Overview of International Development

Overview of International
O c t o b e r 2 6 th
Carlos Toriello
Poverty Definitions
 “Poverty is not just low GDP; it is dying babies,
starving children, and oppression of women and the
downtrodden.” William Easterly
 Measuring Poverty: the poverty line
1.4 billion people live on less than $1.25 a day in 2005 (one in
1.9 billion (one in two) in 1981
 International development agencies seek to reduce
this poverty
Traditionally rich and Western actors
The invention of International Development
 Point 4: Truman Inaugural address (Jan. 20th 1949)
Fourth, we must embark on a bold new program for
making the benefits of our scientific advances and
industrial progress available for the improvement and
growth of underdeveloped areas. More than half the
people of the world are living in conditions approaching
misery. Their food is inadequate. They are victims of
disease. Their economic life is primitive and stagnant.
Their poverty is a handicap and a threat both to them
and to more prosperous areas.
The invention of International Development
 Creation of development agencies
 International Monetary Fund
 World Bank
 Bilateral banks
 Economists enter “poor” countries
 Growth: people’s standard of living should keep
increasing. The only way is to increase is to produce
more goods.
Foreign aid fills the gap
 Harod-Domar model (1946)
 GDP will grow proportionally with investment
 Financing gap: difference between investment and savings
 Domar admitted it was unrealistic in 1957
Still present in 2000
 Developed during depression
 Interest was in short-run business cycle
Rostow’s Stages of Development
 Traditional society, Transitional Stage, Take Off,
Drive to Maturity, High Mass Consumption
 “Take off” fit the Domar model
 Soviet Russia believed to be an industrial power
Assumed to follow the stages
 Highest foreign aid as percent of USA GDP (0.06%)
led by Rostow during Johnson
 Only 1 out of 138 countries fit the financing gap
 Excuse: physical capital is necessary for
development, but not sufficient
Technology is Key to Growth
 The Solow Growth Model
 Long run technological change is the only source of growth
 Labor productivity
 Applied to the United States, taught everywhere
 Finance the construction of physical capital (factories,
infrastructure, etc.)
 Didn’t work too well…
Enter education
 Improve the human machinery
 Explosion: the median primary enrollment increased from
80% in 1960 to 99% in 1990
 Economic studies point to lack of association
between education and growth
Measurement: enrollment
 What is education for?
 Skills needed to grow
Overwhelmed productive capacity
 Excess population
Foreign aid to finance population control
 Thomas Malthus to Paul Ehrlich
Unsustainable population leads to rise in death rates
Family planning could bring more benefits to more people at less
cost than any other single technology now available to the human
 No relationship, again
Population growth has started to fall because of falling birth rates,
not increasing death rates
 Development is the best contraceptive
As people become richer, they have less children
Loans for reform
 Aid financing reform, no longer investment
 Adjustment lending
After 1982, IMF attached greater conditions and gave out more
 Lending with little adjustment and growth
Growth predicted at 3.5%
Typical growth between 1980 and 1998 was 0%
Success: Korea, Peru, Ghana and Mauritius
No regard for corruption when lending
 Debt passed along to future government
 Historic irony – Cold war?
Policy got worse as aid went up and vice versa
Debt forgiveness
 High debt repayments makes it impossible to
finance critical social and economic programs and
also results in running down of assets
Jubilee 2000: Bono, Sachs, Dalai Lama and Pope
World Bank suggested it since 1981
 Debt reduction began in G-7 summit of 1988
 1989 and 1997, debt relief was $33 billion and new
borrowing was $41 billion
 High debt may mean irresponsible government
Remain irresponsible after debt relief
 Rewards irresponsibility
Irresponsible lending?
 Recall the “financing gap”
 Private and foreign investment leaves country
 Gap filled by IMF, World Bank and others
 Conditions for debt relief
 Granted to those who have proven that they are no longer
 It is never repeated