Chapter 13

2013–2014 Update
Tenth Edition
Joshua S. Goldstein
Jon C. Pevehouse
Chapter Thirteen:
Chinese house whose owners would not sell, 2012.
13.1 Experiences
Newly industrializing countries
The Chinese experience
India takes off
Other experiments
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Newly Industrializing Countries
Most successful
Strategies and special conditions of each
Similarities and differences among them
Other South East Asian countries tried to follow in
The Chinese Experience
“Iron rice bowl” policy
Mao succeeded by Deng Xiaoping
Economic growth of 1990s
Situation in early twenty-first century
Not clear what lessons China’s success has for rest of global
Singapore is one of the “four tigers” (with Hong Kong, Taiwan, and
South Korea). Even after the setback of a 1997 financial crisis,
their growth has made them prosperous by the standards of the
global South. Other countries are trying to emulate the success of
these NICs. But no single, simple lesson applicable to other states
emerges from the NICs.
China’s rapid economic growth has raised incomes dramatically,
especially for a growing middle class. These successes
followed China’s opening to the world economy and adoption of
market-oriented reforms. However, as exports slow down in a
global recession, China must develop its domestic market and
consumer spending rather than relying so heavily on exports to
fuel growth. Here, 700,000 Chinese consumers do their part as
they mob the Shanghai auto show in 2011, hoping to get in on
China’s growing infatuation with that ultimate big-ticket
consumer item, the automobile.
India Takes Off
Robust growth
Economy based loosely on socialism and state control
1991 collapse of Soviet Union
Sought help from IMF, World Bank
Niche in world economy is in service and information
Question of future success with democratic
government in place
India has grown rapidly in recent years, using its large, welleducated, English-speaking population to generate export
revenues in the service sector—software companies, call
centers serving American customers, and professional services
in such areas as accounting, architecture, engineering, and
medicine. This radiologist in Bangalore, India’s technology
capital, reads body scans from a U.S. hospital sent via the
Internet and discusses the results by phone with the patient’s
doctor in Connecticut, 2004.
Other Experiments
Mixed success
Indonesia, Philippines, Malaysia, Thailand, Vietnam
Not as successful
Latin America
Middle East
Globalization is creating winners and losers while sharpening
income disparities. Debt, currency crises, IMF conditionality, and
the privatization of state-owned enterprises are among the
sources of upheaval and poverty in many poor countries. After
lethal factory fires, these garment workers protest unsafe working
conditions in export-oriented factories in Bangladesh, 2013.
13.1 Experiences
Q: Which Asian country was thrown into a severe economic
crisis by the collapse of the Soviet Union?
A) Indonesia
B) Thailand
C) India
D) Bangladesh
C) India
The leading success story in economic development
is China.
13.2 Lessons
Import substitution and export-led growth
Concentrating capital for manufacturing
Import Substitution and Export-Led Growth
Import substitution
Export-led growth
Concentrating Capital for Manufacturing
Manufacturing emerges
Invest in manufacturing
Trade off
Problem compounded
Growing disparity
Capital can come from foreign investment or loans
Role of microcredit
Perspective and prescriptions
Authoritarianism and democracy
Democracy has not accompanied economic development
Fastest-growing states
Authoritarianism leads to economic development
Foreign investment, international debt, and domestic inequality
all can help concentrate the necessary capital for manufacturing.
In recent years, microcredit—very small loans made directly to
very poor people— provides a way to use capital more diffusely.
This woman in Recife, Brazil, runs her own convenience store in
2010 with help from a microloan.
Important negative factor in economic development
Centers on government as central actor in economic
Negotiations on foreign investment - another player
added (corrupt official) to share the benefits
Not limited to the global South, but effects are worse
Transparency International, Berlin-based NGO published
annual surveys showing most corrupt countries
Corruption is a major impediment to economic development in
both rich and poor countries but is more devastating to
economies in the global South and to transitional former
communist economies. In India, widespread corruption has held
back economic development and equality for years. These Delhi
supporters of hunger-striking anti-corruption activist Anna Hazare
hold a “key” to corrupt officials’ Swiss bank locker, 2012.
13.2 Lessons
Q: Among the most corrupt countries in the world in 2012,
according to Transparency International, were ___________.
A) Nigeria and Indonesia
B) Burma and Somalia
C) Brazil and Chile
D) Pakistan and India
B) Burma and Somalia
A major obstacle to development throughout the
global South is corporate disinterest in developing
13.3 North-South Capital Flows
Foreign investment
North-South debt
IMF conditionally
The South in international economic regimes
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Foreign investment is an
important source of capital for
economic development in the
global South. The relationship
of foreign investors and host
countries transcends
economics and draws in
culture, politics, and identity.
These Japanese executives
visit their Honda factory in
India, where Honda has
invested $400 million, in 2008.
Foreign Investment
Investment in capital goods by foreigners
Many governments in global South fear loss of
MNCs invest in a country because of some
advantage of doing business there
Technology transfer
Brain drain
North-South Debt
Borrowing money
Default, renegotiate, refinance, restructure
Concessionary loans
Debt crisis in 1970s and 1980s
Debt renegotiations
Calls for debt forgiveness
IMF Conditionality
“Credit rating”
Conditions attached to loans
Conditions tend to follow formula
Painful for locals
IMF conditionality agreements often call for reducing subsidies
for food, transportation, and other basic needs. In Egypt, bread
prices are heavily subsidized, forcing the government to use
hard currency to import wheat. But public resistance to bread
price increases is so strong that the government has not
brought itself to cut the subsidy. Here, bread is delivered in
Cairo during opposition protests in 2011.
The South in Economic Regimes
New International Economic Order (NIEO)
UN Conference on Trade and Development (UNCTAD)
Prime Minister of Turkey,
Recep Tayyip Erdogan
13.3 North-South Capital Flows
Q: Despite the perception that an international debt crisis was
“over” in 2001, which country in effect defaulted on its debts?
A) Mexico
B) Brazil
C) Argentina
D) North Korea
C) Argentina
The IMF makes loans to states in the South
conditional on economic and governmental reforms.
These conditionality agreements often necessitate
politically unpopular measures such as cutting food
13.4 Foreign Assistance
Patterns of foreign assistance
Types of foreign assistance
The politics of foreign assistance
The impact of foreign assistance
© 2010 Joshua S. Goldstein and Jon C. Pevehouse
Patterns of Foreign Assistance
Majority of foreign assistance comes from
governments in the North
Development Assistance Committee (DAC)
Bilateral or multilateral aid
UN programs
Types of Foreign Assistance
Types of aid
U.S. State Department
U.S. Peace Corps
Handout model
Oxfam model
Governments provide more than $50 billion annually in foreign
assistance and private donors more than $10 billion in
additional aid. In the West, the United States gives among the
least amount of foreign aid as a percentage of GDP, despite
recent increases. Here, a U.S. Peace Corps volunteer works in
Panama, 2001.
The Oxfam model of foreign assistance emphasizes support for
local groups that can stimulate self-sustaining economic
development at a local level. A mutually beneficial North-South
partnership is the global goal of such projects. These women
show off a mill they purchased with microcredit from an Oxfamaffiliated group in Gambia, 2001.
The Politics of Foreign Assistance
Foreign assistance
Short-term relief
More organized and better coordinated now
Actress Selena Gomez launches the UNICEF
Trick-or-Treat drive, 2009.
The Impact of Foreign Assistance
There is a very real threat of danger in providing inappropriate
foreign assistance.
The giving and receiving of foreign assistance is political.
Sometimes foreign assistance contributes goods to developing
economies with little understanding of local needs or long-term
strategies. Here, free supplies including cartons of mouthwash
are delivered by the U.S. ambassador and the captain of a U.S.
Navy ship participating in Project Handclasp, 1989.
13.4 Foreign Assistance
Q: What are some key purposes of development assistance?
A) Capitalist, humanitarian, and egalitarian
B) Egalitarian, political, and environmental
C) Capitalist, humanitarian, and creation of future
economic advantage for the receiver
D) Political, humanitarian, the creation of future
economic advantage for the giver
D) Political, humanitarian, the creation of future
economic advantage for the giver
Foreign aid is usually utilized for political leverage
and promotes the export of products from the donor
Foreign Assistance
Chapter Discussion Question
Why are hunger and malnutrition rampant in the
global South? Cite specific causes. Further, what role
has increasing urbanization played in this context?
And why have women been disproportionately
impacted by malnutrition and hunger?