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Development
POS 304
unannounced in-class writing
assessment
• You will have 12 minutes to answer the question.
• No word limit.
• CLOSED BOOK: Only blank sheets, pens/pencils and
your student IDs on your desks.
• No talking. No electronics.
• Write your ID #s, ‘POS 304’ and ‘23 Nov.’ on your
sheets now.
• Tear the sheets out of your notebooks now. I will
collect them at the end.
Question
• According to Easterly, what is wrong with
Chang’s argument?
Progress?
Realism
• issues of power and influence
• tend to ignore the economic interests of
poorer countries in the South.
• it is only when LDCs pose a challenge to the
North’s dominance that most realists take
notice.
• 1970s realist scholars looked at OPEC’s increased
leverage in raising oil prices and at LDC efforts to
gain more power and wealth through an NIEO;
• in the 1980s and 1990s, realists focused on the
challenge East Asia’s developmental state model
posed to the North;
• and today realists are more interested in
emerging powers such as China, India, and Brazil.
• Despite the inattention of realists to poverty
in the South, realist ideas have had
considerable influence on LDC policies.
• Alexander Hamilton and Friedrich List
Liberalism
• LDC economic problems stem more from
inefficient domestic policies than from their
dependent position in the global economy.
• North– South interdependence providing even
more benefits for the South than for the North.
• LDCs that follow open economic policies and
increase linkages with the North are more likely
to achieve successful development.
• interventionist liberals call on the North to
consider the special needs of the South.
Historical materialism
• Dependency theory: capitalist states in the
core of the global economy as either
“underdeveloping” LDCs in the periphery or
preventing them from attaining genuine,
autonomous development.
• World-systems theorists: the semi-periphery,
to explain the fact that some LDCs such as East
Asian and Latin American NIEs were
industrializing.
Development assistance
• grants, loans, or technical assistance
• concessional terms.
• Concessional loans: interest rates, grace
periods, and repayment periods.
• ODA: grant element
Is ODA effective?
• LDCs acquire much more revenue from private
capital flows and merchandise exports. From
1990 to 1996 private international finance to
LDCs increased to more than six times ODA flows.
• Remittances also surpass ODA flows to middleincome LDCs. The World Bank estimated that
remittance flows in 2005 amounted to $ 250
billion (U.S.).
• However: most private capital to LDCs goes to
China and about 10 other East Asian and Latin
American countries.
• J. Sachs: “the extreme poor are caught in a
poverty trap” because of “disease, physical
isolation, climate stress, environmental
degradation, and … extreme poverty itself,” and
their governments “lack the financial means” to
extricate themselves.
• Sachs recommended a doubling of aid in 2006
and almost another doubling by 2015. The
increased ODA would help “to jump-start the
process of capital accumulation, economic
growth, and rising household incomes.”
• Easterly: many LDCs have prospered without
large amounts of foreign aid, and aid does not
necessarily promote development.
• Although “the typical African country received
more than 15 percent of its income from
foreign donors in the 1990s,” this “surge of aid
was not successful in reversing or halting the
slide in growth of income per capita.”
• aid can sometimes be useful as part of a
piecemeal, bottom-up approach to
development
• criticizes the top-down planning approach of
most large development agencies, and he
attributes LDC problems more to corruption
and bad government than to a lack of foreign
aid.
• Dambisa Moyo: “millions in Africa are poorer
today because of aid; misery and poverty have
not ended but have increased.”
• aid promotes corruption and detracts from
development
• Africa can benefit more from the financial
markets, promotion of exports, and
investment from China.
The World Bank Group
• largest lender of multilateral funds for
international development
• also has influence as a rating agency for
others: lending decisions, data collection, and
analyses
• important coordinating function because aidgiving is so fragmented today
• contributes to the evolution of ideas
• International Bank for Reconstruction and
Development (IBRD) was planned at the 1944
Bretton Woods conference.
• weighted voting institution: 2008 GFC
• Members pay 10 percent of their
subscriptions to the IBRD.
• world capital markets
• The International Finance Corporation (IFC)
became the second Bank group institution in
1956
• largest multilateral source of loans and equity
financing for private-sector projects in the
South.
• The International Development Association
(IDA), the third Bank group institution, was
formed in 1960
• The IDA provides soft loans or “credits” to LDC
governments with no interest, 10-year grace
periods, and 35- to 40-year maturities.
• The other two Bank group institutions— the International
Center for Settlement of Investment Disputes (ICSID) and
the Multilateral Investment Guarantee Agency (MIGA)—
encourage the flow of private foreign investment to LDCs
and transition economies.
• The ICSID, formed in 1966, provides facilities for
conciliation and arbitration of investment disputes.
• The MIGA, formed in 1988, provides guarantees to foreign
investors for noncommercial risks, such as currency
inconvertibility, expropriation, war, and civil disturbances,
and helps LDCs and transition economies inform others of
investment opportunities.
The United States is the most
important Bank member
• votes
• English
• Bank president
• US influence has declined
Critics
• Historical materialists
• Liberals
Development Strategies
ISI
• Raúl Prebisch
• decrease emphasis on primary products and
focus on industrialization
• 1950s– 1960s LDCs in Latin America, Asia, and
Africa
• World Bank generally supported ISI during the
1950s
• Initially, ISI provided some major gains for the
South. For example, Latin America had healthy
industrial growth rates in the 1940s– 1950s,
and India’s steel production increased by six
times from 1951 to 1966.
• serious problems developed with ISI in the
1960s– 1970s: global food crisis in the 1970s,
OPEC oil prices in 1973, dependence on the
North, industrial competitiveness.
• Prebisch: “the proliferation of industries of
every kind in a closed market has deprived the
Latin American countries of the advantages of
specialization and economies of scale.”
• protectionist domestic groups
Socialist strategies
• Eg: China, North Korea, Cuba, Ethiopia,
Mozambique, Tanzania, Vietnam, Laos,
Cambodia, and Burma
• health care and education, status of women
• more successful in setting production targets
and increasing output than in ensuring the
quality of output and the efficient use of
resources.
The East Asian NIEs
• South Korea, Taiwan, Singapore, and Hong Kong adopted
export-led growth strategies.
• In the 1950s Taiwan and South Korea had adopted ISI
policies,
• followed Japan’s example in the 1960s and shifted to an
export-oriented policy.
• While maintaining moderate protection of domestic
producers, they promoted industrial exports with tax
incentives, export credits, and duty-free imports of inputs
required by exporters.
• also abandoned minimum wage legislation to encourage
increased employment in export-oriented industries.
• South Korea’s GDP grew at an average annual
rate of more than 8 percent during the 1960s,
and its exports rose from $ 31 million in 1960 to $
882 million in 1970. By the late 1980s, Taiwan
and South Korea were the tenth and thirteenth
largest world exporters of manufactures,
respectively.
• Early 1980s: Southeast Asian economies such as
Malaysia, Indonesia, and Thailand also switched
to export-led growth strategies.
Interpretations
What is the best path to development?