Economics 172 Issues in African Economic Development

Economics 172Issues in African Economic Development Lecture 21 April 11, 2006

Outline: • Easterly (2001) on structural adjustment • Leonard and Strauss (2003) • Kremer and Miguel (2004) • Cotton and international trade in Africa Economics 172

Easterly (2001) on failed reforms in Africa • Countries received dozens of loans without actually implementing any reforms (e.g., Zambia, Ivory Coast) • Lenders (like the World Bank) have incentives to make large loans, but few incentives to carry out evaluations of their programs • There is basically no cross-country empirical evidence that increased foreign aid improves economic performance in less developed countries (despite claims by Jeff Sachs) Economics 172

Leonard and Strauss (2003) on debt and aid • In fact foreign aid may have negative effects on economic policy, local politics, and ultimately growth: “Over time, foreign aid also contributes to weak states. Rather than developing domestically oriented institutions, Africa’s state officials orient their actions externally. … Western aid is sometimes thought of as a restorative response to colonialism and the slave trade. However, Africa’s high levels of ODA [overseas development assistance] had effectively extended colonial patterns of governance.” (page 30) Economics 172

Kremer and Miguel (2004) on financial sustainability • The structure of foreign aid programs is also important • There has recently been a strong push towards “financial sustainability” in local development projects, and against continued subsidies for drugs: Economics 172

Kremer and Miguel (2004) on financial sustainability • The structure of foreign aid programs is also important • There has recently been a strong push towards “financial sustainability” in local development projects, and against continued subsidies for drugs: • Cost recovery from beneficiaries • Health education • Local “ownership” of projects Economics 172

Kremer and Miguel (2004) on financial sustainability • The structure of foreign aid programs is also important • There has recently been a strong push towards “financial sustainability” in local development projects, and against continued subsidies for drugs: • Cost recovery from beneficiaries • Health education • Local “ownership” of projects • Contrast with standard public finance approach that advocates ongoing subsidies to overcome externalities Economics 172

(1) Cost-sharing and deworming take-up • Cost-sharing has been widely advocated for poor countries (WB 1993) • 25 of 50 Group 1, 2 schools free treatment in 2001 25 of 50 Group 1, 2 schools cost-sharing in 2001 Economics 172

(1) Cost-sharing and deworming take-up • Cost-sharing has been widely advocated for poor countries (WB 1993) • 25 of 50 Group 1, 2 schools free treatment in 2001 25 of 50 Group 1, 2 schools cost-sharing in 2001 • 2001 take-up rate in free treatment schools was 75%, in cost-sharing schools only 18% Economics 172

(2) Health education impacts • No significant impact of health education on any worm prevention behaviors (e.g., hand washing, wearing shoes, playing in Lake Victoria) • No impact for older girls • No impact in neighboring schools • There has been rapid depreciation of health education knowledge in several other experimental studies Economics 172

(3) Verbal commitments and take-up • People strive for consistency in words and deeds  Verbal commitments bind people to follow through, and give them a sense of ownership over the project Economics 172

(3) Verbal commitments and take-up • People strive for consistency in words and deeds  Verbal commitments bind people to follow through, and give them a sense of ownership over the project • A random subsample in the 2001 Pupil Questionnaire were asked whether they would take the drugs • Verbal commitment had no effect • 1 percentage point drop in adoption Economics 172

(4) Water and sanitation • Observational (non-experimental) estimates • Wells have no effect on worm infection • Latrine ownership reduces worm infection Economics 172

(4) Water and sanitation • Observational (non-experimental) estimates • Wells have no effect on worm infection • Latrine ownership reduces worm infection • But latrine costs quite high • $130.20 per child-year of infection averted • Drug subsidies are more than 100 times more effective in terms of reducing infections Economics 172

Development in the international context • Foreign aid and development (Easterly 2001) • Debt and development (Leonard and Strauss 2003) • The design of development projects financed by aid (Kremer and Miguel 2004) Economics 172

Development in the international context • Foreign aid and development (Easterly 2001) • Debt and development (Leonard and Strauss 2003) • The design of development projects financed by aid (Kremer and Miguel 2004) • International trade and development – the case of cotton in Africa Economics 172

Cotton as a lens into international trade • Many people have extremely strong views about either the positive or negative impacts of international trade on economic development • Opponents of the current world trade regime have pointed to the case of cotton Economics 172

Cotton as a lens into international trade • Many people have extremely strong views about either the positive or negative impacts of international trade on economic development • Opponents of the current world trade regime have pointed to the case of cotton • Tens of millions of Africans (in Benin, Burkina Faso, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government • This leads the world market price to drop, perhaps by 10-20% Economics 172

Micro-evidence on cotton prices and poverty • Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%. • They estimate that poverty would increase 7% Economics 172

Micro-evidence on cotton prices and poverty • Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%. • They estimate that poverty would increase 7% • Meatu district in Tanzania is another cotton growing region. Farmers and the owners of the local cotton ginnery are hard hit when cotton prices fall, as they have since the mid-1990s Economics 172

Whiteboard #1 Economics 172

Map of Africa Economics 172

Economics 172 Issues in African Economic Development