Development

There is one aspect of health interventions influencing economic growth that has not attracted as much attention as it should have. And that relates to the problem of unbalanced sex ratios that prevail in some parts of the world, particularly China, India and (to a smaller extent) South Korea.

After the conclusion of the Growth Commission workshop on the financial crisis, I wrote the following piece in the Financial Express on how India used its reserves in the financial crisis. I examine whether or not using reserves as a tool to provide insurance is effective. I look forward to your comments.  

By Kate Bird, Program Leader, Growth and Equity Programme, Overseas Development Institute

We do not yet know precisely how the global financial crisis will affect people in low income developing countries. Information from the ground is partial and hazy. However, a study of ten countries, led by the Overseas Development Institute, shows the crisis is having a dynamic affect. The nature, severity and duration of impact will vary between and within countries, with the sharpest effects in the most globalised developing countries.

The financial system in the USA and much of Europe had a heart attack in September 2008.  As in the case of a real heart attack, the highest priority has gone to the emergency response and to stabilizing the patient.  Once that is done and the crisis is abating and even to some extent as it is going on, it will be important (economically and politically) for some to focus on two related issues:  What created the rising risk of an attack?  And what combination of actions post-crisis will reduce the risk of a repeat in the future. 

Aggressive and innovative monetary and financial sector policy actions in developed economies have pulled the global financial system back from the brink of an abyss. But impaired assets are not yet properly valued and neutralized. And new negative feedback loops may be forming between the financial and real sectors. In any case, even after banking circuits are eventually unclogged, confidence restored, and risk appetite revived, the financial euphoria of the recent past is unlikely to revive any time soon. The changed financial landscape has several implications for the developing economies.

In a sobering editorial in Tuesday’s Financial Times, Trevor Manuel, the Finance Minister in South Africa, and member of the Growth Commission, presents the very real dichotomy facing a world searching for a way out of the current financial crisis.  On the one hand, world leaders can band together and “find appropriate instruments of governance through which the propulsive power or modern finance can be harnessed to serve a development agenda”. On the other hand, a failure to do so will result in “growth and social progress” continuing to be the “bonded servants of finance capital”.

The last decades have seen a tremendous improvement of the situation for girls and women in developing countries. Today, more girls attend school. More women earn an income in the formal labour market. Women participate in society to a greater extent.

The impact of the current financial crisis on the developing countries and the slide of the major industrial countries into recession pose several interesting questions for the international community and the growth commission which released its report in 2008.

Two of these questions/issues will be singled out for attention in this brief note.  Firstly, the Commission predicated its findings on an open and expanding global economy in which developing countries could import ideas, technology and know how from the rest of the world, and, secondly, the importance of leadership, effective government and experimental policy making to facilitate poor countries in achieving high and sustainable growth rates over an extended period of time.

Not so long ago, it was fashionable to think that the business cycle had been virtually abolished.  Economists came to call this “the great stability” and for a decade or more, it looked as if realized growth outcomes could be taken as good proxies for long-term structural growth trends.  The excitement for development economists was that this time many developing countries were growing significantly faster than rich countries.  It seemed that the secrets of global convergence—which is what the Growth Report tries to tease out—had been discovered by a very large number of countries, including many African countries.

The Commission on Growth and Development’s Growth Report (GR) recognizes that a major problem confronting low- and middle-income countries is how to build effective governments where they do not exist.  This fundamental problem in comparative politics dates back at least to Aristotle’s categorization of city-states according to their performance in The Politics. 

Once upon a time, a commonly-held view was that many aspects of economic development—such as the spread of prosperity, mass consumption, and social mobility—and of political development (the emergence of good government) were parts of a shared process of “modernization.”