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461. Fragile States and U.S. Foreign Assistance: Show Me the Money

Author:
Stewart Patrick and Kaysie Brown
Publication Date:
08-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The Bush administration has increasingly acknowledged that weak and failing states represent the core of today's global development challenge. It has also recognized that such states are potential threats to international peace and security. But despite the rhetoric, it has yet to formulate a coherent strategy around fragile states or commit adequate resources towards engaging them. Excluding funding for Iraq, Afghanistan, Pakistan, and HIV/AIDS, the administration's FY07 budget request proposes to spend just $1.1 billion in direct bilateral assistance to fragile states—little more than a dollar per person per year. In this new working paper, CGD research fellow Stewart Patrick and program associate Kaysie Brown urge U.S. policymakers to consider increasing aid to fragile states and to think creatively about how and when to engage these troubled countries. The authors also call for the policy community to integrate non-aid instruments into a more coherent government strategy. To put its money where its mouth is, the U.S. should treat aid to weak and failing states as a form of venture capital, with high risk but potentially high rewards.
Topic:
Economics, Government, and Humanitarian Aid
Political Geography:
Pakistan, Afghanistan, United States, and Iraq

462. New data on African health professionals abroad

Author:
Gunilla Petterson and Michael A. Clemens
Publication Date:
08-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The migration of doctors and nurses from Africa to developed countries has raised fears of an African medical brain drain. But empirical research on the causes and effects of the phenomenon has been hampered by a lack of systematic data on the extent of African health workers' international movements. We use destination-country census data to estimate the number of African-born doctors and professional nurses working abroad in a developed country circa 2000, and compare this to the stocks of these workers in each country of origin. Approximately 65,000 African-born physicians and 70,000 African-born professional nurses were working overseas in a developed country in the year 2000. This represents about one fifth of African-born physicians in the world, and about one tenth of African-born professional nurses. The fraction of health professionals abroad varies enormously across African countries, from 1% to over 70% according to the occupation and country. These numbers are the first standardized, systematic, occupation-specific measure of skilled professionals working in developed countries and born in a large number of developing countries.
Topic:
Development, Health, and Migration
Political Geography:
Africa

463. Social Cohesion, Institutions

Author:
William Easterly, Michael Woolcock, and Jozef Ritzen
Publication Date:
08-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
We present evidence that measures of “social cohesion,” such as income inequality and ethnic fractionalization, endogenously determine institutional quality, which in turn casually determines growth.
Topic:
Civil Society, Development, Government, and Poverty

464. Development, Democracy, and Mass Killings

Author:
William Easterly
Publication Date:
07-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Using a newly assembled dataset spanning from 1820 to 1998, we study the relationship between the occurrence and cruelty of episodes of mass killing and the levels of development and democracy across countries and over time. We find that massacres are more likely at intermediate levels of income and less likely at very high levels of democracy, but we do not find evidence of a linear relationship between democracy and probability of mass killings. In the 20th century, discrete improvements in democracy are systematically associated with less cruel massacre episodes. Episodes at the highest levels of democracy and income involve relatively fewer victims.
Topic:
Civil Society, Crime, Democratization, and Development

465. A Primer on Foreign Aid

Author:
Steven Radelet
Publication Date:
07-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Controversies about aid effectiveness go back decades. Some experts charge that aid has enlarged government bureaucracies, perpetuated bad governments, enriched the elite in poor countries, or just been wasted. Others argue that although aid has sometimes failed, it has supported poverty reduction and growth in some countries and prevented worse performance in others. This new working paper by CGD senior fellow Steve Radelet explores trends in aid, the motivations for aid, its impacts, and debates about reforming aid. It begins by examining aid magnitudes and who gives and receives aid. It discusses the multiple motivations and objectives of aid, some of which conflict with each other. It then explores the empirical evidence on the relationship between aid and growth, which is divided between research that finds no relationship and research that finds a positive relationship (at least under certain circumstances). It also examines some of the key challenges in making aid more effective, including the principal-agent problem and the related issue of conditionality, and concludes by examining some of the main proposals for improving aid effectiveness.
Topic:
International Relations, Development, Humanitarian Aid, and Poverty

466. A Policymakers' Guide to Dutch Disease

Author:
Owen Barder
Publication Date:
07-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
It is sometimes claimed that an increase in aid might cause Dutch Disease—that is, an appreciation of the real exchange rate which can slow the growth of a country's exports— and that aid increases might thereby harm a country's long-term growth prospects. This essay argues that it is unlikely that a long-term, sustained and predictable increase in aid would, through the impact on the real exchange rate, do more harm than good, for three reasons. First, there is not necessarily an adverse impact on exports from Dutch Disease, and any impact on economic growth may be small. Second, aid spent in part on improving the supply side—investments in infrastructure, education, government institutions and health—result in productivity benefits for the whole economy, which can offset any loss of competitiveness from the Dutch Disease effect. Third, the welfare of a nation's citizens depends on their consumption and investment, not just output. Even on pessimistic assumptions, the additional consumption and investment which the aid finances is larger than any likely adverse impact on output. However, the macroeconomic effects of aid can cause substantial harm if the aid is not sustained until its benefits are realized. The costs of a temporary loss of competitiveness might well exceed the benefits of the short-term increase in aid. To avoid doing harm, aid should be sustained and predictable, and used in part to promote economic growth. This maximizes the chances that the long-term productivity and growth benefits will offset the adverse effects—which may be small if they exist at all—that big aid surges may pose as a result of Dutch Disease.
Topic:
Economics, Health, and Humanitarian Aid
Political Geography:
Europe

467. Competitive Proliferation of Aid Projects: A Model

Author:
David Roodman
Publication Date:
06-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The proliferation of aid projects may overburden recipient governments with reporting requirements, donor visits, and other administrative overhead, siphoning off scarce domestic recipient resources, such as tax revenue or the time of skilled government officials, from directly productive use. But greater oversight may also improve the administration of projects, increasing development. I present a model of aid projects that reflects both sides of this coin. It posits a distinction between national-level governance and project-level governance. A donor can raise project-level governance above the baseline national level by requiring oversight activities of the recipient, although the benefits from doing so are less where national-level governance is already high. The model assumes that larger projects demand proportionally less oversight activity from the recipient. Comparative statics analysis suggests that to maximize development, projects should be larger where aid volume is higher, to avoid overburdening recipient administrative capacity; where recipient resources are scarcer, for the same reason; and where national governance is good, since the marginal benefit of oversight is then lower. A multi-donor generalization shows how donors that are imperfectly altruistic, caring most about the success of their own projects, will tend to sink into competitive proliferation, in which each donor subdivides its aid budget into smaller projects to raise the marginal productivity of the recipient's resources in those projects and attract them away from other donors. The inefficiency arises from the lack of a market among donors for recipient resources. In a Nash equilibrium, competitive proliferation reduces overall development. But the smallest (selfish) donors can gain. This would discourage them from cooperating with other donors to contain competitive proliferation.
Topic:
Development, Economics, Government, and Humanitarian Aid

468. Will Debt Relief Make a Difference? Impact and Expectations of the Multilateral Debt Relief Initiative

Author:
Todd Moss
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The Multilateral Debt Relief Initiative (MDRI) is the latest phase of debt reduction for poor countries from the World Bank, the IMF, and the African Development Bank. The MDRI, which will come close to full debt reduction for at least 19 (and perhaps as many as 40) qualifying countries, is being presented as a momentous leap forward in the battle against global poverty. However, the analysis in this paper suggests that the actual gains may be more modest and elusive. This is not because, as some anti-debt campaigners fear, that the initiative is a mere accounting trick. Rather, the limited short-term financial impact of the MDRI on affected countries is because the debt service obligations being relived were themselves relatively insignificant. For example, in 2004 the average African country in the program paid $19 million in debt service to the World Bank, but received 10 times that amount in new Bank credit and more than 50 times as much in total aid. Just as importantly, finances are rarely the binding constraint on poverty and other development outcomes. This is not to say that the MDRI is futile. Indeed the impact could be considerable over the long-term, especially on the ability of creditors to be more selective in the future. But most of the impact of the MDRI will be long-term and difficult to measure. As such, expectations of the effect on indebted countries and development indicators should be kept modest and time horizons long.
Topic:
Debt, Development, Economics, and International Organization
Political Geography:
Africa

469. Privatization: A Summary Assessment

Author:
John Nellis
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
In the last 25 years many thousands of formerly state-owned and operated firms have been privatized in developing and transition countries, generating over $400 billion (US) in sales proceeds. In addition, thousands of firms have been transferred by privatization processes in which no money was raised (though a surprising number of state-owned firms remain in these regions). The vast majority of economic studies praise privatization's positive impact at the level of the firm, as well as its positive macroeconomic and welfare contributions. Moreover, contrary to popular conception, privatization has not contributed to maldistribution of income or increased poverty——at least in the best-studied Latin American cases. In sum, the technical picture is generally positive. Nonetheless, public opinion in the less developed world is generally suspicious of, and often hostile to, privatization. A good part of the problem is that privatization has proven harder to launch, and is more likely to produce errant results, in low-income, institutionally weak states, particularly in the most important infrastructure sectors. Privatization is hard to sell politically; it has become a lightning rod and handy scapegoat for all discontent related to liberalization and globalization. What is needed are reform mechanisms that give incentives and comfort to reputable private investors, that create and sustain the policy and regulatory institutions that make governments competent and honest partners with the private operators, while at the same time protecting consumers, particularly the most disadvantaged, from abuse.
Topic:
Development, Economics, Government, and Privatization
Political Geography:
Latin America

470. The U.S. External Deficit and the Developing Countries

Author:
William R. Cline
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
In the absence of US fiscal adjustment and a further correction of the dollar, the current account deficit is headed to $1.3 trillion by 2010 (8 to 8.5 percent of GDP) and net US foreign liabilities to over $8 trillion (50 percent of GDP). According to CGD/IIE Senior Fellow William R. Cline, the rising trade deficit and associated borrowing from abroad are now financing a decline in personal saving and a rise in the government deficit. This imbalance will increasingly put the US economy—and the developing countries—at risk. This working paper focuses on the impact that the US external deficit and a possible “hard landing” for the US and world economies will have on developing countries. Cline finds that these countries are at risk since they have relied heavily on a continuing expansion of trade surpluses with the United States as a source of demand. Developing countries with high borrowing abroad are also doubly sensitive to a spike in world interest rates—once directly from higher US interest rates, and once indirectly through higher risk spreads—that might be associated with a hard landing. This Working Paper is based on The United States as a Debtor Nation, a book published in 2005 by the Center for Global Development and the Institute for International Economics.
Topic:
Development, Economics, and Third World
Political Geography:
United States