Developing Economies Seminar Series

Development Strategies and Building Capability: The good, the bad and the ugly?

March 10, 2020

Lant Pritchett: He worked for the World Bank from 1988 to 2007. He also taught at the Harvard Kennedy School from 2000 to 2004 and from 2007 to 2018. He is now a double retiree, affiliated with Oxford’s Blavatnik School of Government.

LantAbstract: Outcomes are not affected by the policy as formulated or adopted but by policy as actually implemented.  Hence a key constraint to achieving good outcomes in many developing countries is the alignment of development strategies and state capability. I discuss and illustrate with empirical examples the good, the bad, and the ugly.  Ugly strategies adopt policy adoption alone of "best practice" policies independent of considerations of state capability.  These strategies may look good on paper but can be counter-productive and create a low-level trap.  Bad strategies assume that organizational capability is constrained by the capacities of individuals and adopt exclusively training based approaches independent of strategy.  The good intertwines the formulation of policy and development strategies and effective tactics to build capability.

Trading For Development in the Age of Global Value Chains

Paul Antras: Robert G. Ory Professor of Economics, Harvard University.

February 13, 2020

pantrasAbstract: I will offer an overview of some of the findings of the 2020 World Development Report. More specifically, I will first review some key conceptual aspects associated with the rise of global value chains (GVCs). I will, then, outline a series of alternative interpretations and definitions of what the rise of GVCs entails and trace the implications of these alternative conceptualizations for the measurement of the phenomenon, as well as for elucidating the key determinants and implications of GVC participation, both at the country level and at the firm level. In the process, I will offer some speculative thoughts about the future of GVCs in light of the advent of an array of new technologies.

Information Frictions in International Trade

Amit Khandelwal: Professor of Global Business Economics, Columbia University.

December 12, 2019

AmitAbstract: This talk examines a non-traditional barrier to international trade: information. Information frictions are estimated to be a large component of trade costs. This talk examines recent research on the causes and consequences of information frictions to trade in developing countries, and policies that could mitigate these costs.

Global Infrastructure: Potential, Perils, and a Framework for Distinction

December 4, 2019
Peter Henry (Dean Emeritus, Stern School of Business, New York University)

<img src=This paper evaluates the literature that claims poor countries have an infrastructure investment gap of roughly 1 trillion dollars per year and therefore possess widespread opportunities for productive spending on infrastructure. The evaluation introduces and employs a simple framework that concludes this claim is invalid. The framework compares a poor country’s social rate of return on infrastructure investment with: (a) the poor country’s return on private capital, and (b) the average rich country’s return on private capital. The dual comparison reveals that additional investment in a poor country’s infrastructure is: (1) efficient only if the return on poor-country infrastructure exceeds the return on poor-country private capital; and (2) financeable through private rich-country savings only if the return on poor-country infrastructure exceeds the return on rich-country private capital. This dual-hurdle rate framework suggests a two-by-two classification that sorts countries into quadrants according to their potential for efficient investment in infrastructure.

The paper then applies the classification to the only existing, comprehensive cross-country estimates of the social rate of return on infrastructure (electricity and paved roads). The conventional wisdom is that there are ubiquitous opportunities for infrastructure investment that meet the two criteria. In fact, only 7 of 53 developing countries clear the dual-hurdle rate in both electricity and paved roads. Where it is efficient to invest, however, the potential for excess returns on infrastructure is quite large—five times larger, in fact, than the excess returns that existed, but have long since been arbitraged away, in emerging-market stocks when foreigners were first permitted to own shares. The framework thus implies a new definition of the infrastructure gap as the amount of investment required to close the difference between the return on infrastructure in poor countries and the return on private capital elsewhere. More importantly, the framework moves the discussion away from alarmism and exaggeration toward the clarity that economics can and should bring to any policy discussion. 

What Will it Take? Crafting a Policy Agenda for the Eradication Of Extreme Poverty in 2030

November 12, 2019 
Carolina Sánchez-Páramo (Senior Director, Poverty and Equity Global Practice, World Bank)

<img src=The last two decades have been witness to unprecedent gains in poverty reduction. However, progress has been uneven, with Sub-Saharan Africa trailing other regions, and the pace of poverty reduction has slowed down in recent years. Moving forward, slow growth, macroeconomic imbalances, escalating trade tensions, high levels of inequality in income and opportunities, and increasing fragility and conflict will continue to pose important challenges to further poverty reduction and inclusive growth, calling for urgent and focused policy action if we are to meet the goal of extreme poverty eradication in 2030.

Carolina Sánchez-Páramo will provide an overview of recent trends in poverty reduction and inclusive growth, discuss the challenges associated with sustaining and deepening progress, and draw from the experience of countries that have succeed in reducing extreme poverty and promoting broad-based economic growth to extract some lessons on the way forward. She will also briefly discuss WBG efforts to strengthen the alignment and maximize the impact of country programs on poverty and inclusive growth.

Understanding Human Capital Accumulation across Countries and People: The Experience of Building an Index

April 25, 2019
Roberta Gatti (Chief Economist, Human Development Practice Group, World Bank)

<img alt=Abstract: Building on recent macro and micro evidence on the relevance of human capital, the speaker will present the newly released Human Capital Index and the rationale behind it. She will discuss examples of how this metric can be used to address policy concerns and frame some outstanding research questions on human capital accumulation

Under-Rewarded Efforts: The Elusive Quest for Prosperity in Mexico

March 11, 2019
Santiago Levy (Nonresident Senior Fellow, The Brookings Institution)

<img alt=Abstract: Over the last two decades Mexico has maintained a stable macroeconomic environment, has made major efforts to integrate into the world economy, has invested heavily in education, has raised the investment rate, and has enjoyed the benefits of a demographic bonus but, with the exception of Venezuela, is the economy that has grown the least in Latin America. Why has an economy that has done so many things right failed to grow fast? “Under-Rewarded Efforts” traces Mexico’s disappointing growth to flawed microeconomic policies that have suppressed productivity growth and nullified the expected benefits of Mexico’s reform efforts. It makes use of detailed firm-level data to show that the allocation of resources has worsened as a result of dysfunctional firm dynamics and argues that large misallocation has depressed the returns to education and the returns to experience. It identifies major flaws in Mexico’s labor, social insurance, tax and contract enforcement policies, and argues that fast growth will only result from inclusive institutions that effectively protect workers against risks, redistribute towards those in need and simultaneously align entrepreneurs’ and workers’ incentives to raise productivity.

Digital Technology and Developmental Implications for Growth and Employment

November 12, 2018
Shahid Yusuf (Chief Economist, Growth Dialogue, GWU Business School)

Shahid YusufDigital technologies that include advances in industrial automation, Fintech, AI, blockchain, Big Data and others, are diffusing rapidly and could in time accelerate the pace of innovation and productivity growth in a multitude of activities. Most directly they are likely to affect certain manufacturing subsectors, transport, healthcare, agriculture, education, and a host of professional services. However, the widespread penetration of digital technologies in advanced and developing countries alike could upend supply chains, lead to the displacement of workers engaged in repetitive and codifiable tasks. For emerging and African economies, these technologies present a wealth of opportunities, but they also threaten to swell the ranks of the unemployed and possibly worsen inequality. At this juncture no one knows what new jobs will be created, what sort of skills they will require, and what sort of wages the jobs might command. The presentation will discuss the likely spread of these technologies in middle- and low-income countries (given technological capabilities, infrastructures, and investment), their potential impact, and policy measures that could minimize the downside while maximizing the economic gains.

The Developmental Role of Property Taxation

September 26, 2018
Ehtisham Ahmad (Visiting Senior Fellow, LSE Asia Research Center)

Ehtisham AhmadProperty taxation is typically seen through a revenue generation lens by IFIs and then ignored, given the greater revenue potential of the VAT and the income taxes. However, the SDGs and a clean environment depend on local action for the design and financing of public service delivery and sustainable investment. Shared revenues and transfers from higher levels of government do not constitute “own-source revenues” for hard budget constraints and unlocking “private sources of finance.” Unfortunately, US-styled property taxes based on clear property titles and detailed cadasters, and timely tracking of property prices, have not functioned well in most developing countries—and experiments in Shanghai and Chongqing were not particularly successful. A simple flat rate (or band, as in the UK) property tax based on occupancy, and registration of properties, supported by satellite imagery and arms’ length administration is feasible in most countries, including in Sub-Saharan Africa. Blockchain technology also permits the joint simplification of the revenue and treasury circuits. A simple property tax system can be implemented quickly, anchoring the explosive local debts in many countries, including in China, and laying the basis for more accountable and sustainable urban transitions.

Illicit Financial Flows - Definition, Measurement and Implications for Policy Making

June 12, 2018
Maya Forstater

M. ForstaterCombatting illicit financial flows has risen up the policy agenda in recent years and is included as a target of the  Sustainable Development Goals (SDGs). The idea of illicit financial flows is important because it highlights that crime and corruption are not just the problem of the country where they happen, but also involve 'spillover' impacts from other countries whose financial systems, goods trade and real estate markets are vulnerable to be used as getaway vehicles. However, there is no globally agreed upon definition for “illicit financial flows”, and much disagreement and confusion over this term. Debates are often shaped by impossibly raised expectations of hundreds of billions or even trillions of additional funds for development that might be unlocked through international action.

Financial Lives of the Poor

May 3, 2018
Jonathan Morduch

J. lMurdochThe lives of the poor are hidden in standard economic surveys of households. New studies with high-frequency data on cash flows, however, are revealing a new view of poverty—and of the importance of financial inclusion. The studies show that the volatility of income and the variability of needs are common and fundamental elements of poverty. As a result, poor families often lead active financial lives—not despite being poor, but because they are poor. They want to save, can save, and do save – though, often in improvised ways that challenge both behavioral and neoclassical economic assumptions. The private sector is responding with digital solutions and the public sector with regulation, putting new attention on economic insecurity as a policy concern. Examples and lessons are drawn from India, Bangladesh, South Africa, and the United States. 

The Economics of Conflict and Post Conflict

March 23, 2018
Rachel Glennerster

R. GlennersterOn current trends, by 2030, 80 percent of the extreme poor will be in countries that are currently fragile. This means the work of development will increasingly be about how to prevent conflict and how to achieve positive change in post-conflict and fragile states. Political science has much to say about the strategies to achieve pursue in these difficult situations. But what can economics add? A growing literature in economics carefully identifies contributors to conflict which range from rising temperatures to lower wages. Combatting climate change, helping labour-intensive sectors flourish, and building noncognitive skills are practical policy recommendations coming from this work. Economic studies of conflict itself find that hearts and minds approaches are much more effective in combatting insurgencies than violent repression. Given that growing economic opportunity increases the opportunity cost of conflict, how successful are post-conflict programs in generating these opportunities? A recent review of rigorous evaluations of Community Driven Reconstruction programs (a large proportion of spend in post conflict environments) suggests moderate success even in very challenging environments. We present new results showing these economic benefits can persist many years after the support is withdrawn.

Global Income Inequality: Results, Issues, Political Implications

February 26, 2018
Branko Milanovic

B. MilanovicThe talk will discuss the evolution in global inequality. It will present the most recent estimates, discuss methodological and measurement issues, and look at political implications of the changes that are taking place in global distribution of income. In particular, it will focus on the rise of the middle class in Asia, income stagnation of the rich countries’ middle classes, and the emergence of global plutocracy.

Informational Constraints on Antipoverty Policies: Evidence for Africa

January 11, 2018
Martin Ravallion

M. RavallionIt has often been said that the world’s aggregate poverty gap—the total monetary amount by which all poor people fall below the poverty line—is modest when one uses poverty lines typical of low-income countries. The implication is sometimes drawn that only a modest sum of money is needed to eliminate global poverty—to bring all poor people up to the international poverty line. However, eliminating poverty may well be a lot harder than the size of the aggregate poverty gap might suggest.  Identifying who is poor and by how much is challenging. The poverty gap calculation could be way off the mark.

The presentation will provide an overview of two recent studies that have tried to assess whether the data typically available and routinely used by policymakers in sub-Saharan Africa—the poorest region of the world by most measures—are adequate to reliably identify who is poor. It will be argued that even with a budget sufficient to eliminate poverty with full information, standard proxy-means tests do not bring the poverty rate below about three-quarters of its initial value. The prevailing methods are particularly deficient in reaching the poorest households. And even when poor households are reached, poor individuals are often missed. Indeed, roughly three-quarters of underweight women and undernourished children are not found in the poorest 20 percent of households, and around half are not found in the poorest 40 percent. Some potential improvements in targeting methods are considered, as is a universal basic income as a policy option.