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The economic role of the state in developing countries

The economic role of the state in developing countries. Rolf Traeger UNCTAD, Division for Africa Least Developed Countries and Special Programmes UNCTAD Virtual Institute Study Tour (University of Dar-es-Salaam), 22 February 2010 . This presentation.

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The economic role of the state in developing countries

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  1. The economic role of the state in developing countries Rolf Traeger UNCTAD, Division for Africa Least Developed Countries and Special Programmes UNCTAD Virtual Institute Study Tour (University of Dar-es-Salaam), 22 February 2010

  2. This presentation • The role of the state in the current development paradigm • Development governance • Development policies

  3. The role of the state in the current development paradigm (1) Present development policy paradigm 1st generation reforms (since 1980s) « get your prices right » Washington Consensus agenda => « privatize, liberalize and deregulate » structural adjustment programmes

  4. The role of the state in the current development paradigm (2) Present development policy paradigm 2nd generation reforms (since 1990s) « get your institutions right » good governance stable property rights rule of law and law enforcement minimize expropriation risk, rent seeking and corruption accountable provision of public goods investment climate regulatory framework

  5. The role of the state in the current development paradigm (3) Present development policy paradigm The good governance agenda: based on the opposition: Formalized type of good governance system => developed countries X Informal, personalized bad governance system => poor countries

  6. The role of the state in the current development paradigm (4) Critique Quality of governance closely correlated with level of per capita income

  7. The role of the state in the current development paradigm (5) Critique Quality of governance NOT correlated with growth rate

  8. The role of the state in the current development paradigm (6) Critique Poor countries lack resources to implement good governance

  9. The role of the state in the current development paradigm (7) Critique Agenda to build institutions similar to developed countries BUT “Institutional innovations do not travel well” (Rodrik) Reform overload in poor countries

  10. The role of the state in the current development paradigm (8) Role of the state Roll back economic role of the state State to support markets BUT world economic crisis explicited active economic role of state in developed countries What about developing countries?

  11. Development governance (1) The alternative In very poor countries the policy challenge is not to get the Government out of the way on the assumption that a capitalist market economy is already in existence and that the problem is to make it work better by removing excessive government regulation. The policy challenge is to create markets Move beyond the “good governance” agenda to institute good development governance

  12. Development governance (2) “Development governance is governance oriented to solve common national development problems, create new national development opportunities and achieve common national development goals.” (LDCR 2009, p.15)

  13. Development governance (3) Main features Attention to results, rather than processes Higher investment Innovation Structural transformation Jobs Lower poverty Higher per capita income Requires developmental state BUT Weak state capacities in developing countries Incrementalism (Hirschman)

  14. Development policies (1) Macroeconomic policy FROM Restrictive monetary and fiscal policies with limited objectives TO Growth-supporting macro policies Public investment => crowd in private investment Financial sector development Managing exchange rate and capital flows

  15. Development policies (2) Agricultural policy FROM Neglect of agriculture TO Active support to farmers Rural infrastructure Develop linkages with other sectors Financing Technological upgrading

  16. Development policies (3) Industrial policy FROM Framework conditions / Investment climate TO Coordinate domestic investment decisions Role of knowledge Build / Strengthen domestic enterprise capabilities, particularly SMEs Enhance developmental impact of FDI

  17. Development policies (4) Trade policy FROM Generalized liberalization TO Trade policy supporting industrial policy Selective policies according do development stage Preserve policy space

  18. Thank you for your attention !

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