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301. 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 (CGD)
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

302. The Economics of Young Democracies: Policies and Performance

Author:
Nathan Converse and Ethan Kapstein
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Since the “third wave” of democratization began in 1974, nearly 100 states have adopted democratic forms of government, including, of course, most of the former Soviet bloc nations. Policy-makers in the west have expressed the hope that this democratic wave will extend even further, to the Middle East and onward to China. But the durability of this new democratic age remains an open question. By some accounts, at least half of the world's young democracies—often referred to in the academic literature as being “unconsolidated” or “fragile”—are still struggling to develop their political institutions, and several have reverted back to authoritarian rule. Among the countries in the early stages of democratic institution building are states vital to U.S. national security interests, including Afghanistan and Iraq.
Topic:
Democratization, Development, Economics, and Government
Political Geography:
Afghanistan, China, and Iraq

303. Back to the Future for African Infrastructure? Why State-Ownership Is No More Promising the Second Time Around

Author:
John Nellis
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Too many African state-owned enterprises (SOEs), particularly those in infrastructure sectors, have a long history of poor performance. African governments and donors labored through the 1970s and 1980s to improve SOE performance through “commercialization”——i.e., methods short of ownership change. These generally failed, giving rise, in the 1990s, to much more heavy reliance on private sector participation and ownership. This approach produced some successes, but Africa's private participation in infrastructure (PPI) initiatives have been comparatively few and weak. A number of those that have been launched have run into problems, to the point where both investor and African government interest in the approach has waned in the last few years. The reform is not popular——surveys of public opinion in 15 African countries reveal that only a third of respondents prefer private to state-owned firms. Nonetheless, African states (and their supporters) should not jettison the PPI approach. Rather, they should acknowledge its limitations, and recognize the large scope and moderate pace of the preparatory measures required both to improve their investment climates and to make PPI work effectively.
Topic:
Development, Economics, and Non-Governmental Organization
Political Geography:
Africa

304. An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa

Author:
Todd Moss, Nicolas Van de Walle, and Gunilla Pettersson
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
A number of proposals today support a substantial increase in foreign aid levels to sub-Saharan Africa even though this region already receives a historically unprecedented volume of aid. This essay reviews the evidence regarding the potentially negative effects of aid dependence on state institutions, a topic which has received relatively little attention. We note several pathways through which political institutions might be adversely affected and devote particular attention to fiscal and state revenue issues. In addition to reviewing the economic literature on the aid-revenue relationship, this essay brings in the long-standing political science literature on state-building to consider the potential impact of aid dependence on the relationship between state and citizen. We conclude that states which can raise a substantial proportion of their revenues from the international community are less accountable to their citizens and under less pressure to maintain popular legitimacy. They are therefore less likely to have the incentives to cultivate and invest in effective public institutions. As a result, substantial increases in aid inflows over a sustained period could have a harmful effect on institutional development in sub-Saharan Africa.
Topic:
Development, Humanitarian Aid, and Political Economy
Political Geography:
Africa

305. Privatization--A Summary Assessment

Author:
John Nellis
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
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.</p
Topic:
Development, Economics, Political Economy, and Privatization
Political Geography:
Latin America