred by such option taken by the country.
 
Moving Tectonic Plates under the Global Economic Geography

In recent decades, international trade has gone through a revolution, with the wide extension of the organization of production in the form of cross-border value chains. This extension was a result of the reduction of tariff and non-tariff barriers, the incorporation of large swaths of workers in the global market economy in Asia and Central Europe, and technological innovations that allowed modularization and geographic distribution of production stages in a growing universe of activities. International trade has grown faster than world GDP and, within the former, the sales of intermediate products has risen faster than the sale of final goods.

Can the quest for development effectiveness in Africa also unleash faster economic growth?

Sudharshan Canagarajah's picture

The quest for development effectiveness has been a learning process, both conceptually and empirically. One of the important outcomes of the process has been the emphasis on the notion that sustainable economic growth must be a precondition for poverty reduction. Structural fiscal policies which aim to shape the supply side of the economy to generate growth and structural transformation are critical. They complement private investment through the provision of public goods such as public infrastructure or the education of the workforce. But the question still remains: will public investment in infrastructure be sufficient for unleashing faster economic growth in Sub-Saharan Africa?

Foreign aid and volatility of natural resource revenues in low-income countries

Anton Dobronogov's picture

An abundance of natural resources is both an opportunity and a challenge for developing countries. A number of resource-rich, low-income countries receive amounts of foreign aid that are similar to or larger than their actual or potential revenues from natural resources. A new policy research working paper by Octave Keutiben and me develops a growth model to look at some ways in which the donors may help governments of such countries to use their resource revenues productively and minimize the magnitude of risks created by resource rents. The paper’s key conclusion is that making aid countercyclical helps to achieve higher economic growth, and so does conditioning disbursements on enhancement of public capital.

Inequality of opportunity and economic growth: A cross-country analysis

LTD Editors's picture

Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress.  A new World Bank study by Francisco H. G. Ferreira, Christoph Lakner, Maria Ana Lugo, and Berk Özler uses two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity -- driven by circumstances at birth -- has a negative effect on subsequent growth. The results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, the study finds no evidence that this is due to the component associated with unequal opportunities.

Can political stability hurt economic growth?

Zahid Hussain's picture

Mumbai traffic, India. Simone D. McCourtie / World Bank
The standard definition of political instability is the propensity of a government collapse either because of conflicts or rampant competition between various political parties. Also, the occurrence of a government change increases the likelihood of subsequent changes. Political instability tends to be persistent.
 
Economic growth and political stability are deeply interconnected. On the one hand, the uncertainty associated with an unstable political environment may reduce investment and the pace of economic development. On the other hand, poor economic performance may lead to government collapse and political unrest. However, political stability can be achieved through oppression or through having a political party in place that does not have to compete to be re-elected. In these cases, political stability is a double edged sword. While the peaceful environment that political stability may offer is a desideratum, it could easily become a breeding ground for cronyism with impunity. Such is the dilemma that many countries with a fragile political order have to face.  
 
Political stability is by no means the norm in human history. Democratic regimes, like all political regimes, are fragile. Irrespective of political regimes, if a country does not need to worry about conflicts and radical changes of regimes, the people can concentrate on working, saving, and investing. The recent empirical literature on corruption has identified a long list of variables that correlate significantly with corruption. Among the factors found to reduce corruption are decades-long tradition of democracy and political stability. In today’s world, however, there are many countries that combine one of these two robust determinants of corruption with the opposite of the other: politically stable autocracies or newly formed and unstable democracies.

Some see political stability as a condition that not only precludes any form of change, but also demoralizes the public.  Innovation and ingenuity take a backseat. Many seek change in all sectors of life--politics, business, culture--in order to have a brighter future through better opportunities. Of course change is always risky. Yet it is necessary. Political stability can take the form of complacency and stagnation that does not allow competition.  The principles of competition do not only apply to business. Competition can be applied in everything – political systems, education, business, innovation, even arts. Political stability in this case refers to the lack of real competition for the governing elite. The ‘politically stable’ system enforces stringent barriers to personal freedoms. Similarly, other freedoms such as freedom of press, freedom of religion, access to the internet, and political dissent are also truncated. This breeds abuse of power and corruption.

Vietnam, for example, is controlled entirely by the ruling party. The economy is one of the most volatile in Asia.  What once was thought of being a promising economy has recently been in distress. Vietnam’s macro economy was relatively stable in the 1997-2006 period, with low inflation, a 7 to 9 percent total output expansion annually and a moderate level of trade deficit. But Vietnam could not weather the adverse impact from the 1997-98 Asian financial turmoil, which partly curbed the FDI flow into its economy. Starting in late 2006, both public and private sector firms began to experience structural problems, rising inefficiency, and waste of resources. The daunting problem of inflation recurred, peaking at an annualized 23 percent level for that year.

When It Comes to Tackling Inequality, Start Early

Ana Revenga's picture

It seems that everyone is talking about inequality these days, and I, for one, am happy to see this issue at the forefront in the development discussion.

We can look at inequality in a number of ways, which are not unrelated. One of the most visible types of inequality on the radar is inequality of outcomes — things like differences in academic achievements, career progression, earnings, etc. — which, in and of themselves, are not necessarily bad. Rewarding an individual’s effort, innate talents and superior life choices can provide incentives for innovation and entrepreneurship, and can help drive growth.  

However, not all inequalities are “good.” When inequality perpetuates itself because those born poor consistently do not have access to the same opportunities as those born rich, what emerges is a deep structural inequality that is bad for poverty reduction, bad for economic growth, and bad for social cohesion. How pervasive are these deep inequalities? Much more than we would like. Indeed, when we examine what is happening in many countries around the world today, we find large and persistent, even growing, gaps in earnings between rich and poor. And we find that those who start out in poverty or are part of a disadvantaged group tend to remain there, with little opportunity to work their way out.

How do we explain this, and what can we do to tackle it? We need to take a step back and look at where this inequality originates, and that is where the concept of equality of opportunity comes in to play. This concept broadly refers to access to a basic set of services that are necessary, at the minimum, for a child to attain his or her human potential, regardless of the circumstances — such as gender, geographic region, ethnicity, and family background — into which he or she is born. Too often, access to such basic services like electricity, clean water, sanitation, health care and education is much lower among children born into circumstances that place them at a disadvantage. Children from disadvantaged groups thus set off on an unequal path from day one, which curbs their opportunities and potential into adulthood.

Nepal's Paradox: When Good is Not Good Enough

Johannes Zutt's picture

Nepal needs to fix its budget process, remove hurdles to infrastructure development and cut down excess liquidiity.



At first glance Nepal’s economic fundamentals appear sound. Economic growth this year is expected to recover to 4.5%, after a lackluster FY13. On the fiscal and external fronts, indicators are well in the green. This year again, Nepal is likely to be the only country in South Asia to post a budget surplus (0.3% of GDP). Continued growth in revenue mobilization and higher grants will more than make up for the increase in government spending. In FY14, public debt is expected to fall below 30% of GDP, and Nepal’s risk of debt distress may fall from a “moderate” rating to “low”.

Unlike other South Asian countries, Nepal has remained largely unscathed by global monetary tightening, reflecting its limited integration into global financial markets as well as its healthy external balances. Nepali analysts often highlight the growing trade deficit as a cause for concern, but remittances (projected at over 30% of GDP) should push the current account to a comfortable surplus position of 2.4% of GDP.

The only apparent dark spot is inflation, which remains stubbornly high. With inflation close to double digits in January (year-over-year), it appears unlikely that the NRB’s target of 8.5% will be reached.

In short, Nepal appears to be doing well.  Many European countries today can only dream of posting similar growth, fiscal or debt numbers. So what is the problem?


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