Economics perspective of global partnership in the field of development cooperation and sustainable development

1. ECONOMICS OF INTERNATIONAL DEVELOPMENT
Won-Gyu HWANG
Gangneung-Wonju National University
Korea
Development and Institutions
Seminar at UV
2016.02.09
GLOBAL PARTNERSHIP
IN THE AGE OF
SUSTAINABLE DEVELOPMENT

2. Contents
Theories in Development
Global Flow of Development Cooperation
Global Partnership for Development Cooperation
Development Policies Beyond Aid
Q & A

3. THE GLOBE IN THE 21C: POVERTY AND INEQUALITY
Poverty still Prevailing (GMR 2016)
Though improved, the world is still gloomy
• People in extreme poverty (2015): 702 million
(below $1.90 per day in 2011 ppp)
• 80% of world population lives with below $10 per day (2005)
• Portion of 48 SSH African countries to the world
-- GNI: 1.6%, Trade volume: 2.4% (2010)
GNI
Extreme Poverty

4. THE GLOBE IN THE 21C: POVERTY AND INEQUALITY
Deepening Inequality
• Income Inequality by Nation (Richest/Poorest)
1750s: 3 times, 1960s: 35 times, 2000s: 80 times
• Global Inequality in Wealth
Top 1%: 43%, Top 10%: 86%, Top 20%: 94%
• Income Inequality within Nations
Gini Coefficient in OECD: 0.29 (mid-1980s) → 0.316 (late 2000s)
Distribution of Global Wealth
Income Inequality by Nation

5. MICRO- AND MACRO- EFFECTS
CHAPTER 1

6. Theories in Development (1) – Modernization
Leading Sector and Trickling–down Effect
Strategic industries in modern sector will lead the society and
its effect will be spread into the society
** Polarization
Stage Theory of Economic Development
(W W Rostow)
Traditional Society → Preparation for
Take-off → Take-Off → Maturity
→ High Mass-Consumption Society

7. Theories in Development (2) – Neo-Classic
Growth in Neo-Classical Economics
(Harrod-Domar Growth Equation)
S=sY, ∆K=I-δK → S=I → ∆K=sY- δK (δ: depreciation)
g=∆Y/Y → g=∆Y/(∆K/s) → g=s(∆Y/∆K)

8. Theory in Development (3) - Unorthodox
Vicious Circle and Poverty Trap
- Vicious cycle of poverty (Ragnar Nurkse)
- Escape from poverty trap
→ Big Push is needed (Rosenstein-Rodin)
“Middle-income Trap”
Dual Economy (A Lewis)
- Traditional sector:
Psudo-employment
-- Unlimited supply of labor force
- Modern sector:
Linkage to developed countries

9. Theory in Development (4) - Unorthodox
Aggravation of Terms of Trade (Singer-Prebisch Theorem)
- Vulnerability of monoculture economy
- Secular decline of terms of trade
• Immiserizing Growth (J. Bagwati)
• Polarization Effect
 Neo-Colonialism, Dependency

10.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
Theory in Development (5) - Heterodox
Dependency Theory
- Development of Underdevelopment (A.G. Frank)
Socialism
- Collapse Theory in Capitalism (K. Marx)
- Imperiailsm (V. Lenin)

11. CHAPTER 2

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ODA/GNI
(%)
금액
(백만달러)
DAC 회원국의 대외원조 추이(net)
총ODA ODA/GNI%
Foreign Aid by OECD-DAC Countries (1960-2010)

13.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
ODA over GNI (1990-2008 Records & Projection)
AVERAGE PROPORTION OF OECD-DAC COUNTRIES
HAS NEVER EXCEEDED 0.33% SINCE 1990.

14. WHY KOREA ?
 Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
Flow of Development Cooperation Fund
The magnitude of development cooperation is on the rise
continuously since mid-1990s
Bilateral > Multilateral > Private

15. ODA by Major Country Group

16. ODA by DAC Countries in 2008 & 2014
▪ ODA Total: 119.8 → 135.2 Unit: USD billion
▪ Spain: 6.69 (7th) → 1.89 (15th)

17.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
ODA/GNI in DAC Countries (2008 & 2014)
ONLY 5 COUNTRIES EXCEED THE UN GUIDELINE OF 0.7%
USA AND JAPAN ALWAYS OFFER LESS THAN 0.2%
▪ Global: 0.30% → 0.29%
▪ Spain: 0.43% (8th) → 0.14% (22nd)

18. ODA including Non-DAC Countries (2009)
EMERGING AND NON-DAC DONORS PLAY MORE AND MORE
IMPORTANT ROLE IN INTERNATIONAL DEVELOPMENT.

19.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
ODA by Emerging Donors (2009)
▪ SAUDI ARABIA: 12TH IN THE WORLD
▪ CHINESE ODA ON THE RAPID RISE. THE EXACT AMOUNT AND
DISBURSEMENT ARE NATIONAL SECRET.
Nation USD million ODA/GNI
Saudi Arabia 5,564 1.5%
China 2,000 (est.) 0.05%
Korea 802 0.09%
Turkey 780 0.11%
Taiwan 435 0.11%
Poland 372 0.08%

20. Composition of ODA Disbursement by Sector
▪ Before 2000: Majority for economic & production sector
▪ After 2000: More on social and health sector

21.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
Composition of ODA Disbursement by Type
▪ Slight increase in multilateral aid
▪ Debt relief for HIPCs after the G-7 Glendale Meeting in 2005

22. Recipients of ODA by Income and Region
▪ By income, majority of ODA goes to LICs and MICs
▪ By region, SSA receives the most
(2000-2003)
(2000-2014)

23. Major ODA Recipients (2000-2003)
▪ Populous countries receive more ODA in total amount.
▪ Smaller countries receive more in terms of aid per capita

24. Major ODA Recipients (2014)
▪ Countries with strategic importance tend to receive more.
▪ It varies with international political situation.
Global
USA
Spain

25. CHAPTER 3

26.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
Theories in Development (1) – Neo-Classical
Two-Gap Model (Chenery & Strout, 1966)
- 신고전학파적 경제성장 모형의 가정
(1) Gap between investment and saving
(2) Gap between imports and exports
Income: Y=C+I+G+(X-M)
Expenditure: Y=C+Sp+T
→ I=(T-G)+Sp+(M-X)
=Domestic Saving + Foreign Saving
Endogenous Growth Theory: AK Model (Paul Roemer)
Production function Y=A·f(K, L)
Role of A as an endogenous variable
Growth is triggered
by IRTS and external effects
Growth-friendly policies
and R&D expenditure
are keys to growth

27. International Development and Economics
Economic Approach to Development
(Effective? Humanistic?)
Aid
Infrastructure &
Institution Building
(Strategic) Industrial
Development
Economic Growth
Poverty Reduction
Theories Alternatives
Trickle-down
Effect
Industrial
Policy
(Forward/Back-
ward Effect
Neo-classical
Growth Theory
Target Group: Entrepreneurs →
The Underprivileged (Poor, Women..)
Growth with
Redistribution
Basic Human Needs
Approach
Pro-Poor Growth
Capacity Development
Governance
Sustainable Development
Policy Coherence for
Development

28.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
Foreign Aid and Development
Burnside & Dollar (AER, 2000)
- Positive contribution to growth
- The higher at the countries with better governance
Jeffrey Sachs (The End of Poverty, 2005)
- Ending global poverty is possible with right policies
- Insist a dramatic increase in aid amount:
From USD 65 billion(2002) to USD 195 billion(2015)
- A critic against the IMF prescription
- Advocate MVP (Millennium Village Project)
Joseph Stiglitz (Globalization and Its Discontents, 2002)
- Against the IMF prescriptions
- Limit to neo-classical economics in developing countries
• Imperfect information, irrelevant market and institutions
in LDCs

29.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
Correlation between Aid and Development (1)
Empirical Study (1)
- Paul Mosley & Peter Boone
• No, if not negative correlation between aid amount and
economic growth rate
• Leakage of aid money
• Expenditure in less-productive sectors

30.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
Correlation between Aid and Development (2)
Empirical Study (2)
- Fairly meager correlations between current account deficit and
income per capita growth rate during 30 years

31. Aid Skepticism
Peter Bauer
“Aid is nothing but the process supporting the rich in poor countries
by the poor in rich countries.”
William Easterly
- “White Man’s Burden”(2001) -- The Tragedy of the West
-- No changes made with 2.3 billion dollars in 50 years
- Right development policy, market not aid, aid system reform
Dambisa Moyo
- “Dead Aid” (2009)
- Alternatives should be sought for Africa
-- Trade facilitation, FDI, Creative trade, domestic finance…

32. Theories related to Aid Skepticism
·Micro-Macro Paradox
·Principal-Agent Problem
·Unproductive Use and “Dutch Disease”
·Expanding Bureaucracy and Crowd-in Effect
--- by Milton Friedman
·Crowd-Out Effect
against private entrepreneurship
·Liquidity Increase and Inflation
·Moral Hazard and Corruption
·Dependency Syndrome

33. EFFECTIVENESS OF INTERNATIONAL DEVELOPMENT
- Short-term Effect
WOW !!!
Famine, Epidemic,
Emergency relief…
- Long-term Effect
Well ???

34. Commitment to Development Index (2010 & 2015)
2010

35. FROM AID TO DEVELOPMENT EFFECTIVENESS
FROM MDGS TO SDGS

36. Busan
(HLF-4)
Accra Agenda
(HLF-3)
Why use graphics from PowerPointing.com?
Millennium
Declaration
Rome Forum
(HLF-1)
Doha
Declaration
Monterrey
Consensus
Paris Declaration
(HLF-2)
20022000 2003 2005 2008 2012
Millennium Development Goals
Global Agenda for Aid Effectiveness
Multilateral Debt
Relief Initiative
2011 2016
Global
Partnership
Post
MDGs

37. ROAD TO BUSAN 2011
Rome
Declaration on
Harmonisation
Accra Action
Agenda
Busan
29 Nov – 1Dec
2011
2002
Monterrey
Consensus
2003 2005 2008 2010 2011
HLF-1
HLF-2
Paris Declaration
on Aid
Effectiveness
Bogota Statement
on SSC
Dili Declaration on
Fragile States
Istanbul principles on
CSO effectiveness
HLF-3
HLF-4
The Journey toward
Enhancing Aid Effectiveness.

38. THE PARIS DECLARATION PYRAMID

39. Monitoring Framework of the GPEDC

40. SOURCE: DEVELOPMENT COOPERATION REPORT 2015 (OECD)
Global Partnership for Development Cooperation

41. MDGs (Millennium Development Goals)
MDGs (2000-2015): 8 Goals & 21 Targets to End Extreme Poverty
▪ Unprecedented global concerted efforts
▪ Substantial achievement, though not fulfilled
▪ Uneven achievement by sector
Goal 1 Goal 2

42. Process toward Building the Post-2015 Goals

43. GLOBAL EFFORTS TO DRAFT THE POST-MDGS
UN Initiative
 UN System Team
『Realizing the Future We Want for All』
(2012)
 UN High-Level Panel
『A New Global Partnership:
Eradicate Poverty and Transform Economies
through Sustainable Development』 (2013)
-- Suggested 12 illustrative goals
UN Development Group
UN SG’s Report
『A Life of Dignity for All: Accelerating Progress
towards the MDGs and Advancing
the UN Development Agenda Beyond 2015』
(The 68th UN General Assembly, 2013)
『A Million Voices: The World We Want』 (UNDG 2013)

44. The Process of SDGs Agenda Building
 Rio+20 Conference Outcome Report
『The Future We Want』 (2012)
 Institutional Mechanism
(1) High-level Political Forum
-- Co-chaired by Brazil and Italy
(2) Open Working Group(OWG)
-- Co-chaired by Hungary and Kenya
30 members representing 70 countries participated
(3) Committee of Experts on Sustainable Development Financing
-- 30 experts to discuss mobilization of finance for SGDs
GLOBAL EFFORTS TO DRAFT THE POST-MDGS

45. Global Goals for Sustainable Development
▪ Adopted at the UN Special Summit for SDGs in 2015
▪ SDGs (2016-2030): 17 Goals & 169 Targets To Transform Our World
- End extreme poverty
- Fight inequality and injustice
- Fix climate change
▪ “Coexistence of Men and Nature”

46. Implementing Mechanism for GGSD (1)
Addis Ababa Action Agenda(AAAA)
▪ Adopted at the 3rd International Conference
on Financing for Development held in Ethiopia (July 2015)
▪ No definite commitment for contribution
▪ Non-numeric targets prevail
Source: IIED

47. Implementing Mechanism for GGSD (2)
Paris Climate Conference (COP 21)
▪ Adopted at the Paris Climate Conference (December 2015)
▪ Upper-limit target was set and adopted.
▪ Major CO2 emitters joined in the negotiation and pledged.
▪ Fund to support developing countries agreed.
Source: IIED

48. BEYOND AID

49. Global Decline of Aid Dependency (1969 & 2009)

50. TAX REVENUE/GDP
Financial Source of Developing Countries
REMITTANCES

51. Africa
Financial Flow to Developing Countries (1)

52. Financial Flow to Developing Countries (2)

53. AID EFFECTIVENESS BY SECTOR (IMF)

54. BILL GATES (2011) AT CANNES G-20 SUMMIT
Alternative Source of Development Finance

55.  Sources of Growth
 Quantity (Accumulation)
 Capital
 Labor
 Quality (Efficiency)
 Human Resource
 Technology
 Fundamentals: Market, Government, Institution
 Economic Environment: Demography, Technological Trend, Culture, History
Policies Enhancing Development Effectiveness
Promoting Development-Friendly Macroeconomic Environment
- Partners: Good Governance, Right Policy
- Donors: PCD (GSP, Aid for Trade, Open Labor Market,
Right Aid, …)
Whole of Government Approach
- Promotion of Market-friendly, Market-enhancing Activities
- Supporting Productive Activities (FDI, Aid for Trade..)
• Microfinance (e.g: Grameen Bank)
→ Venture Capital(e.g: Acumen Fund, Ashoka Foundation)
• Social Enterprises (e.g.: Mondragon Cooperatives)

56. Enhancing Aid Effectiveness
Selective Concentration
- Quality over Quantity: Good Governance
- Prudential selection in countries and projects
Recipient-centered Approach
- Maximize local participation
- CPA: Country Programmable Aid
Escape from Microscopic Approach
- Avoid ‘Aid-first’ perspective
- Be smart players, not generous volunteers
Coordination and Cooperation among Donors
** Paris Framework for Aid Effectiveness **

57. Q&A

58. Career in International Development
- International Organizatioins
• Professional ----- Field Worker
• Requires diverse disciplines (Management, Accounting, Law,
Engineering, Agriculture, Health …)
- Development NGOs
• Volunteers, Missionaries
- Scholars/Professionals
• Development consultants, Researchers, Professors
• Not only development studies, but in other disciplines
- Government Officials
• Diplomats
• Civil servants – international affairs
• Teachers – teaching in ovedrseas
- Aid Agency
• AECID
• Development Banks

59. Significance of CSO Donors (2010)
Source: UNDP (2013), “Working with Civil Society with Civil Society”.
Rank Nation/CSOs
Annual Budget
(USD million)
No. of
Employees
Head-
quarter
1 USA 29,431
2 UK 12,871
3 Germany 11,884
4 Japan 10,842
5 France 10,073
10 Sweden 4,137
11 Australia 3,813
12 World Vision 2,790 40,000 USA
13 Italy 2,763
16 Swiss 1,904
17 Save the Children 1,400 14,000 UK
19 Oxfam 1,250 6,000 UK
20 Doctors without Borders (MSF) 1,240 22,000 Swiss
21 Korea 1,171

60. Gracias