Divide and rule or the rule of the divided? The effect of national and ethnic institutions on African under-development
Elias Papaioannou, Stelios Michalopoulos15 November 2010
How much influence did colonisation have on Africa’s development? This column examines data from before colonisation up to the modern day and argues that differences in colonial institutions do not explain differences in regional economic performance. Instead, it finds that pre-colonial political centralisation and ethnic class stratification have a significantly positive impact on local development.
The conventional wisdom on the deep determinants of African development places colonisation at the centre of any explanation. An influential body of research suggests that the extractive colonial institutions that Europeans established in the late 19th century, crucially contributed to African underdevelopment. This channel invokes the lack of checks and balances on the executive and the poorly performing legal systems that endured after African independence (Acemoglu et al. 2005). But European interference in the continent took several other forms.
Maddison’s forecasts revisited: What will the world look like in 2030?
Andrew Mold24 October 2010
Developing countries have enjoyed strong economic performance over the past decade – often growing twice as fast as OECD economies. This column asks whether developing countries will continue to outpace rich countries over the coming two decades. Updating Angus Maddison’s famous projections, it forecasts a world starkly different from today’s. The worlds’ poor countries will account for nearly 70% of global GDP in 2030.
The late Angus Maddison documented how the international economic order had changed dramatically over the preceding 40 years. He was in no doubt that it would continue to do so. In the 1960s, the world was typically divided into a first, second, and third world.
FDI in southern Africa: Microeconomic consequences and macro causes
Daniel Lederman, Lixin Colin Xu17 October 2010
Foreign direct investment has been an important component in development success stories around the world. This column explores why southern African countries have not been part of this story. Using newly available data it finds that FDI can help development and provide positive spillovers to the local economy. But Africa must have strong fundamentals to attract investment – in particular, greater openness to trade.
Foreign direct investment has been an important component of development success stories around the world. Africa, however, and particularly southern African economies, has not been part of this story (see Table 1).
Even though African economies belonging to the Southern African Development Community (SADC) are poor on average, per capita FDI inflows are a meagre $37 per year. This is roughly 18% of the average, and 58% of the average for countries with a similar income.
Your new composite index has arrived: Please handle with care
Martin Ravallion14 October 2010
Policymakers and commentators are constantly looking for new ways to measure development. This column warns against embracing new composite indices with little guidance from economic or other theories. It provides a critical overview of the strengths and weaknesses of using such “mashup” indices of development.
A host of indicators are used to track development. The World Bank’s annual World Development Indicators presents hundreds of such indicators (World Bank, 2009). The United Nation’s Millennium Development Goals are defined using a long list of indicators.
Does money buy happiness? Discussion Paper 8048 examines the relationship between subjective well-being and income along three dimensions: between individuals in the same country, between other countries, and during a country's growth. In each case higher income correlates with higher reported levels of subjective well-being. Higher income, the authors conclude, does in fact make people happier with their lives.
Financial crises, such as that of 2008-2009, cause GDP to decline, trade to shrink, unemployment to rise, and social problems to increase. What is the link between financial crises and social security spending? This column examines the trends in social security spending in the aftermath of a financial crisis, advising that now is the time for developing countries to expand their social spending.
Social security serves many purposes for individuals, businesses, and the state. It helps individuals to smooth consumption over the life cycle and during macroeconomic downturns, it facilitates job mobility and job matching, it supports human capital formation for long-term growth and, by acting as an automatic stabiliser, it facilitates economic stability (Townsend 2009).
Regional development policies: Place-based or people-centred?
Indermit Gill09 October 2010
Economic development is not evenly spread, and in some places it is still yet to arrive. This column looks at suggestions from the World Bank’s World Development Report to combat this inequality. It argues that economic growth will be unbalanced, and to try to spread it out – too much, too far, or too soon – is to discourage it. Instead, policymakers should focus on economic integration.
Finance for all? Banking structure reform may not be the way
Thorsten Beck, Martin Brown06 October 2010
Access to financial services is viewed as a key determinant of economic wellbeing, especially for households in low-income countries. This column examines how the banking structure affects access to finance in 29 transition countries. It finds that changing bank ownership, deposit insurance, payment systems, and creditor protection help the wealthiest households and have little effect on the low-income, rural, or minority households.
Access to financial services is viewed as a key determinant of economic wellbeing, especially for households in low-income countries. Savings, credit, and insurance products make it easier for households to align income and expenditure patterns across time, to insure themselves against income and expenditure shocks, as well as to undertake investments in human or physical capital.
As highlighted by the Millennium Development Goals, measuring development is crucial. This column presents a new human development index challenging the UN measure. It shows that the global average level of human development is “low” and that even by 2007 the level of human development outside of the OECD was similar to that of the richest countries in 1938.
In the ongoing debate on the Millennium Development Goals the appropriate measurement of different social indicators appears to be crucial. Central to these are the indices of human development provided by the UNDP Human Development Reports (HDR) since 1990. Yet somehow the pessimistic view of many developing countries offered by HDR seems at odds with their benign figures of human development relative to the developed world, in particular when compared to their relative economic record.
Gareth Edwards-Jones, Paul Brenton, Michael F Jensen05 September 2010
Is offsetting your carbon footprint always a good thing? This column questions the criteria used to label carbon footprints, arguing they can disadvantage developing countries. It suggests a variety of ways to overcome that problem.
Economists usually think of labelling as a good thing – an increase in the information set. But what if the science behind the labelling is iffy? What if the organisations doing the labelling are responding primarily to incentives stemming from developed country markets? When it comes to the recent trend towards “carbon footprinting” everything, both of these issues arise.