Can institutions resolve ethnic conflict ?

High-quality institutions -- reflected in such factors as rule of law, bureaucratic quality, freedom from government expropriation, and freedom from government repudiation of contracts -- mitigate the adverse economic effects of ethnic fractionalization identified by Easterly and Levine (1997) and others. Ethnic diversity has a more adverse effect on economic policy and growth when a government's institutions are poor. But poor institutions have an even more adverse effect on growth and policy when ethnic diversity is high. In countries where the institutions are good enough, however, ethnic diversity does not lessen growth or worsen economic policies. Good institutions also reduce the risk of wars and genocides that might otherwise result from ethnic fractionalization. However, these forms of violence are not the channel through which ethnic fragmentation and its interaction with institutions affect economic growth. Ethnically diverse nations that want to endure in peace and prosperity must build good institutions.Governance Indicators,Economic Policy, Institutions and Governance,Inequality,Achieving Shared Growth,Poverty Assessment

The Effect of IMF and World Bank Programmes on Poverty

poverty, structural adjustment, economic growth, income distribution

Growth implosions, debt explosions, and my Aunt Marilyn : do growth slowdowns cause public debt crises?

The worldwide slowdown in growth after 1975 was a major negative fiscal shock. Slower growth lowers the present value of tax revenues and primary surpluses and thus makes a given level of debt more burdensome. Most countries failed to adjust to the negative fiscal consequences of the growth implosion, so public-debt-to-GDP ratios exploded. The growth slowdown therefore played an important role in the debt crisis of the middle-income countries in the 1980s, the crisis of the heavily indebted poor countries (HIPCs) in the 1980s and 1990s, and the increased public debt burden of the industrial countries in the 1980s and 1990s. Moreover, the HIPCs'debt problems were worse than elsewhere because, as a result of poor policies, these countries grew more slowly after 1975 than other low-income countries. Econometric tests and fiscal solvency accounting confirm the important role of growth in debt crises.Economic Theory&Research,Strategic Debt Management,Environmental Economics&Policies,Economic Conditions and Volatility,Macroeconomic Management

Reliving the '50s: The Big Push, Poverty Traps, and Takeoffs in Economic Development

The classic narrative of economic development -- poor countries are caught in poverty traps, out of which they need a Big Push involving increased aid and investment, leading to a takeoff in per capita income -- has been very influential in development economics since the 1950s. This was the original justification for foreign aid. The narrative lost credibility for a while but has made a big comeback in the new millennium. Once again it is invoked as a rationale for large foreign aid programs. This paper applies very simple tests to the various elements of the narrative. Evidence to support the narrative is scarce. Poverty traps in the sense of zero growth for low income countries are rejected by the data in most time periods. There is evidence of divergence between rich and poor nations in the long run, but this does not imply zero growth for the poor countries. Moreover, this divergence is more associated with institutions rather than the disadvantages of initial income. The idea of the takeoff does not garner much support in the data. Takeoffs are rare in the data, most plausibly limited to the Asian success stories. Even then, the takeoffs are not associated with aid and investment as the standard narrative would imply.economic development, poverty trap, foreign aid

the middle class consensus and economic development

Modern political economy stresses"society's polarization"as a determinant of development outcomes. Among the most common dorms of social conflict are class polarization, and ethnic polarization. A middle class consensus is defined as a high share of income for the middle class and a low degree of ethnic polarization. A middle class consensus distinguishes development successes from failures. A theoretical model shows how groups - distinguished by class or ethnicity - will under-invest in human capital and infrastructure when there is"leakage"to another group. The author links the existence of a middle class consensus to exogenous country characteristics, such as resource endowments, along the lines of the provocative thesis of Engerman and Sokoloff (1997), that tropical commodity exporters are more unequal than other societies. The author confirms this hypothesis with cross-country data. This makes it possible to use resource endowments as instruments for inequality. A higher share of income for the middle class and lower ethnic polarization, are empirically associated with higher income, higher growth, more education, better health, better infrastructure, better economic policies, less political instability, less civil war (putting ethnic minorities at risk), more social"modernization,"and more democracy.Economic Theory&Research,Decentralization,Gender and Social Development,Environmental Economics&Policies,Labor Policies,Achieving Shared Growth,Governance Indicators,Economic Development,Inequality,Economic Theory&Research

Life during growth : international evidence on quality of life and per capita income

Remarkably diverse indicators show quality of life across nations to be positively associated with per capita income. But changes in quality of life as income grows are surprisingly uneven. Moreover, in either level or changes, the effect of exogenous shifts over time is surprisingly strong. It is possible that changes in a home country's quality-of-life indicators depend as much on changes in world income as on changes in home country growth. The improvement in life expectancy everywhere, for example, may have reflected technical breakthroughs in antibiotics associated with world economic growth. The strong results on exogenous time shifts point in this direction. The author reaches this conclusion using a panel data set of 81 indicators covering up to four periods (1960, 1970, 1980, and 1990). The indicators cover seven subjects: health, education, individual rights and democracy, political instability and war, transport and communications, inequality across class and gender, and"bads."With a seemingly unrelated regressions (SUR) estimator in levels, per capita income has an impact on the quality of life that is significant, positive, and more important than exogenous shifts for 32 of 81 indicators. With a fixed effects estimator, growth has an impact on the quality of life that is significant, positive, and more important than exogenous shifts for 6 of 69 quality-of-life indicators. The evidence that life gets better during growth is surprisingly uneven. The cross-country relationship between income and diverse indicators of the quality of life remains strong. The author speculates about explanations for the pattern of results, such as the long and variable lags that may come between growth and changes in the quality of life, and the possibility that global socioeconomic progress is more important than home country growth for many quality-of-life indicators.Poverty Monitoring&Analysis,Public Health Promotion,Health Economics&Finance,Environmental Economics&Policies,Labor Policies,Inequality,Environmental Economics&Policies,Governance Indicators,Health Economics&Finance,Poverty Monitoring&Analysis

How did highly indebted poor countries become highly indebted? : reviewing two decades of debt relief

How did highly indebted poor countries become highly indebted after two decades of debt relief efforts? A set of theoretical models predict that countries with unchanged long-run savings preferences will respond to debt relief with a mixture of asset decumulation and new borrowing. A model also predicts that a high-discount-rate government will choose poor policies and impose its inter-temporal preferences on the entire economy. Reviewing the experience of highly indebted poor countries, compared with that of other developing countries, the author finds direct and indirect evidence of asset decumulation and new borrowing associated with debt relief. The ratio of the net present value of debt to exports rose strongly over 1979-97 despite the debt relief efforts. Average policies in highly indebted poor countries were generally worse than those in other developing countries, nor were wars more likely in highly indebted poor countries. Over time there has been an important shift in financing for highly indebted poor countries, away from private and bilateral nonconcessional sources to the International Development Association and other sources of multilateral concessional financing. But this implicit form of debt relief also failed to reduce debt in net present value terms. Although debt relief is done in the name of the poor, the poor are worse off if debt relief creates incentives to delay reforms needed for growth.Environmental Economics&Policies,Strategic Debt Management,Economic Theory&Research,Payment Systems&Infrastructure,Banks&Banking Reform,Environmental Economics&Policies,Strategic Debt Management,Financial Intermediation,Economic Theory&Research,Banks&Banking Reform