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Private Sector Development

China’s Miracle Demystified

Justin Yifu Lin's picture

Since beginning its transition 30 years ago, China’s economic development has been miraculous.

The average annual growth rate of GDP reached 9.8 percent, far exceeding the expectations of most people in the 1980s or even early 1990s, including Deng Xiaoping who initiated the reforms. Deng’s goal was to quadruple China’s economy in twenty years, implying an average annual growth rate of 7.2 percent per year.

In 1979, China was inward-looking and its trade as a percentage GDP was only 9.5 percent. Now China is the world’s largest exporter and the third largest importer, with trade contributing around 70 percent of GDP. Over 30 years, more than 600 million people got out of poverty.

China’s miracle raises the following five questions.

  1. What was behind China’s extraordinary performance?
  2. Why Did China Fail before the Transition in 1979?
  3. Why Didn’t Other Transition Economies Perform Equally Well?
  4. What Costs Did China Pay for Its Success?
  5. Can Other Developing Countries Replicate the Miracle?

Lumps of coal or a boost to development?

Shanta Devarajan's picture

Driving at night in Cameroon some years ago, I saw schoolchildren sitting under the streetlights doing their homework—because they had no electricity at home.  Today 560 million Africans live without access to electricity.  No country in the world has advanced economically without adequate power supply.

Electricity is essential not just to power factories and offices, but to ensure that milk and drugs are transported safely, and that kids—especially those in rural areas who don’t even have streetlights—get an education.

Is Fiscal Activism Back?

Raj Nallari's picture

I. Rethinking Fiscal Activism

The challenge of raising aggregate demand is now a global phenomenon. To get an understanding of the underlying processes, take the case of the US. Here, the fall in the stock market and owner occupied real estate led to an erosion of household wealth by over $10 trillion by June 2009. This led to an estimated decrease in aggregate demand by about $600 annually, or about 3% of GDP, due to a fall in household spending by about $400 billion and production by $200 billion. Automatic stabilizers like a decrease in personal and corporate taxes cushion the fall in aggregate demand by about a third, but still leaving a net GDP gap of about $400 billion annually1. So the present challenge in the US alone lies in policies that could potentially raise aggregate demand by about $400 billion annually.

In many advanced countries, including the United States, the scope of monetary policy to forcefully affect demand is limited to interest rates. However, interest rates in many of these countries are already at historically very low levels, leaving little leverage for further use of this instrument. In many emerging and developing economies, though central banks have lowered interest rates, they have done so cautiously so as to maintain incentives for capital inflows and external stability. Given the extent of the downturn and the limits to monetary policy action, fiscal policy is regarded as being crucial in providing short and medium term support to the global economy. However, while a fiscal response across many countries may be needed, not all countries have sufficient fiscal space to implement it since expansionary fiscal actions may threaten the sustainability of fiscal finances. This note discusses the possible fiscal policy goals, options and the potential long term impacts.

How 'Big Data' Can Benefit the Public Good

Aleem Walji's picture

Patrick Svenburg, co-founder of Random Hacks of Kindness, tells "Developers for Development" audience: "There's no shortage of big ideas in the world.  It's the action part that's often lacking."


“Big Data” –- the billions upon trillions of bytes of digital information that are pumped into cyberspace every nanosecond –- has a single, secular mission: to keep growing. Now, software developers – the not-so-nerdy techies who keep Big Data growing at its feverish rate –- are striving to channel Big Data into the public good.

On Monday at the World Bank, developers came together with the development community -- in person and virtually through Skype video -- to figure out how to do that.

The entire "Developers for Development" can be seen on B-Span, the World Bank's webcasting service.

The afternoon event, which attracted an auditorium-ful of in-person visitors (many of them curious staffers from risk management and ICT at the World Bank) and many more via the live webcast that was offered in English, French, and Spanish, started with developers showing what's already been achieved since the first CrisisCamp about data and the public good was convened in Washington with CrisisCommons-World Bank co-sponsorship in June 2009.

The first demo was about the on-the-fly proliferation of CrisisCamps internationally in response to the earthquake that devastated Haiti in February.

Involving Afghans for Success

Nancy Dupree's picture

Current rehabilitation and development rhetoric calls for listening to the Afghans and giving them the lead. Sadly, actions too often defy these wise words. The challenge is to make way for genuine in depth Afghan involvement at a time when the problems inherent in a lackluster government beset with corruption are so complex, and, particularly, when the aid-dispensing agencies so often disregard coordination and cooperation.

Politics within the prevailing environment of conflict imposes a sense of great urgency, no doubt, but many basic development principles are being set aside when they are most needed. Plans that rest on massive projects designed by outsiders lavishing too much money and demanding instant implementation are bound to be ineffective. Quick fixes never have worked. Throwing around money indiscriminately just compounds problems and raises new dilemmas. Sustained development, as has been established for decades, requires patient on the ground interactions over time.

Water and Poor People: No More Charity

Tom Grubisich's picture

When Ned Breslin, CEO for the international social company Water for People, talks, the effect can be like a splash of cold water on your face.  Development-speak is not his style.

Take this snippet from his new "Rethinking Hydro-Philanthropy" essay:

 

 

"Success will require less single-minded focus on the absolute number of people without access to water and sanitation facilities and more focus on the serious questions around long-term impact and sustainability. So that years after the cameras have left, the donor reports have been filed, and the press release circulated, the community is not forgotten."

"Sweat equity" from needy communities is not enough, Breslin argues.  "Up-front community contributions," he says, are essential to making new water -- and sanitation -- facilities sustainable.

Water for People won a US$200,000 Development Markektplace 2007 award for water facilities in Malawi, which Breslin, in this radio interview, says "has some of the worst water and sanitation problems in Africa."

Breslin's credo -- that water and sanitation in poor countries should not be viewed as a charity mission -- is being validated elsewhere.

The Greatest Financial Crisis Globally Ever?

Ihssane Loudiyi's picture

Yes, according to Former Federal Reserve Chairman Alan Greenspan in his speech to Washington on Tuesday. He added in the Bloomberg News article that the global recovery from the recent crisis will be "extremely unbalanced".

'Hot Spots,' 'Bright Spots,' and Hidden Strengths in Capacity

Tom Grubisich's picture

There is a laser-like focus on the capacity of developing countries to respond effectively to the steep challenges of their Millennium Development Goals and

Ethiopian farmer, with his children, shows newly irrigated crop to extension agent.

destructive climate change.  Capacity gaps are relentlessly pinpointed.  Sometimes national governments themselves provide the toughest evaluations, like this one from Bangladesh's Ministry of Environment and Forest on the country's climate adaptation action program:

"...institutional capacity including human resource quality [is] weak and poor and needs substantial improvement if the challenges of climate change are to be faced squarely....A lack of awareness, both of the potential gravity and the extent of the problem as well as possible actions that could be taken, is the foremost [barrier]. This lack of awareness exists at all levels from national level policy makers to sectoral and local level officials as well as amongst civil society and the most vulnerable communities themselves...."

There are, to be sure, capacity gaps in Bangladesh and other developing countries, and identifying what and where they are is the first step in closing them.  But there are also "bright spots" and, perhaps more important, underlying strengths, especially at the local level across all developing countries that can be masked by the emphasis on gaps.

The Past and Future of Export-led Growth

Ihssane Loudiyi's picture

by Shahid Yusuf

The history of development since 1950 is remarkable overall but it offers only a few outstanding success stories. These are based on the experience of a small handful of European and East Asian economies among which Germany, Finland, Japan, Korea, China, Malaysia, Thailand, Taiwan (China) and Singapore are the notable ‘high achievers’. Each sustained two or more decades of sustained rapid growth between 1955 and 1997. From among them, only China has continued forging ahead at near double digit rates since 2000. All the others have slowed.

An analysis of this unique body of experience yields five stylized facts which together underpin a particular model of development. The questions being asked insistently following the financial crisis of 2008-09, are: whether the export-led growth model can continue to shape the strategies pursued by the elite group of high achievers and also of late starters aspiring to emulate the performance of the East Asian economies? Or, whether changing global circumstances in the early 21st Century have rendered the model obsolete for most if not all economies and demand a fresh approach differentiated according to specific country circumstances?


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