Helping the poorest nations: Ethiopia, Mali, Malawi, Niger, Bangladesh World Poverty and Economic Development ECON 3240 Spring 2014 Darryl McLeod, Economics, Fordham University www.fordham.edu/economics/mcleod
How to help Malawi vs. Bangladesh? Malawi, Aid then trade, needs green revolution (fertilizer subsidies). Bangladesh (BGD): had Aid, now trade food aid in 1973: trade sanctions, World Food Program. BGD got special access to MFA quota (expired last year, except for China). See NY Times article on fertilizer subsidies..
The Bangladesh miracle: women s agency & social innovation despite very bad institutions, very bad government... Mohammed Yunus, social innovation, thought up micofinance Grameen (but Accion may have been first). Amazing fall in population growth, see Melinda Gates letter part 3, 2014 Immigration, remittances from middle east countries mainly (Egypt, Saudi Arabia). Health system, access to contraception... See QJE 2009 T. Paul Schultz on Matlab
Is Ethiopia the next Bangladesh? Bangladesh (BGD): had Aid (Elizabeth McGovern, Map of the world a David Hare play documents major food aid scandal in 1973 in which the United States punished World Food Program. After this BGD got special access to MFA quotas (expired in 2005, except for China). How did BGD Garment industry get started? Daewoo industries opened plant in
Is Ethiopia the next Bangladesh? The MFA + aid scandal was crucial As reported in Easterly (2002), in 1979 Daewoo signed a collaborative agreement with Desh Garment Ltd in Bangladesh. Daewoo agreed to bring 130 Bangladeshi workers to South Korea for training at a Daewoo plant in return for Desh paying commissions amounting to 8 percent of future sales. At the time of the training there were a total of 40 workers producing garments in Bangladesh, and Desh s first year of operations produced $55,050 in sales on 43,000 shirts. By 1987 the industry s output had grown to 2.3 million shirts. During the 1980s, of the 130 Bangladeshi workers initially trained by Daewoo, 115 of them had left Desh to set up their own garment export firms. see, Beaudry, P. and P. Francois, 2005, Managerial Skill Acquisition and the Theory of Economic Development, NBER Working Paper No. 11451 June. (same story reported in UNDP s 2004 Report Unleashing Entrepreneurship.
The new bottom billion?: 72% are now in middle income countries Andy Sumner vs. Paul Collier
Carbon footprints point to us.
Malawi landlocked, but near very successful Mozambique
Malawi and Africa doing better recently, why is Africa doing so well? 447 12 Malawi Growth and aid inflows 1991-2011 (what 2008-09 global economic crisis?) Per Capita GDP annual % growth Aid and Debt inflows % of GDP Average Income per Person 2011 $PPP or $US 24 13.8 544 549 8.3 5.5 5.5 638 15 727 7.7 8.8 7.5 6.2(f) 957 8.1-7.3 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: IMF World Economic Outlook, October 2010 www.imf.org
Malawi Fertilizer subsidies photo 3
Fertilizer subsidies help
Bangladesh growing rapidly but vulnerable to climate change..
Why Poverty fell rapidly in Indonesia (and in China, Vietnam, Bangladesh.) Green Revolution in the 1970s tripled rise yields raising the incomes of many small farmers Higher farm incomes led to new spending on goods and services by richer farmers (Engle s law** at work ). NIKE and other multinationals set up factories to export shoes and garments from Indonesia Villager s & migrants sent kids to school (with shoes). **Engle s law says that if people s income doubles, they will not double their spending on food, instead they buy other stuff. As a result agriculture becomes a smaller and smaller share of the economy and raising farm incomes creates demand for other goods and services and these account for most of employment even in a small village like Begajah in Indonesia.
Poverty Fell sharply and then rose a bit in Indonesia Indonesia $1 per day Poverty Rate (H) 58 % of Pop Poor (Headcount) 17 15 11.3 8.8 15.2 26.3 17.8 13.1 11.5 1970 1987 1993 Feb- 96 Feb- 97 Feb- 98 Dec- 98 Feb- 99 May- 99 Aug- 99
Poverty Fell sharply and then rose a bit in Indonesia a record reversal? 1987-2004
Poverty falling in BGD on track.but from 59% in 2000 to 43% in 2010, or about 1.6% per year, 5 * 1.6 = 8 so perhaps 35% in 2015, exactly MDG 1
Vietnam: done with MDG 1 in 2004 10 years early!
$2/day poverty rates are much higher, but still falling Figure 3: Poverty in Developing Countries % Poor living in LDCs 67% 40% 60% 33% $2/day Poverty Rate 64% 60% 61% 56% 54% 51% $1/day Poverty Rate 28% 28% 26% 23% 22% 20% Source: Chen and Ravallion (2004) "How the Poor have fared since the 1980s" World Bank Poverty Net and GEP 2006 Table1.3 page 9. 1981 1984 1987 1990 1993 1996 1999 2002
Globalization & Capitalism made about a billion rich, two billion remain poor and about 3 billion are in the new middle class Still, many remain in severe poverty in the world according to the World Bank, about a billion people still get by on less $1.25/day. Lack mobility, cannot afford education: $1 per day only buys about 2250 calories of coarse cheap grain (no meat, few clothes but see B&D, 2011). Vulnerable to Poverty $2-$10 not poor, but risk falling back Middle class: > $10 per day, less likely to fall back into poverty
Climate change offers new rationale for poverty reduction (in low lying Bangladesh), rich country alternatives: 1. Mitigation of carbon emissions: (expensive for OECD residents) 2. Migration out of vulnerable areas (politically unpopular here & in Europe ) 3. Adaptation at our expense: higher transfers (foreign aid) may also be expensive and politically tricky, Bali accord solution 4. Adaptation at their expense: reducing poverty spreads the burden of adaptation and abatement it may be the cheapest way out
Special topic: conflict and poverty 500 Figure 3: Battle-Related Deaths 1946-2005 (thousands) 40 450 35 400 350 300 250 200 150 100 50 0 1946 1949. Source: Lacina and Gleditsch (2005). 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 Deaths per conflict (right scale) 2003 2006 30 25 20 15 10 5 0
Total deaths and the # of conflicts have fallen since the end of the cold war, but 60 Figure 4: Number of World Conflicts 1946-2005 50 40 30 20 10 0 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 Source: UCDP/PRIO Armed Conflict dataset (conflicts that caused at least 25 battle-related deaths a year.
Conflicts have become concentrated in poor countries Table 1: Changing Patterns of Civil Conflict 1/ Human Development Argricultural Civil wars starting before 1989 Income per $1/day HDI Employment person Country Start End Duration Poverty Index Total Female* ($ppp) Vietnam 1965 1975 11 31 $1,184 62 75 70 Guatemala 1966 1996 31 47 $3,339 56 38 b 17 b Uganda 1971 1985 15 77 $881 41 80 88 Angola 1975 1995 21 28 $2,079 45 Cambodia 1975 1992 18 34 $1,333 53 75 55 Ethiopia (a) 1975 1990 16 33 $821 29 93 91 Mozambique 1976 1992 17 55 $636 30 83 96 Afghanistan 1978 2001 24 $3,024 35 Nicaragua 1978 1990 13 48 $4,132 60 39 10 El Salvador 1979 1992 14 21 $3,714 61 20 6 Zimbabwe 1980 1987 8 33 $2,577 57 Lebanon 1982 1990 9 $2,038 68 Sri Lanka 1983 2002 20 34 $658 68 49 54 Sudan 1984 1995 12 $1,183 38 Somalia 1988 2006 19 na na na Pre-cold war (1989) Averages 17 40% $1,971 50 64 59
Table 1: (cont.) Post-cold war conflicts 1/ Human Development Argricultural Civil wars 1989 start or later (post cold war) Income per Employment $1/day HDI person Country Start End Duration Poverty Index Total Female* ($ppp) Afghanistan 2003 2004 2 63 939 35 Chad 1989 1992 4 54 950 34 83 91 Liberia 1997 2003 7 76 NA NA 72 84 Rwanda 1990 1994 5 52 1,131 34 92 98 Sierra-Leone 1991 2001 10 57 633 30 67 81 Bosnia/Herzegovinia 1992 1996 5 NA 2,539 79 Tajikistan 1992 1995 4 14 1,111 70 Burundi 1993 2000 8 55 651 35 Congo, Dem. Rep. 1996 2005 10 80 702 39 68 81 Congo, Rep. of 1997 1999 3 50 930 53 49 69 Ethiopia (b) 1998 2000 3 33 757 32 93 91 Guinea-Bissau 1998 1999 2 88 738 34 85 96 Post-1989 War Averages 5 57% $1,014 43 76 86
Youth unemployment & conflict: Uganda, Afghanistan, Iraq Challenge: Conflict employs and empowers youth to bad ends Youth 15-24 are a high risk group (crime and conflict). Opportunity: mobile and malleable youth are open to new ideas and technology ICT, strongly influenced by group dynamics and education Young Uganda Lord's Resistance Army (LRA) fighter with David Beckham shirt at Ri- Kwangba, Southern Sudan. Nov. 12, 2006, Stuart Price AFP*
Step 1: Putting Poverty and inequality trends in Perspective how are the poor doing? How do we decide when someone is poor or not. The most widely used international poverty level of income or consumption is $1 per day and $2 per day (roughly). Using these conservative cut off points the World Bank estimates about 1.2 and 2.8 million people are poor.
Why it is so hard to reduce the poverty rate Population growth is rapid in poor countries. Poverty Traps: Aids and Malaria + political instability in newly independent states. Bad development policies, e.g. the resource curse Lack of globalization, geographic or political isolation
A longer View Poverty reduction is a race between the population non-poor and the poor Poverty should fall because, economic growth raises income per person.. Technical progress helps bring cheaper food and better medicine to the poor, living better on the same income with antibiotics, vaccinations, etc. But population growth work against the poverty rate population growth is faster among the poor
Developing Country Poverty Trends: How you measure poverty has become an issue. The $1 per day poverty rate fell more slowly than expected from 1980 to 1998 from 29% to 24% as opposed to the 18% projected in 1990. However, during the 1990s the number of poor fell by almost 30 million per year in East Asia China, Korea, Indonesia, Thailand, Malaysia. Living standards and longevity have improved substantially despite slow progress in reducing poverty the poor have better access to clean water, health care, education etc.
Spring 2010 Themes Global poverty: 1. Conflict, terrorism and poverty: is there a connection, what can be done? (Collier) 2. Immigration backlash? Who gains and who loses from migration (CRS DVD) 3. Climate change and poverty.. (next Fall) 4. Case studies: Mozambique, Rwanda, Uganda, Bangladesh and India, China??? U.S. poverty and inequality 1. Why is inequality rising in the U.S.? 2. Recession, outsourcing, migration and cheap Walmart imports: who pays the price?
Bangladesh: on track to meet MDGs?
Bangladesh: on track to meet MDGs?
Bangladesh: on track to meet MDGs?
On track to meet MDGs