Development Strategies
What is the cause of poverty?
Development Strategies
Which one
can solve
the problem?
Development Strategies
Introduction
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Growth vs. Development
Some left behind
Many paths to one goal
Who has the right answer???
Development Strategies
Strategies for Development
(site map)
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Health and Education
Empowerment of Women
Microcredit
Free Trade and Export Promotion
Intervention and Import Substitution
FDI by MNCs
ODA
Financial Institutions
Redistribution
Development Strategies
Health and Education
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Merit goods with positive
externalities
Capital comes from savings
Benefits multiply, knock on effects
Education for technology
Development Strategies
PROBLEM !
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No money in poor countries
How to set priorities for
primary/secondary expenditures
Brain drain
Health increase population and
consumption
Inappropriate technologies
Development Strategies
Microcredit Schemes
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Mohammed Yunus
Grass-roots level
Small amounts
Women are the best risk
Community lending schemes
Pervasive growth
Development Strategies
PROBLEM!
Shift of responsibility
Sharks
Privatized for profit
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Development Strategies
Empowerment of Women
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51%+
“Educate women, educate a
generation”
Labor source
Education ↑ = Income ↑
Education ↑ = Birth Rate ↓
“Glass ceiling” inequalities
Development Strategies
Free Trade Model
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Specialization in Factor Endowment
Trade clearly increases world output
BRICs data
BOP problems manageable
Infant Industry
Access to foreign markets, globalization
Rise in wages, poverty escape
World prices always cheaper, autarky is bad
Rewards endowed and efficient countries
Development Strategies
Neoliberal / neoclassical
philosophy…
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Supply-side
Deregulation, free-market, laissezfaire, globalization
Privatization, foreign investment,
more competition from FDI
Gov’t can do nothing right
Efficiency (not equity)
Washington Consensus
Development Strategies
Export Promotion or
Import Substitution
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Outward-looking Strategy: export promotion
Open global system, encourage trade
Labor/capital/products move across borders
freely, more access to world markets
MNC privatization
Inward-looking Strategy: import substitution
Restrict imports or replace with domestic, learn
new technologies, Infant industry protection
Reduce BOP deficits
Self-reliance, manage own destiny
Development Strategies
PROBLEM !
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LDCs vulnerability
Primary export dependence
Prebisch-Singer Theory: measurable decline in
Terms of Trade over time, rich-poor gap
Solutions include protectionism, import
substitution
N-S Model of unequal trade
Synthetic substitutes weaken LDC exports
DC tariff/quota/subsidy anyway
Less revenues due to low income elasticity and
price elasticity
Development Strategies
FDI (Foreign Direct Investment)
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MNCs, large corporations, global
factories, bargaining power, offer
highest returns
Brings technology, management
styles, innovation, possibly tax
revenues (more later), modern
lifestyles
BOP balance as exports rise
Managed by foreign policy/embassies
Development Strategies
PROBLEM !
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Power and influence over govt policy
NO tax revenue for tax-free countries
“crowding out” of local firms by agreement
Repatriation of wages, profits, interest,
royalties
Creation of elite, expat vs foreign wage
differential
Social returns may be negative,
inappropriate products
Development Strategies
Planned vs Market philosophy
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LDCs represent market failure
Instability must be managed
Unequal distribution must be righted
5-year focus, mobilization
Resp gov’t attracts foreign aid
Market has no soul
State-sponsored cost/benefit analysis
State-sponsored economic signals
Public good / public expenditures in
any economy
Development Strategies
PROBLEM !
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Pro-market is anti-state
Market is inevitable dominant
paradigm
Gov’t is notoriously inefficient
Gov’t failures and corruption
Development Strategies
Redistribution
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Wealth vs. Income
Concentration of wealth
Gini coefficient
Ownership vs. Rent
Africa Model: Mugabe
Government intervention
Development Strategies
Aid $$$
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Public: Official Development Assistance (ODA)
i.e.; bilateral or multilateral government funds
Private: Unofficial i.e.; charity, UN, NGO,
commercial, banks
Fills savings-investment gap, technology gap
Total amount vs. %GNP
“Aid-in-kind” technical assistance or material
(noted on Iraq BOP)
Washington Consensus “Millennium Account”
based on accountability
Concessional
MDG
Development Strategies
PROBLEM !
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“Tied aid” based on political behavior,
contracts, providing proxy services like
anti-terrorism
Capital fosters the rich politicos
Supports dictators and corruption
Postpones reforms
Dependence (up to 25% of GNP)
% returns to donor in management fees
Inappropriate projects
Development Strategies
Financial Institutions
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IMF
World Bank
Central Banks
Rural Development Banks
Microcredit: Grameen Bank, smallscale enterprise, women, group
lending
Bahrain Development Bank and
Business Incubator
Development Strategies
PROBLEM !
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“IMFs 4 steps to damnation”
IMF / WB board members
Big banks neglect small people
Debt: commercial rates, principle,
interest, refinancing, default
Debt forgiveness
Development Strategies