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3811. 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

3812. 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

3813. 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

3814. 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

3815. 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
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

3816. 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
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

3817. The Role of the IMF in Well-Performing Low-Income Countries

Author:
Steven Radelet
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The IMF began to play a prominent role in low-income countries in the late 1970s and 1980s when many countries faced overvalued exchange rates, growing budget deficits, high inflation, and low reserves. But times have changed, and many low-income countries no longer face these problems and do not need classic IMF programs. This paper explores options for the role of the IMF in well-performing low-income countries that no longer require IMF financing. It argues that in these countries the IMF should use more non-funded programs, and it should play a much less dominant role in overall conditionality. These countries should be able to focus more on achieving high-priority development goals that are outside the expertise of the IMF, such as in health, water, education, private sector development, and agriculture. While playing a less prominent role, the Fund should continue to be engaged in helping countries to maintain an appropriate macroeconomic framework. For some countries, a non-funded program like the new Policy Support Instrument (PSI) would be appropriate, while others could shift further to a program of surveillance and monitoring. In well-performing countries the Fund should provide public ratings on macroeconomic policy, ideally fully incorporated into the World Bank's CPIA rating system.
Topic:
Development, Economics, Government, and Politics

3818. Tax policies to promote private charitable giving in DAC countries

Author:
David Roodman and Scott Standley
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Researchers have written hundreds of papers on the causes and consequences of official foreign aid, while paying almost no attention to private overseas giving, by individuals, universities, foundations, and corporations. Yet private giving is significant—some $15.5 billion/year, compared to more than $60 billion/year in public giving—and is in no small part an outcome of public policy. In most rich countries, tax deductions and credits lower the “price” of charity to donors. And governments with low tax revenue/GDP ratios leave more money in private pockets for private charity. To correct the near-complete lack of information on this de facto aid policy, we survey officials of 21 donor nations on the use of tax incentives to promote private charity. From the results, we develop an index of the overall incentive for private charity, expressed as a percentage increase over the hypothetical giving level absent incentives. France's tax code creates the largest price incentive while those of Austria, Finland, and Sweden offer none. Factoring in the income effect of the tax ratio, Australia, Ireland, Germany, and the United States move to the top, with combined price and income effects sufficient to double private giving. As a result, tax policy appears to have nearly doubled private overseas giving from donor countries in 2003, from a counterfactual $8.0 billion. Two-thirds of the $7.5 billion increase occurred in the United States. Of that, nearly 40% appears to be U.S. charity to Israel. According to 21-country scatter plots, countries with lower church attendance and more faith in the national legislature have lower taxes (stronger income effect), but average levels of targeted tax incentives. Income (GDP/capita) does correlate with private overseas aid/capita, but also with public aid/capita, so that the two aid flows are complementary in magnitude.
Topic:
Debt, Economics, Humanitarian Aid, and International Trade and Finance
Political Geography:
United States, Finland, Germany, Australia, Sweden, Ireland, and Austria

3819. 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

3820. The Costs and Benefits of Front-loading and Predictability of Immunization

Author:
Owen Barder and Ethan Yeh
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
How can the international community save more children's lives faster and more effectively in the 21st century? This Working Paper analyzes the extent to which “frontloading” and predictable vaccine funding, as proposed by the International Finance Facility for Immunization (IFFIm), is more effective in impacting vaccine coverage than spending vaccine funds equally throughout the lives of projects. The IFFIm is an initiative of the Global Alliance for Vaccines and Immunization (GAVI), and supported by the governments of the United Kingdom, France, Sweden, Italy, Spain and Norway. An initial IFFIm investment of $4 billion is expected to prevent 5 million child deaths by 2015, and more than 5 million future adult deaths. Using a stylized model, the authors quantify the positive and negative effects of predictable vaccine funds and frontloading, and finds IFFIm's approach can increase the impact of vaccine coverage by 22%. This is because stable and long-term financing allows vaccine manufacturers and countries to plan for long periods of time, knowing that resources will be available. Front-loading helps to reduce the spread of disease and to immunize large groups of people faster.
Topic:
Economics, Health, Human Welfare, and International Cooperation
Political Geography:
United Kingdom, Norway, France, Spain, Italy, and Sweden