Recent Development Experience

Latin America, Africa and Asia

(Todaro text Chapter 2, pp 56-93)

ECON 3508 September 9 and 15, 2015

Hans Rosling on Information

regarding Development

http://www.ted.com/talks/hans_rosling_show

s_the_best_stats_you_ve_ever_seen.html

http://globalpublicsquare.blogs.cnn.com/2011

/03/04/hans-rosling-shows-the-world-

catching-up-to-america/

Agenda

1. Characteristics of Developing Countries:

Diversity and Commonalities?

2. How Low-Income Countries Today Differ

from Developed Countries in Their Earlier

Stages

3. Recent Development Experience

A. Latin America and the Caribbean

B. Africa

C. Asia

D. Arab Countries

4. The “Convergence” Issue

1. Characteristics of Developing Countries:

Diversity and Commonalities?

Can we lump the developing countries into a single category?

Are there common features among “developing countries”?

1. Characteristics of Developing Countries:

Diversity and Commonalities?

Can we lump the developing countries into a single category?

Some possible commonalities, (but note numerous exceptions): 1. Lower levels of living and productivity?

2. Lower levels of human capital (health, education, skills)?

3. Higher Levels of Inequality and Absolute Poverty?

• Absolute Poverty

• World Poverty

4. Higher Population Growth Rates?

• Crude Birth rates

UNDP Characterization of Countries by NHDI

NHDI OECD Africa Latin America

& Caribbean

Asia East-Europe

& Former

USSR

Republics

Very High

NHDI

27 1 6 6

High NHDI 1 1 15 4 17

Medium

NHDI

10 9 15 5

Low NHDI 38 1 5

Source UNDP. HDR, 2011, pp. 143-147

Under-5 Mortality Rates, 1990 and 2005

Primary School Enrollment and Pupil-Teacher Ratios, 2010

Number of People Living in Poverty by Region, 1981–

2005

Crude Birth Rates Around the World, 2009

Characteristics of the Developing World:

Diversity within Commonality, cont’d:

5. Greater Social Fractionalization?

(See ethnic maps of Kenya, Congo and Zambia)

6. Larger Rural Populations but Rapid Rural-to-

Urban Migration?

7. Lower Levels of Industrialization and

Manufactured Exports?

8. Adverse Geography

– Resource endowments?

See text for explanation

Kenya

The Urban Population in Developed Countries and Developing

Regions

Share of the Population Employed in the Industrial Sector in

Selected Countries, 2004-2008 (%)

1. cont’d: Characteristics of the Developing

World: Diversity and Commonality

9. Underdeveloped Financial and Other markets

– Imperfect markets

– Incomplete information

10. Colonial Legacy and

– Differing colonial impacts: legislation, language,

political systems, institutions

– Property rights and allocations

11. External Dependence

2. How Might Low-Income Countries Today Differ from

Developed Countries in Their Earlier Stages?

• Eight possible differences

– Physical and human resource endowments

– Per capita incomes and levels of GDP in relation to the rest of the

world

– Climate

– Population size, distribution, and growth

– Historic role of international migration

– International trade benefits

– Basic scientific/technological research and development

capabilities

– Efficacy of domestic institutions

– Advantages of “being a latecomer”

See text for explanation

3. Recent Development Experience

A. Latin America and the Caribbean

B. Africa

C. Asia

D. Arab Countries

A. Economic

Performance in

Latin America

Sources:•Social Panorama of Latin America, 2014, and

•Preliminary Overview of the Economies of Latin America and the Caribbean, November 2014,

UN Economic Commission for Latin America and the Caribbean, Santiago Chile

Rio de Janeiro

Mexico City

Quito Ecuador

Latin America and

the Caribbean

Explain

Contrasting Experiences:

Chile, Costa Rica. Brazil, Uruguay. Argentina,

Mexico

English-Speaking Caribbean

Peru, Colombia, Paraguay, Guatemala,

Honduras. El Salvador, Dominican Republic

ALBA: Cuba, Venezuela, Ecuador, Bolivia,

Nicaragua

Haiti

Explain

Source: UN ECLAC, Social Panorama …2014, p. 16

B. Recent Development in Experience in

Africa

Nairobi Kenya

Kibera, Nairobi

Sub-Saharan Africa

The Recent African Development Experience

Bad News: Economic Contraction, 1970s to 1990s– minus 0.9 % per capita per year, 1975-2000

– 27 countries with declining GDP pc, 1975-2000

Good News: Recent Growth Recovery late 1990s to 2015

1999-2007 + 4.7% per year or about

2.4% % per capita per year,

Bad News:2009: caught in global recession; but slow-down was minimal

Good news: 2010-2014:Quick Recovery,\

2015: Slowdown again (due to low commodity prices resulting from China’s growth deceleration)

1. Internal Factors“Poverty Traps” and Interacting Vicious Circles

Low YLow SLow ILow K StockLow Y….

Economic ContractionLower Inco,eDecliningTaxesDeclining Public ExpenditureWorsening Infrastructure, Health, Education Further Economic Contraction…….

Weak HealthIneffective WorkLowYPoorNutritionPoor Health………

Inappropriate economic policies:• Modern sector Industrial &Urban Bias• Trade protectionism; • Ineffective integrative schemes• Exchange rate dysfunction• Price Controls;

EXPLANATION OF DEVELOPMENT EXPERIENCE

2. Vulnerability to International Economic

InstabilitiesSource: The Economist, December 3, 2011

3. General Problems of Governance

• Political instability

• Civil war,

• Weak governance and corruption;

Underlying Origins?

General Problems of Governance

Underlying Origins?

– Artificiality of some nation states;

– Traditional view of state as an alien force, inherited from colonial times

– Capture of the state by particular groups

– Insufficient experience in self government in colonial era

– Shortages of trained personnel at Independence

4. Environmental Problems

• Desertification;

• Firewood problem in many areas

• Soil depletion

• Climate change

Explanation of 1975-1998 Economic Contraction:

A Conjuncture of Negative Circumstances

Many things going wrong at the same time;

Interlinked vicious circles

Consequences of the Economic Contraction:

Renewed Economic Expansion, 1999-2015:

Explanation ?

Source: OECD Development Centre / African Development Bank, 2009

Real GDP Growth

-6

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008(e) 2009(f) 2010 (f)

Re

al G

DP

Gro

wth

%

Africa (Febr) Total OECD Africa (May)

Δ = 6.6%

Δ = 4.1%

Δ = 3.5%

Δ = 4.8%

Overall African Growth Rates, 2000-2010

Growth Rates,

African

Countries,

2007-2011

Source: The

Economist,

December 3, 2011

Renewed Economic Expansion, 1999-2015:Explanation:

Again, a Conjuncture of Favourable Circumstances

1. Buoyant world economy promoted recovery

– primary commodity prices rose

2. Some debt reduction and relief from servicing the debt

3. Increased development assistance

4. Direct foreign investment started up (+/- 40 Billion, 2008).

5. Reduced conflict in the region? (ambiguous)

6. Improving Governance?

7. Improved public policy

Source: The Economist, December 3, 2011

Increased political stability ???

Political Troubles and Hardening of the Regime

0

50

100

150

200

250

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Hard

en

ing

of

the

reg

ime:

weig

hte

d s

um

of

ev

en

ts

0

100

200

300

400

500

600

Po

liti

ca

l tr

ou

ble

s:

weig

hte

d s

um

of

ev

en

ts

Hardening of the regime indicator Political troubles trend

Sources: African Economic Outlook 2006 Political Indicators

2015: Major Concerns• Somalia (El Shaba) Boko Haram (Nigeria, Niger, Chad),

Sudan, Chad, South Sudan

• Concerns in Kenya;

• Dictatorial regimes (Burundi, Ethiopia…)

• Plus socio-economic-political melt-down in Zimbabwe,

now ended?

Continuing Good News Politically:

• Peaceful democratic successions in many countries;

• Peace and better governance (Liberia)

And defeat of Ebola

Result:

• Poverty levels decline;

• Personal & family incomes rise;

• Tax revenues and social expenditures (health & education) rise

• General improvement

But: problems mentioned earlier remain;

- some countries are in trouble;

- peace and stability are tenuous in a few cases.

A “Second Scramble for Africa”

Continuing challenges and vulnerability:

• Meeting the MDGs – a major challenge

– Only 12% satisfactory rate towards reducing extreme poverty by half

• Global imbalances

– Commodity price volatility

– Exchange rate uncertainties: $ depreciation, euro appreciation,

– Trade challenges: difficulties in reaching agreements on the Doha Round; developing Africa’s capacity to trade; new competitors

• Domestic sources of instability

– Limited diversification

– Unfinished reform agendas

– Environmental challenges; Natural Hazards – drought;

– Civil strife, failed states

5. Recent Asian Development

Experience

Mumbai

Shanghai

Key Features:

Dramatic or stellar growth, modernization and

human development for some major countrues

(South Korea, China, Hong Kong, Singapore)

Major improvements: Indonesia, Malaysia,

India,

Overall, major reductions in poverty;

Lagging countries;

Continuing issues re poverty, quality of economic

poverty. Governance, political stabilityfor some

cases

Asia: Some Basic Development Indicators

Country NHDI

1980

NHDI

2010

GNIpc(PPP)

($US 2008)

Growth Rate,

GDPpc (PPP)

1990-2007

South Korea .616 .877 29.518 4.5%

China .368 .663 7,258 8.9

India .370 .519 3,337 4.5

Pakistan .311 .490 2,678 1.6

Bangladesh .259 ,429 1,587 2.0

Thailand .483 .654 8,001 2.9

Indonesia .390 .600 3,957 2.3

Viet Nam .407 .572 2,995 6.0

Afghanistan n.a. .349 1,419 n.a.

Source:UNDP HDR, 2010 and 2011,Statistical Tables

East Asia andPacific

South Asia

At the current trends, the standard of living in China will

surpass that of the US in 25 years!

Per

Cap

ita

Inco

me

58

Why is China’s Manufacturing Capacity

Growing at Historic Levels?

Factors include…

• Rapid Transition From Low to High Tech Production (advantages of being a late-comer)

• Education and Recruitment

• Labor Supply and Wage Rates

• Massive economies of scale and agglomerative economies

• International Trade Policy

• Exchange Rate Policy

• Foreign Direct Investment

59

The Impact of Chinese Production

Commodity Price, 1997 Price, 2001

Decrease

DVD Player $491 $165 66.4%

Fax Machine $314 $136 56.7%

VHS Recorder $157 $70 55.4%

Telephone $19 $12 36.8%

Glass Windshields $27.41/sqm $18.5/sqm 32.5%

Source: Nikkei BP Network, National Automotive Glass Consultants

Hans Rosling on Asia’s Rise(15:50 minutes)

• http://www.ted.com/talks/hans_rosling_asia

_s_rise_how_and_when.html

Arab States: A Mixed Picture:

* GDP per person per year, 1975-2000: +0.3

* GDP per person per year, 1990-2005: +1.3

Some Countries Cases:* Egypt: 2.9 and 2.5 % in 1975-2000 and 1990-2000

* Algeria: -0.1 and +o.9 % respectively;

* Lebanon: 0.0 and + 4.2 %

* Morocco: 1.3 and 1.1 %

* Tunisia: 2.0 and 3.2 %

* Jordan: 0.3 and 0.5 %

Explanations:

Varied and complex.

Arab States

Cairo

The “Convergence” Issue:

What is happening to the relative “real” income levels of “developing countries” vis-à-vis the “high income countries?”

Possible Answers; Which is correct?

1. The rich countries are getting richer and the poor countries are getting poorer, that is “divergence” is occurring, not “convergence.”

2. The lower income countries are on average catching up with the high income countries, that is, “convergence” is occurring.

3. Global income distribution is more or less unchanged over the last few decades.

4. The international income distribution picture is too complicated to summarize with one word.

5. There is insufficient information to judge.

Why might “Convergence” be occurring?

What factors may promote convergence”

Why might “Divergence” be occurring”?

What forces may be at work promoting

divergence?

Which forces are Actually prevailing?

Note:

– Relative country convergence

– Absolute country convergence

– Population weighted country convergence

– World-as one country convergence (includes

income distribution within countries as well as

between countries)

Explain

Source: OECD Development Centre / African Development Bank, 2009

Real GDP Growth

-6

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008(e) 2009(f) 2010 (f)

Re

al G

DP

Gro

wth

%

Africa (Febr) Total OECD Africa (May)

Δ = 6.6%

Δ = 4.1%

Δ = 3.5%

Δ = 4.8%

Overall African Growth Rates, 2000-2010

Table 1. World Economic Growth and Real GDP per capita

Grouping GDP per

capita (PPP,

$US, 2003)

GDPpc Growth

Rate, 1975-2001,

% per year

GDPpc Growth

Rate, 1990-2003,

% per year

Developing Countries 4,359 2.3 2.9

Least Developed 1,328 0.4 2.0

Arab States 5,685 0.3 1.0

East Asia & Pacific 5,100 5.9 5.6

Latin America and

Caribbean

7,404 0.7 1.1

South Asia 2,897 2.4 3.5

Sub-Saharan Africa 1,856 -0.9 0.1

E. Europe & Former

Soviet Union

7,939 -2.0 0.3

OECD 25,935 2.0 1.8

Canada 30,677 1.5 2.3

World 8,229 1.2 1.4 Source: United Nations Development Program, Human Development Report, 2005, New

York: Oxford University press, 2003, pp. 278-280.

Explain

Explain

Comparative GDP pc Growth by Country 1989-2003

Comparative GDP pc Growth by Country and Time Period

Some Strains of Theorizing regarding Comparative Development in

Schematic Summary

Nature and Role of Economic Institutions

• Institutions provide “rules of the game” of economic life

• Provide underpinning of a market economy

• Include property rights; contract enforcement

• Can work for improving coordination,

• Restricting coercive, fraudulent and anti-competitive behavior

• Providing access to opportunities for the broad population-

• Constraining the power of elites, and managing conflict

• Provision of social insurance

• Provision of predictable macroeconomic stability

• Note: These institutions are correlated and it is not clear which

of these institutions matter most; and “transitional institutions”

may help in the development process