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The Politics of International Economic Relations : Session 11 16 January 2007

The Politics of International Economic Relations : Session 11 16 January 2007. Developing Countries and IPE. (Economic) globalization and the effects on growth, poverty and inequality Development history The politics of the GEMs Impediments to development: domestic or structural?

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The Politics of International Economic Relations : Session 11 16 January 2007

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  1. The Politics of International Economic Relations: Session 1116 January 2007

  2. Developing Countries and IPE • (Economic) globalization and the effects on growth, poverty and inequality • Development history • The politics of the GEMs • Impediments to development: domestic or structural? • Washington Consensus or Washington Confusion?

  3. (Economic) globalization and the effects on growth, poverty and inequality • Testing the liberal argument • What does the data tell us? • WB: Dollar and Kraay • The “Globalizers” have greater growth rates • Rich and poor segments of the society have gained equally (in % of income) • Debates on Globalizers, the quality of data, purchasing power parity vs. market exchange rates, methodological issues (reversed causality, etc...)

  4. Dollar and Kraay 2001

  5. Dollar and Kraay 2001

  6. Regional patterns (Wade 2004)

  7. Poverty • International poverty line • WB 2002 (1.2 billion less than 1$) fallen by 200 million since the 1980s • Disputes on measurement, see Wade 2005

  8. Inequality • How to measure: • Gini coefficient • Inequality between states vs. inequality within states • A fall in inequality between states due to economic growth in China • Yet, inequality within China and India has increased substantially

  9. Additional measurement • Terms of trade: Price of exports relative to the price of imports • Prebisch-Singer thesis: declining tendency for prices of primary products in relation to manufactured products • Declining terms of trade

  10. Development history • After WWII: European and Japanese reconstruction first • Independence in the late 50s • 1960s First development decade • Economic dualism and trickle down effect (Rostow) • Aid politics in the context of the cold war (creation of NAM) • Creation of UNCTAD and G77 (1964) • Crisis of the 70s and the NIEO (1974)

  11. Development history • Debt crises in the 1980s in Latin American and Africa • Washington Consensus (neo-liberal development policy: “the core golden rules”) • Asian miracle • 1990s: Financial crises in South-East Asia • Initiatives in development • Millennium development goals (Visions/benchmarks) • HIPC (Heavily Indebted Poor Countries’ initiative) • Large PPPs to combat diseases (HIV/AIDS, Malaria, etc.) • DDA?

  12. UN MILLENNIUM GOALS Goal 1: Eradicate extreme poverty and hunger Goal 2: Achieve universal primary education Goal 3: Promote gender equality and empower women Goal 4: Reduce child mortality Goal 5: Improve maternal health Goal 6: Combat HIV/AIDS, malaria and other diseases Goal 7: Ensure environmental sustainability Goal 8: Develop a Global Partnership for Development

  13. Development strategies • From state led development (until 1980s) to market led development (since 1980s) • Industrialization, strong role of the state, import substitution, infant industry protection, regionalism, export-led growth (large infrastructure programs) • Ascendancy of neo-liberal agenda (1980s) • Washington Consensus: stabilize, privatize and liberalize (Rodrik 2006) • IN TRADE: aid not trade, trade not aid, aid for trade

  14. The politics of the GEMs • IMF not interested, lending at market rates • 1970s concessional loans/Oil Facility in 1974 • WB: from infrastructure projects to poverty-focused aid • G7-Debt crises • Late 1980s: loans and conditionality politics (structural adjustment programs) • “Comprehensive Development Framework” 1999 • National Poverty Reduction Strategy (PRSP) and HIPC enhanced

  15. The politics of the GEMs • GATT/WTO • Enabling Clause (e.g. regionalism) • Uruguay Round: The Great Bargain, Dispute Settlement • DDA: S&DT, preference erosion, A4T, market access, export subsidies (food aid), etc. • Cooperation with other GEMs (Integrated Framework)

  16. IF (www.integratedframework.org) “In response to the complexity of LDCs’ trade-related problems, the Integrated Framework (IF) was inaugurated in October 1997 at the WTO High Level Meeting on Integrated Initiatives for Least-Developed Countries’ Trade Development by six multilateral institutions (IMF, ITC, UNCTAD, UNDP, WB, WTO), which, with their distinct competence, could complement each other to deliver greater development dividends to LDCs in the multilateral trading system. • The IF has two objectives: • (i) to “mainstream” (integrate) trade into the national development plans such as the Poverty Reduction Strategy Papers (PRSPs) of least-developed countries; • (ii) to assist in the co-ordinated delivery of trade-related technical assistance in response to needs identified by the LDC. The IF is built on the principles of country ownership and partnership.”

  17. Impediments to development: domestic or structural • Structuralist theory vs. modernization theory (Thomas 2005 • Based on analysis of north-south trade (UN Economic Commission of Latin America, Prebisch) • Structural differences, colonial differences, core-periphery, ever deteriorating terms of trade • Remedies: industrial policy, IS, regional integration, infant industry, change in economic order

  18. Impediments to development: domestic or structural • Modernization Theory • Based on behavioralism (south can learn from north) • linear path of development (from agrarian society to a modern society) • obstacles to development (domestic issues, weak governance) • they need to embrace liberal Western values • FDI and export-led growth

  19. Washington Consensus (WC) or Washington Confusion • Washington Consensus (Williamson 1990) • Consensus among US Congress, Administration, technocratic DC (IMF, WB), neo-classical economists and think tanks • 10 recommendations: Fiscal discipline, reorientation of public expenditures, tax reform, financial liberalization, competitive and unified exchange rates, trade liberalization, openness to FDI, privatization, deregulation, property rights...

  20. Washington Consensus (WC) or Washington Confusion • Naim 1999: global brand • Simple for politicians, ideological vacuum • Yet record speaks more of confusion, e.g. • Shock therapy, sequenced reforms (e.g. Soviet Union) • Handling of East Asian Crises • Short term portfolio investments (e.g. Tobin tax) • Exchange rates regimes • Comprehensive development framework

  21. Washington Consensus (WC) or Washington Confusion • Rodrik (2006): • Best practice is doubtful • Pay attention to dynamic forces behind growth processes • Success stories India and China (they don’t look like exemplars of the WC) • Criticism: reform approach was good, but wasn’t deep and far enough (IMF)

  22. Washington Consensus or Washington Confusion • Washington Consensus (Willam Rodrik 2006

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