International Development Chapter 13'2

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International Development Chapter 13.2

• PSC 124
• Spring 2006
• Northrup

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Differential Impact of Climate Change on the
North v South

• Relevant to discussion of economic development
• Level of capital accumulation affects all areas
  of life, including ability to adapt to changes
  e.g. climate change
• NYT slide show

Well in Malawi contaminated by floodwaters NYT
Article
3
NPR Series on Development and Contrasts in India

• Development process can lead to stark
  juxtaposition of wealth and poverty
• NPR 5-part series on life in India

4
North-South Business Relations

• Poor countries have little capital
• So foreign investment can get accumulation
  started
• What are benefits to MNCs and what are pros and
  cons for a poor country?

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Benefits to MNC

• Inexpensive to do business
• Sometimes presence of natural resources
• MNC has significant control
• MNC owns facilities hold as asset
• MNC controls labor
• Controls whether to expand or close
• Can take profits out of country

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Benefits to Poor Country

• Partnership creates jobs
• Country can build accumulation of capital to
  invest in other local industries
• Charge taxes, fees
• Lease land
• Entrée into global economy
• Can enter into joint ventures and limit MNC
  ownership to 49

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Down Side to Poor Country

• Country relinquishes control
• Often majority of profits go to MNC
• Builds infrastructure, policies to benefit MNC
  and its industry, not investment in long-term
  domestic economic development
• Flexibility means MNCs pull out if conditions
  change (race to the bottom)
• Favorable conditions created for MNC can hurt the
  country (e.g. allowing poor working conditions
  for workers, environmental harm)

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What MNCs Look For

• Favorable regulatory environments tax breaks,
  labor laws, unions
• Labor supply considerations cheap labor, or
  skilled labor
• Absorptive capacity skilled labor force,
  developed infrastructure so lower costs to
  startup
• Financial stability low inflation, stable
  currency exchange rates
• Political stability
• Economic growth if MNC is dependent on its
  products being bought in-country

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Workable Development?

• Foreign investment that works?
• Cooperation between domestic and international
  public and private sectors, and NGOs
• Video - Developing Chads Oil
• National Geographic feature on oil in Africa

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Technology Transfer

• Tech transfer when third world country acquires
  technology (skills, knowledge, methods,
  equipment) from foreign sources
• Brain drain
• Example of pros and cons of tech transfer
  depends on how its done The green revolution

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Results from Green Revolution
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Criticisms of Green Revolution

• Agricultural quality
• Globalization and social change
• Sustainability

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Understanding Local Conditions Bali Water Priests

• Steeply stepped wet-rice terraces
• Hundreds of farming communities
• Priests of water temples coordinated irrigation
• Religious, social and technical processes
• Optimized water sharing
• Reduced pest infestations
• Successful yield

For more Link
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North-South Debt

• Borrowing - an alternative to foreign investment
• Debt service
• Default
• Debt renegotiation
• Third world Debt crisis
• Debt forgiveness

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Debate over Fairness of Debt Forgiveness

• Pro and con
• Debt relief activists
• Skeptical economists
• Counter-argument to skeptical economists
• Libertarian economists
• Recently, increasing support for debt forgiveness
  to improve conditions in poor countries

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Debt Still Not Solved

• South owes 2 trillion
• Pays 300 billion a year to service
• gt 1/3 export earnings in South America go to debt
  payment
• Africas debt 40 of annual GDP
• The developing world now spends 13 on debt
  repayment for every 1 it receives in grants
  (source)
• Case Nigeria (source)

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IMF Conditionality

• Loans supply capital for early stage of
  accumulation
• IMF conditionality and SAPs (critique)
• Terms usually painful for citizens, for
  politicians
• Cut inflation
• Cut government spending (social programs)
• Cut subsidies
• Crack down on corruption
• Privatization and deregulation
• Policies of economists little understanding or
  consideration of history, politics, local
  conditions

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Critics and Supporters - SAPs

• Threaten sovereignty
• Economic impact of SAPs
• Low wages
• Privatization
• Urbanization (agricultural SAPs)
• Economic stagnation
• Cutting education
• Cutting health programs
• Positive borrowed time

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South in International Regimes - Disadvantaged

• WTO trading regime favors industrialized
  countries
• Cant protect infant industries (e.g. through
  tariffs) so cant compete
• Have comparative advantage in textiles and
  agriculture, but both were excluded from GATT
  (which focused on manufactured goods where North
  has comparative advantage)
• Bringing cases to WTO is extremely costly, so
  North can afford but South cant

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Generalized System of Preferences

• Created to compensate for inequities
• Formal system of exemption from some WTO rules
• MFN rules altered so preferences could be given
  by wealthy countries to developing countries to
  assist in building economies
• More recently, textiles and to some extent
  agricultural products, have been added to
  coverage by WTO rules, which helps developing
  countries

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Foreign Assistance

• Most assistance comes from North
• 90 of government assistance comes from the
  Development Assistance Committee of OECD (DAC)
• DAC countries set a goal of 0.7 of GNP to be
  given in foreign aid
• Only Norway, Sweden, Denmark, the Netherlands,
  and Luxembourg meet the target
• US gives lowest percentage of GNP of rich
  countries (.1), but gives most in total economic
  aid in absolute dollars

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Foreign AssistanceTaking on Global Poverty

• Video

Malawi
Niger
India
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Types of Aid

• Grants
• Technical cooperation (North Korea)
• Credits e.g. grants to buy grain
• Loans
• Loan guarantees (will back up loan, so lower
  rate)
• Military aid

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USAID

• Main US agency for dispensing FA
• Where money goes
• State Department
• Aid used as leverage in bargaining

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Peace Corps

• Goals
• Trained workers (e.g. health)
• Promote understanding of Americans
• Promote understanding by American
• History
• JFK 1960 campaign speech
• Counter to image of ugly American
• Concerns about draft dodgers
• Website About the Peace Corps

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Three Models of Development Assistance

• The Disaster Relief model
• The Missionary model
• The Oxfam model

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Disaster Relief UN Relief Web

• Short-term relief from affects of natural
  disasters and war
• ReliefWeb the global hub for time-critical
  humanitarian information on Complex Emergencies
  and Natural Disasters Link

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Missionary Model

• Charitable programs to meet basic needs
• Often provide short term assistance, but not
  sustainable change
• Dont deal with underlying causes
• Over dont deal with local context and culture
  appropriately

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Oxfam Model

• Oxfam International is a confederation of 12
  organizations working together with over 3,000
  partners in more than 100 countries to find
  lasting solutions to poverty, suffering and
  injustice.
• Grassroots empowerment not dependency
  teaching people to fish
• Oxfam website