ECONOMICS OF INTERNATIONAL DEVELOPMENT

Won-Gyu HWANG

Gangneung-Wonju National University

Korea

Development and Institutions

Seminar at UV

2016.02.09

GLOBAL PARTNERSHIP

IN THE AGE OF

SUSTAINABLE DEVELOPMENT

Contents

Theories in Development

Global Flow of Development Cooperation

Global Partnership for Development Cooperation

Development Policies Beyond Aid

Q & A

THE GLOBE IN THE 21C: POVERTY AND INEQUALITY

Poverty still Prevailing (GMR 2016)

Though improved, the world is still gloomy • People in extreme poverty (2015): 702 million (below $1.90 per day in 2011 ppp)

• 80% of world population lives with below $10 per day (2005)

• Portion of 48 SSH African countries to the world

-- GNI: 1.6%, Trade volume: 2.4% (2010)

GNI Extreme Poverty

THE GLOBE IN THE 21C: POVERTY AND INEQUALITY

Deepening Inequality

• Income Inequality by Nation (Richest/Poorest) 1750s: 3 times, 1960s: 35 times, 2000s: 80 times • Global Inequality in Wealth Top 1%: 43%, Top 10%: 86%, Top 20%: 94% • Income Inequality within Nations Gini Coefficient in OECD: 0.29 (mid-1980s) → 0.316 (late 2000s)

Distribution of Global Wealth

Income Inequality by Nation

MICRO- AND MACRO- EFFECTS

CHAPTER 1

Theories in Development (1) – Modernization

Leading Sector and Trickling–down Effect Strategic industries in modern sector will lead the society and its effect will be spread into the society ** Polarization

Stage Theory of Economic Development (W W Rostow) Traditional Society → Preparation for

Take-off → Take-Off → Maturity

→ High Mass-Consumption Society

Theories in Development (2) – Neo-Classic

Growth in Neo-Classical Economics (Harrod-Domar Growth Equation) S=sY, ∆K=I-δK → S=I → ∆K=sY- δK (δ: depreciation)

g=∆Y/Y → g=∆Y/(∆K/s) → g=s(∆Y/∆K)

Theory in Development (3) - Unorthodox Vicious Circle and Poverty Trap - Vicious cycle of poverty (Ragnar Nurkse) - Escape from poverty trap → Big Push is needed (Rosenstein-Rodin) “Middle-income Trap” Dual Economy (A Lewis) - Traditional sector: Psudo-employment -- Unlimited supply of labor force - Modern sector: Linkage to developed countries

Theory in Development (4) - Unorthodox

Aggravation of Terms of Trade (Singer-Prebisch Theorem) - Vulnerability of monoculture economy - Secular decline of terms of trade • Immiserizing Growth (J. Bagwati) • Polarization Effect Neo-Colonialism, Dependency

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

Theory in Development (5) - Heterodox

Dependency Theory - Development of Underdevelopment (A.G. Frank)

Socialism - Collapse Theory in Capitalism (K. Marx) - Imperiailsm (V. Lenin)

CHAPTER 2

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ODA/GNI

(%)

금액

(백만달러)DAC 회원국의대외원조추이(net)

총ODA ODA/GNI%

Foreign Aid by OECD-DAC Countries (1960-2010)

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

ODA over GNI (1990-2008 Records & Projection)

AVERAGE PROPORTION OF OECD-DAC COUNTRIES

HAS NEVER EXCEEDED 0.33% SINCE 1990.

WHY KOREA ? Sources of Growth

Quantity (Accumulation) Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

Flow of Development Cooperation Fund

The magnitude of development cooperation is on the rise continuously since mid-1990s Bilateral > Multilateral > Private

ODA by Major Country Group

ODA by DAC Countries in 2008 & 2014

▪ ODA Total: 119.8 → 135.2 Unit: USD billion

▪ Spain: 6.69 (7th) → 1.89 (15th)

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

ODA/GNI in DAC Countries (2008 & 2014)

ONLY 5 COUNTRIES EXCEED THE UN GUIDELINE OF 0.7%

USA AND JAPAN ALWAYS OFFER LESS THAN 0.2%

▪ Global: 0.30% → 0.29%

▪ Spain: 0.43% (8th) → 0.14% (22nd)

ODA including Non-DAC Countries (2009)

EMERGING AND NON-DAC DONORS PLAY MORE AND MORE

IMPORTANT ROLE IN INTERNATIONAL DEVELOPMENT.

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

ODA by Emerging Donors (2009)

▪ SAUDI ARABIA: 12TH IN THE WORLD

▪ CHINESE ODA ON THE RAPID RISE. THE EXACT AMOUNT AND

DISBURSEMENT ARE NATIONAL SECRET.

Nation USD million ODA/GNI

Saudi Arabia 5,564 1.5%

China 2,000 (est.) 0.05%

Korea 802 0.09%

Turkey 780 0.11%

Taiwan 435 0.11%

Poland 372 0.08%

Composition of ODA Disbursement by Sector

▪ Before 2000: Majority for economic & production sector ▪ After 2000: More on social and health sector

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

Composition of ODA Disbursement by Type

▪ Slight increase in multilateral aid ▪ Debt relief for HIPCs after the G-7 Glendale Meeting in 2005

Recipients of ODA by Income and Region

▪ By income, majority of ODA goes to LICs and MICs

▪ By region, SSA receives the most

(2000-2003)

(2000-2014)

Major ODA Recipients (2000-2003)

▪ Populous countries receive more ODA in total amount.

▪ Smaller countries receive more in terms of aid per capita

Major ODA Recipients (2014)

▪ Countries with strategic importance tend to receive more.

▪ It varies with international political situation.

Global

USA

Spain

CHAPTER 3

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

Theories in Development (1) – Neo-Classical

Two-Gap Model (Chenery & Strout, 1966) - 신고전학파적 경제성장 모형의 가정 (1) Gap between investment and saving (2) Gap between imports and exports Income: Y=C+I+G+(X-M) Expenditure: Y=C+Sp+T → I=(T-G)+Sp+(M-X) =Domestic Saving + Foreign Saving Endogenous Growth Theory: AK Model (Paul Roemer) Production function Y=A·f(K, L) Role of A as an endogenous variable Growth is triggered by IRTS and external effects Growth-friendly policies and R&D expenditure are keys to growth

International Development and Economics

Economic Approach to Development (Effective? Humanistic?)

Aid

Infrastructure &

Institution Building

(Strategic) Industrial

Development

Economic Growth

Poverty Reduction

Theories Alternatives

Trickle-down

Effect

Industrial

Policy

(Forward/Back-

ward Effect

Neo-classical

Growth Theory

Target Group: Entrepreneurs → The Underprivileged (Poor, Women..)

Growth with Redistribution

Basic Human Needs

Approach

Pro-Poor Growth

Capacity Development

Governance

Sustainable Development

Policy Coherence for Development

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

Foreign Aid and Development Burnside & Dollar (AER, 2000) - Positive contribution to growth - The higher at the countries with better governance

Jeffrey Sachs (The End of Poverty, 2005) - Ending global poverty is possible with right policies - Insist a dramatic increase in aid amount: From USD 65 billion(2002) to USD 195 billion(2015) - A critic against the IMF prescription - Advocate MVP (Millennium Village Project) Joseph Stiglitz (Globalization and Its Discontents, 2002) - Against the IMF prescriptions - Limit to neo-classical economics in developing countries • Imperfect information, irrelevant market and institutions in LDCs

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

Correlation between Aid and Development (1) Empirical Study (1) - Paul Mosley & Peter Boone

• No, if not negative correlation between aid amount and economic growth rate • Leakage of aid money • Expenditure in less-productive sectors

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

Correlation between Aid and Development (2) Empirical Study (2)

- Fairly meager correlations between current account deficit and

income per capita growth rate during 30 years

Aid Skepticism

Peter Bauer

“Aid is nothing but the process supporting the rich in poor countries

by the poor in rich countries.”

William Easterly

- “White Man’s Burden”(2001) -- The Tragedy of the West

-- No changes made with 2.3 billion dollars in 50 years

- Right development policy, market not aid, aid system reform

Dambisa Moyo

- “Dead Aid” (2009)

- Alternatives should be sought for Africa

-- Trade facilitation, FDI, Creative trade, domestic finance…

Theories related to Aid Skepticism · Micro-Macro Paradox

· Principal-Agent Problem

· Unproductive Use and “Dutch Disease”

· Expanding Bureaucracy and Crowd-in Effect

--- by Milton Friedman

· Crowd-Out Effect

against private entrepreneurship

· Liquidity Increase and Inflation

· Moral Hazard and Corruption

· Dependency Syndrome

EFFECTIVENESS OF INTERNATIONAL DEVELOPMENT

- Short-term Effect

WOW !!!

Famine, Epidemic,

Emergency relief…

- Long-term Effect

Well ???

Commitment to Development Index (2010 & 2015)

2010

FROM AID TO DEVELOPMENT EFFECTIVENESS

FROM MDGS TO SDGS

Busan

(HLF-4)

Accra Agenda

(HLF-3)

Why use graphics from PowerPointing.com?

Millennium

Declaration Rome Forum

(HLF-1)

Doha Declaration

Monterrey Consensus

Paris Declaration

(HLF-2)

2002 2000 2003 2005 2008 2012

Millennium Development Goals

Global Agenda for Aid Effectiveness

Multilateral Debt Relief Initiative

2011 2016

Global

Partnership

Post

MDGs

ROAD TO BUSAN 2011

Rome Declaration on Harmonisation

Accra Action Agenda

Busan 29 Nov – 1Dec

2011

2002

Monterrey Consensus

2003 2005 2008 2010 2011

HLF-1

HLF-2

Paris Declaration on Aid

Effectiveness

Bogota Statement on SSC

Dili Declaration on Fragile States

Istanbul principles on CSO effectiveness

HLF-3

HLF-4

The Journey toward Enhancing Aid Effectiveness.

THE PARIS DECLARATION PYRAMID

Monitoring Framework of the GPEDC

SOURCE: DEVELOPMENT COOPERATION REPORT 2015 (OECD)

Global Partnership for Development Cooperation

MDGs (Millennium Development Goals)

MDGs (2000-2015): 8 Goals & 21 Targets to End Extreme Poverty

▪ Unprecedented global concerted efforts

▪ Substantial achievement, though not fulfilled ▪ Uneven achievement by sector

Goal 1 Goal 2

Process toward Building the Post-2015 Goals

GLOBAL EFFORTS TO DRAFT THE POST-MDGS UN Initiative

UN System Team 『Realizing the Future We Want for All』

(2012)

UN High-Level Panel 『A New Global Partnership:

Eradicate Poverty and Transform Economies

through Sustainable Development』 (2013)

-- Suggested 12 illustrative goals

UN Development Group

UN SG’s Report 『A Life of Dignity for All: Accelerating Progress

towards the MDGs and Advancing

the UN Development Agenda Beyond 2015』

(The 68th UN General Assembly, 2013)

『A Million Voices: The World We Want』 (UNDG 2013)

The Process of SDGs Agenda Building

Rio+20 Conference Outcome Report

『The Future We Want』 (2012)

Institutional Mechanism

(1) High-level Political Forum

-- Co-chaired by Brazil and Italy

(2) Open Working Group(OWG)

-- Co-chaired by Hungary and Kenya

30 members representing 70 countries participated

(3) Committee of Experts on Sustainable Development Financing

-- 30 experts to discuss mobilization of finance for SGDs

GLOBAL EFFORTS TO DRAFT THE POST-MDGS

Global Goals for Sustainable Development

▪ Adopted at the UN Special Summit for SDGs in 2015

▪ SDGs (2016-2030): 17 Goals & 169 Targets To Transform Our World

- End extreme poverty

- Fight inequality and injustice

- Fix climate change

▪ “Coexistence of Men and Nature”

Implementing Mechanism for GGSD (1)

Addis Ababa Action Agenda(AAAA) ▪ Adopted at the 3rd International Conference

on Financing for Development held in Ethiopia (July 2015)

▪ No definite commitment for contribution

▪ Non-numeric targets prevail

Source: IIED

Implementing Mechanism for GGSD (2)

Paris Climate Conference (COP 21) ▪ Adopted at the Paris Climate Conference (December 2015)

▪ Upper-limit target was set and adopted.

▪ Major CO2 emitters joined in the negotiation and pledged.

▪ Fund to support developing countries agreed.

Source: IIED

BEYOND AID

Global Decline of Aid Dependency (1969 & 2009)

TAX REVENUE/GDP

Financial Source of Developing Countries

REMITTANCES

Africa

Financial Flow to Developing Countries (1)

Financial Flow to Developing Countries (2)

AID EFFECTIVENESS BY SECTOR (IMF)

BILL GATES (2011) AT CANNES G-20 SUMMIT

Alternative Source of Development Finance

Sources of Growth Quantity (Accumulation)

Capital Labor

Quality (Efficiency) Human Resource Technology

Fundamentals: Market, Government, Institution Economic Environment: Demography, Technological Trend, Culture, History

Policies Enhancing Development Effectiveness Promoting Development-Friendly Macroeconomic Environment - Partners: Good Governance, Right Policy - Donors: PCD (GSP, Aid for Trade, Open Labor Market, Right Aid, …) Whole of Government Approach - Promotion of Market-friendly, Market-enhancing Activities - Supporting Productive Activities (FDI, Aid for Trade..) • Microfinance (e.g: Grameen Bank) → Venture Capital(e.g: Acumen Fund, Ashoka Foundation) • Social Enterprises (e.g.: Mondragon Cooperatives)

Enhancing Aid Effectiveness

Selective Concentration - Quality over Quantity: Good Governance - Prudential selection in countries and projects Recipient-centered Approach - Maximize local participation - CPA: Country Programmable Aid Escape from Microscopic Approach - Avoid ‘Aid-first’ perspective - Be smart players, not generous volunteers

Coordination and Cooperation among Donors ** Paris Framework for Aid Effectiveness **

Q&A

Career in International Development

- International Organizatioins

• Professional ----- Field Worker • Requires diverse disciplines (Management, Accounting, Law, Engineering, Agriculture, Health …) - Development NGOs

• Volunteers, Missionaries - Scholars/Professionals

• Development consultants, Researchers, Professors • Not only development studies, but in other disciplines - Government Officials

• Diplomats • Civil servants – international affairs • Teachers – teaching in ovedrseas - Aid Agency • AECID • Development Banks

Significance of CSO Donors (2010)

Source: UNDP (2013), “Working with Civil Society with Civil Society”.

Rank Nation/CSOs Annual Budget

(USD million)

No. of

Employees

Head-

quarter

1 USA 29,431

2 UK 12,871

3 Germany 11,884

4 Japan 10,842

5 France 10,073

10 Sweden 4,137

11 Australia 3,813

12 World Vision 2,790 40,000 USA

13 Italy 2,763

16 Swiss 1,904

17 Save the Children 1,400 14,000 UK

19 Oxfam 1,250 6,000 UK

20 Doctors without Borders (MSF) 1,240 22,000 Swiss

21 Korea 1,171

Gracias