Another Conference on Poverty
Posted by fazeer on 21 April, 2008
Yet another conference on poverty-reduction took place, this week-end in Mauritius. The conference focused on the SADC region, where more than 45% of the population lives on less than $1 a day and, in some countries, up to 70% of the population is undernourished. Amid a sumptuous banquet given in honour of the King of Swaziland on his 40th birthday (who, together with his 13 wives and 23 children, rule over the small nation of Swaziland where one out of ten babies dies at birth and life expectancy is a mere 33 years), an unsurprising conclusion was reached: foreign donors need to give more. It is claimed that $8 billion is required for the SADC region each year. But will more development aid help? Here are three facts worth remembering on aid and poverty-reduction.
1. That greatest reduction in poverty in world history has been happening in China since 1978. Starting poorer than many SADC nations in the 1970s and without receiving any foreign aid, China has lifted 700 million people out of poverty as measured by the number of people living on less than $2 a day, which is equivalent to a population the size of Africa. What really happened in China? God knows, but by now, we also have an idea: the recognition that markets work, and the removal of constraints that impede its functioning has unleashed economic forces which improve the lives of many, including the poor.
Source: Sala-i-Martin (2005)
2. That there is no hard evidence that aid helps in economic development. It may, as it may not. Development aid may lift a country out of a poverty trap, but it may also create a culture of dependency, lead to a misallocation of talent and resources (in many African countries, the best talent goes to administering – some would say, plundering – of foreign aid), and delay the adoption of good policies.
The seminal paper that looks at the relationship between aid and economic growth is by Craig Burnside and David Dollar in 2000. They claim that aid boosts economic growth only when countries adopt good policies. In countries with bad economic policies, development aid has no impact on growth. However, Easterly, Levine and Roodman in a subsequent paper show that Burnside and Dollar’s result are not robust: newer data and different definitions of what constitute “good policies” break their result. Hence, aid may not help economic growth even when good policies are adopted.
3. That well-targeted schemes, which recognise the power of incentives, can work. Large-scale poverty-reduction programmes, such as Oportunidades in Mexico and Bolsa Familia in Brazil have proven their effectiveness as well as many micro-projects, which economists working in random field experimentation are busy designing. For instance, Michael Kremer and Edward Miguel have shown how spending a mere $3.50 per year on a child by giving him/her medication against intestinal worm boosts his/her school attendance by 1 year, which, in some cases, is enough to later lift the child out of poverty. Emilie Oster has shown that treating people infected with sexually-transmitted diseases other than AIDS, would reduce their chances of having AIDS, and would cost only $3.50 a year per life saved, as opposed to $300 a year of treating an AIDS patient.
All these data, it is feared, are very distant from the policy-makers busy drafting a grandiose ‘Mauritius’ resolution, which would call for more of this, and more of that.
a Duoist said
The cultures in South America and south Africa which value ‘dependency’ practice dependency economics.