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21. Income Distribution: Effects on Growth and Development

Author:
Nancy Birdsall
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
I review the literature on the effects of inequality on growth and development in the developing world. Two stylized facts emerge from empirical studies: inequality is more likely to harm growth in countries at low levels of income (below about $3200 per capita in 2000 dollars); and it is at high levels of inequality (at or above a Gini coefficien t of .45) that a negative association emerges. Between 15 and 40 percent of the developing world's population lives in countries with these characteristics, depending on the inclusion of China, whose level of inequality has recently been measured at almost .45. Theory and evidence suggest that high inequality affects growth: (1) through interaction with incomplete and underdeveloped markets for capital and information; (2) by discouraging the evolution of the economic and political institutions associated with accountable government (which in turn enable a market environment conducive to investment and growth); and (3) by undermining the civic and social life that sustains effective collective decision-making.
Topic:
Civil Society, Economics, Emerging Markets, and Markets
Political Geography:
China

22. Reflections on the Macro Foundations of the Middle Class in the Developing World

Author:
Nancy Birdsall
Publication Date:
10-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
In this working paper I define inclusive growth as growth conducive to increasing the size and economic command of the middle class. I suggest a definition of the middle class based on absolute and relative measures of country-based income distributions, and present evidence of change in the size of the “middle class” for selected developing countries. I then review how macroeconomic policies shape the environment and incentives for inclusive growth, focusing on three areas: fiscal discipline, the more rule-based the better; a fair tax and redistribution system; and a business friendly exchange rate.
Topic:
Education and Poverty
Political Geography:
South America, Latin America, and Central America

23. The World Bank: Toward a Global Club

Author:
Nancy Birdsall
Publication Date:
05-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
In this Essay, CGD president Nancy Birds all describes the World Bank as a global club with a structure close to that of a credit union in which the members are nations. Its mission, as originally conceived—to promote broadly shared and sustainable global prosperity—serves the common interests of all its country members. In light of this, Birds all addresses the issues that arise with respect to its current governance structure and how these issues affect the Bank's legitimacy, effectiveness and relevance in the global system.
Topic:
Globalization, Political Economy, and Poverty

24. Income Distribution: Effects on Growth and Development

Author:
Nancy Birdsall
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
I review the literature on the effects of inequality on growth and development in the developing world. Two stylized facts emerge from empirical studies: inequality is more likely to harm growth in countries at low levels of income (below about $3200 per capita in 2000 dollars); and it is at high levels of inequality (at or above a Gini coefficient of .45) that a negative association emerges. Between 15 and 40 percent of the developing world's population lives in countries with these characteristics, depending on the inclusion of China, whose level of inequality has recently been measured at almost .45. Theory and evidence suggest that high inequality affects growth: (1) through interaction with incomplete and underdeveloped markets for capital and information; (2) by discouraging the evolution of the economic and political institutions associated with accountable government (which in turn enable a market environment conducive to investment and growth); and (3) by undermining the civic and social life that sustains effective collective decision-making.
Topic:
Development, Humanitarian Aid, Political Economy, and Poverty
Political Geography:
China

25. Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa

Author:
Nancy Birdsall
Publication Date:
03-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The implicit assumption of the donor community is that Africa is trapped by its poverty, and that aid is necessary if Africa is to escape the trap. In this note I suggest an alternative assumption: that Africa is caught in an institutional trap, signaled and reinforced by the small share of income of its independent middle-income population. Theory and historical experience elsewhere suggest that a robust middle-income group contributes critically to the creation and sustenance of healthy institutions, particularly healthy institutions of the state. I propose that if external aid is to be helpful for institution-building in Africa's weak and fragile states, donors need to emphasize not providing more aid but minimizing the risks more aid poses for this group in Africa.
Topic:
Corruption, Development, Government, and Humanitarian Aid
Political Geography:
Africa

26. Payments for Progress: A Hands-Off Approach to Foreign Aid

Author:
Nancy Birdsall and Owen Barder
Publication Date:
12-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
There are significant differences of opinion about the merits of additional aid in meeting the MDGs, including whether and how aid should be given in 'fragile states', whether additional aid on the scale envisioned can be effectively used even in well-managed economies, and whether the aid system, particularly in highly aid-dependent countries, undermines instead of strengthens local institutions. We discuss an approach to scaling up foreign aid that would explicitly be aimed at strengthening local capacity and institutions, including in fragile states. “Payments for progress” would link additional aid to clear evidence of progress already achieved on the ground. This approach would give flexibility and autonomy to local institutions, providing an opening for local institutional experimentation, while at the same time ensuring that aid pays only for real, measurable achievements. Donors would bind themselves as a group to pay a specific amount for clear evidence of progress against one or more agreed goals in low-income developing countries. Developing country governments would present an independently audited statement reporting their progress on the measures, and donors would pay the agreed amount. Payments would be determined as a function of the outcomes, and not linked to the implementation of any particular policies, any other intermediate outputs, or “tied” to purchases from particular suppliers or companies. Governments that found ways to provide services efficiently and so reduce the costs of providing them would benefit from a larger surplus. We discuss the issues such an approach raises—in setting the benchmarks against which progress is measured, in avoiding cheating, and in managing unintended negative consequences of an incentives-based approach. We conclude with a summary of the advantages for donors and recipients.
Topic:
Foreign Policy, Development, Humanitarian Aid, and Third World

27. Stormy Days on an Open Field: Asymmetries in the Global Economy

Author:
Nancy Birdsall
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Openness is not necessarily good for the poor. Reducing trade protection has not brought growth to today's poorest countries, and open capital markets have not been good for the poorest households in emerging market economies. In this paper I present evidence on these two points. First, countries highly dependent on primary exports two decades ago, despite their substantial engagement in trade and a marked decline in their tariff rates in the 1990s, have failed to grow. Second, within high-debt emerging market economies the financial crises of the last decade, whether induced by domestic policy problems or global contagion, have been especially costly for the poor (in welfare terms if not in terms of absolute income losses). I discuss the asymmetries in the global economy that help explain why countries and people cannot always compete on equal terms on the “level playing field” of the global economy.
Topic:
Economics, Globalization, International Trade and Finance, Poverty, and Financial Crisis

28. A Stability and Social Investment Facility for High Debt Countries

Author:
Nancy Birdsall and Kemal Derviş
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
A number of high-debt emerging-market economies face structural, long-term debt problems that tend to keep their growth rates low, that impart an unequalizing bias to the growth process, that severely constrain social spending and human development, and that make them vulnerable to capital flow reversals. Unless the nature and pace of growth can be improved in these lower-middle income countries, the Millennium Development Goals (MDGs) are unlikely to be met either in many of these countries, or globally. These high-debt emerging-market economies face an impossible choice between draconian and never-ending fiscal austerity, or crisis and a “debt event.” Both “bitter pills" impose high social and economic costs.
Topic:
Civil Society, Debt, Economics, and International Organization

29. Stormy Days on an Open Field: Asymmetries in the Global Economy

Author:
Nancy Birdsall
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Openness is not necessarily good for the poor. Reducing trade protection has not brought growth to today's poorest countries, and open capital markets have not been good for the poorest households in emerging market economies. In this paper I present evidence on these two points. First, countries highly dependent on primary exports two decades ago, despite their substantial engagement in trade and a marked decline in their tariff rates in the 1990s, have failed to grow. Second, within high-debt emerging market economies the financial crises of the last decade, whether induced by domestic policy problems or global contagion, have been especially costly for the poor (in welfare terms if not in terms of absolute income losses). I discuss the asymmetries in the global economy that help explain why countries and people cannot always compete on equal terms on the “level playing field” of the global economy.
Topic:
International Relations, Economics, Globalization, and Political Economy

30. Will HIPC Matter? The Debt Game and Donor Behaviour in Africa

Author:
Nancy Birdsall, Stijn Claessens, and Ishac Diwan
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In this paper we focus on the question: will the HIPC debt reduction programme help in the transformation of the development assistance business and change the rules of the 'debt game' in Africa? We concentrate on the donor and official creditor side, by exploring how the growing debt of African countries, over the last two decades, has affected the provision of new resources by the donor community. Our results indicate that if debt levels are reduced sufficiently in high debt countries, donors can shift from the current pattern of non-selectivity and defensive lending to a low debt regime, a regime that has in the past allowed selectivity in lending in relation to levels of poverty and quality of policy.
Topic:
Development and International Organization
Political Geography:
Africa