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Economics 172 Issues in African Economic Development Lecture 22 April 13, 2006 Outline: (1) Kremer and Miguel (2004) (2) Cotton and international trade in Africa* (3) Ethnic diversity and African development (Laitin 1992) Economics 172 2 Kremer and Miguel (2004) on financial sustainability • • The structure of foreign aid programs is also important There has recently been a strong push towards “financial sustainability” in local development projects, and against continued subsidies for drugs: – Cost recovery from beneficiaries – Health education – Local “ownership” of projects • Contrast with standard public finance approach that advocates ongoing subsidies to overcome externalities Economics 172 3 (4) Water and sanitation • Observational (non-experimental) estimates – Wells have no effect on worm infection – Latrine ownership reduces worm infection • But latrine costs quite high – $130.20 per child-year of infection averted – Drug subsidies are more than 100 times more effective in terms of reducing infections Economics 172 4 Development in the international context (1) Foreign aid and development (Easterly 2001) (2) Debt and development (Leonard and Strauss 2003) (3) The design of development projects financed by aid (Kremer and Miguel 2004) (4) International trade and development – the case of cotton in Africa Economics 172 5 Cotton as a lens into international trade • Many people have extremely strong views about either the positive or negative impacts of international trade on economic development • Opponents of the current world trade regime have pointed to the case of cotton Economics 172 6 Cotton as a lens into international trade • Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government Economics 172 7 Map of Africa Economics 172 8 Cotton as a lens into international trade • Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government – World price US$0.42, US farmers received US$0.72 Economics 172 9 Cotton as a lens into international trade • Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government – World price US$0.42, US farmers received US$0.72 – Three times annual USAID assistance to Africa – This leads the world market price to drop, perhaps by 10-20% Economics 172 10 Cotton as a lens into international trade • Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government – World price US$0.42, US farmers received US$0.72 – Three times annual USAID assistance to Africa – This leads the world market price to drop, perhaps by 10-20% – Brazil has won two rounds of legal battles against the US in the WTO Economics 172 11 Micro-evidence on cotton prices and poverty • Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%. Economics 172 12 Micro-evidence on cotton prices and poverty • • Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%. They estimate that national poverty would increase 7% Economics 172 13 Micro-evidence on cotton prices and poverty • • • Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%. They estimate that national poverty would increase 7% Meatu district in Tanzania is another cotton growing region. Farmers and the owners of the local cotton ginnery are hard hit when cotton prices fall, as they have since the mid-1990s Economics 172 14 Next topic: ethnic diversity and development • • Sub-Saharan Africa is the world’s most ethnolinguistically diversity continent 14 of the world’s 15 most diverse countries are in Africa (the one exception is India) Economics 172 15 Next topic: ethnic diversity and development • • • Sub-Saharan Africa is the world’s most ethnolinguistically diversity continent 14 of the world’s 15 most diverse countries are in Africa (the one exception is India) What language should be chosen as the national language of such diverse countries? (Laitin 1992) Economics 172 16 Whiteboard #1 Economics 172 17 Whiteboard #2 Economics 172 18 Whiteboard #3 Economics 172 19 Whiteboard #4 Economics 172 20 Whiteboard #5 Economics 172 21 Map of Africa Economics 172 22