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Charles Kenny is a senior fellow and the director of technology and development at the Center for Global Development. His current work focuses on gender and development, the role of technology in development, governance and anticorruption and the post-2015 development agenda. He has published articles, chapters and books on issues including what we know about the causes of economic growth, the link between economic growth and broader development, the causes of improvements in global health, the link between economic growth and happiness, the end of the Malthusian trap, the role of communications technologies in development, the ‘digital divide,’ corruption, and progress towards the Millennium Development Goals. He is the author of the book "Getting Better: Why Global Development is Succeeding, and How We Can Improve the World Even More" and “The Upside of Down: Why the Rise of the Rest is Great for the West.” He has been a contributing editor at Foreign Policy magazine and a regular contributor to Business Week magazine. Kenny was previously at the World Bank, where his assignments included working with the VP for the Middle East and North Africa Region, coordinating work on governance and anticorruption in infrastructure and natural resources, and managing a number of investment and technical assistance projects covering telecommunications and the Internet.
As the private sector arm of the World Bank and the world’s largest development finance institution, the International Financial Corporation (IFC) is designed to catalyze investments in countries that investors might consider too risky to invest in alone. With loans and equity investments in the private sector, the IFC aims to make sure that developing countries get the financing they need, and provides a way for the private sector to play a major role in spurring growth and alleviating poverty in some of the poorest and most vulnerable countries in the world. But our recent analysis of IFC’s portfolio found that it is shying away from risky investments, raising serious questions about whether the IFC is focusing on the places where it can make the most difference.
Over the past 15 years, many of IFC’s traditional partners—countries like China or Turkey—have become wealthier with more developed financial sectors, reducing their need for investments from IFC. Today, most of IFC’s portfolio is in middle income countries, and increasingly, upper-middle income countries. Turkey, China, and Brazil, for example—all upper-middle income countries—received $3.8, $2.9, and $3.0 billion in investments between 2013 and 2016, making them three of the top four recipients of IFC money. For all that makes these countries important to the IFC, it doesn’t make the IFC all that important to the development prospects of these countries. Turkey’s output averaged around $900 billion over that period, for example, so IFC’s investments averaged a little under 0.1 percent of GDP.
The IFC could have a far bigger role in promoting development in poorer countries
If the corporation had only invested in low-income countries in 2016, its investments would have equaled 2 percent of those countries’ GDP. That’s considerable. But the trend has been away from a focus on the poorest. In fact, in 2003, over 25 percent of IFC investments were in low-income countries, but by 2016, it was a mere 2.6 percent.
Examining IFC investments by country risk shows the same pattern. In the early 2000s, IFC mostly invested in countries with below-median domestic credit depth—those on the riskier end of the scale. But over the last decade and a half, that shifted to mostly above-median credit countries. In 2016, two-thirds of all IFC investments were in the top half of countries by credit depth. Again, it’s the same trend: IFC still invests in many of the same countries it has for years, but those countries have become less risky, and less in need of IFC money.
On a more positive note
Another measure is somewhat more positive to the IFC: the percentage of investments in countries that the Fragile States Index puts in its lowest “alert” category (35 countries in the latest Index) increased from 9 percent of investments 2005-8 to 16 percent 2013-2016. But still, the most fragile states, like Sudan, Chad, and the Democratic Republic of the Congo, continue to receive very little financing.
At its most effective, IFC can use its scale and position to make investments others can't or won't, helping developing countries build their economies and make their markets more attractive to the world. But that requires a portfolio that is focused on the countries where it can have the most impact: poorer, riskier, smaller economies. The Corporation has been heading in the opposite direction, and it is time for a change of course.
Development Finance Institutions (DFIs)—which provide financing to private investors in developing economies—have seen rapid expansion over the past few years. This paper describes and analyses a new dataset covering the five largest bilateral DFIs alongside the IFC which includes project amounts, standardized sectors, instruments, and countries. The aim is to establish the size and scope of DFIs and to compare and contrast them with the IFC.
IFC’s portfolio is not focused where it could make the most difference. Low income countries are where IFC has the scale to make a considerable difference to development outcomes. While an excessive portfolio shift might imperil IFC’s credit rating, the evidence suggests that there is considerable scope for increasing commitments to low income countries without significant impact to IFC’s credit scores.
Over the last few weeks a couple of (fantastic) co-authors and I have published two papers about progress towards the SDGs (links below). Working on the papers has helped me think through what a short time fifteen years is in development, and how much a timeframe can shape what is seen as the best solution to a problem. And they raise the question: do the fifteen year targets of the SDGs stand in the way of their vision of integration and sustainability? If you wanted to achieve long term development progress, you’d probably focus on technology change, learning and innovation in policies, and improving institutional functioning. If you wanted to improve outcomes in fifteen years, you’d probably focus on throwing money at technical solutions. The problems with the second approach include that we don’t have the money, and the technical solutions won’t necessarily work best over the long term.
The first paper, written with Dev Patel, looks at the demand for innovation to meet the SDGs. At one level, it suggests that the need for new technologies and approaches is actually quite low: along most of the income distribution, there are countries already (reportedly) succeeding in meeting the SDG targets we look at, suggesting it may be possible with the body of knowledge that currently exists to bring the maternal mortality ratio of a country with a GDP PPP per capita of $2,850 to under 70, for example. The amount of progress most countries could get by “moving to the policy frontier” is more than they would get from the world as a whole moving to better outcomes at a given level of income at any reasonable rate of global technology advance. Or to put it another way, in a period of 15 years, national policy decisions on funding and focus likely dominate global technology change as the most powerful tool for increasing the rate of progress.
A second paper with Mallika Snyder asks Meeting the Sustainable Development Goal Zero Targets: What Could We Do? The paper emphasizes how much more than money achieving the targets would take—including massively improving the quality and sustainability of service delivery alongside increasing demand, for example. But it also notes that in many cases we do at least understand the technical solutions that could deliver (close to) zero goals. It also suggests if we used such solutions and achieved a lot of progress towards the SDGs by 2030, we would likely have spent trillions of dollars in the effort.
Looking at the papers together leaves me with the feeling that fifteen years may be too short a period to map out a holistic, far reaching vision of sustainable development. As the 2015 UN General Assembly resolution proclaimed, the SDGs present an “integrated and indivisible” balance of the three dimensions of sustainable development: the economic, social and environmental. They recognize the “deep interconnections and many cross-cutting elements” of the goals and that “social and economic development depends on the sustainable management of our planet’s natural resources.” I strongly believe all of that is true about long term development, but I think this is less true about progress over a decade and a half.
For example, over periods as short as fifteen years, the link between increases in income and increases in health are fragile. Over a decade and a half, the generational effects of greater school enrollment on child health will only have started to emerge. For a process that will play out over a few centuries, the relationship between climate change and broader development progress over fifteen years is going to be comparatively limited—and the vast majority of climate change that will occur over that time is locked in by emissions we’ve already released.
Again, as the analysis in my paper with Dev suggests, the hope for making considerably accelerated progress during the SDG timeframe relies primarily on “moving to the existing policy frontier” rather than investing in technology. In part, that reflects that researching and rolling out technologies simply takes too long to imagine a huge impact of new technologies in fifteen years. (Think: adoption of TCP/IP in 1983 and only three percent of the world using the Internet in 1998, or the first mobile phone call in 1973 and less than one mobile subscriber per 1,000 people worldwide in 1988).
So while long term development is driven by interlinked progress across a range of measures of the quality of life underpinned by institutional development and technological change, rapid progress over a period of as short as fifteen years is more likely to be driven by spending more on existing solutions. The problem with an approach based on existing technical solutions is the same as it was when proposed by “costing studies” of the Millennium Development Goals fifteen years ago. It ignores the institutional and other barriers to effective rollout.
One case where this isn’t true appears to be basic health programs including vaccination and bednet provision, where rollout of simple solutions at scale really has made a huge difference to health outcomes. And there will be other exceptions across the SDGs—including cases where norms and institutions or complementary outcomes and technology availability change so rapidly that fifteen years is quite long enough to see a major impact. Again, it isn’t clear the SDGs are actually having the effect of encouraging short-termism. And, frankly, when it comes to people dying from easily prevented conditions, short-termism is not only justifiable but a moral imperative. Still, when it comes to sustainable global progress, fifteen years simply isn’t a long enough time-frame to realize the full vision of the SDGs.
The Sustainable Development Goals are an ambitious set of targets for global development progress by 2030 that were agreed by the United Nations in 2015. A review of the literature on meeting "zero targets" suggests very high costs compared to available resources, but also that in many cases there remains a considerable gap between financing known technical solutions and achieving the outcomes called for in the SDGs. In some cases, we (even) lack the technical solutions required to achieve the zero targets, suggesting the need for research and development of new approaches.
The Canadian government has made some impressive steps towards prioritizing gender and women’s rights in international relations. I’m hoping that’s a sign of momentum towards even bigger steps in the New Year—using the full range of tools from trade and migration policy through investment and aid.
In just the past few months, the Canadian government has made:
A number of commitments around women peace and security, including the “Elsie Initiative,” which will provide training, support, and financial incentives to increase the proportion of women in UN peacekeeping operations.
An updated trade deal with Chile that includes a gender chapter referencing existing gender equality commitments made by both countries, creating a trade and gender committee to foster initiatives to ensure women benefit equally from trade, and a proposal to the WTO Working Party on Domestic Regulation that members do not discriminate against individuals on the basis of gender in the context of licensing requirements, licensing procedures, qualification requirements, or procedures.
A commitment to support 1,200 largely Yazidi women and girls alongside male family members fleeing violence in Northern Iraq.
A new Feminist International Assistance Policy which places a strong emphasis on—and reallocates funding towards—gender equality and empowerment of women and girls. Not least, that has involved a 3-year commitment of $650 million towards family planning and reproductive health as well as a $150 million 5-year fund for women’s rights organizations.
And there’s evidence of more to come—not least of which, Canada’s plan to focus the upcoming G7 meeting in Charlevoix on gender equality at home and abroad. This is good news—and suggests there might be potential to build on a strong start with even more.
Improving gender equality across the board
The government says that gender chapters in trade agreements will be standard going forward. That’s great news, but it would be better to see them have more bite, and to have elements included in the binding parts of the treaty. In particular, Canada could make a commitment to use trade deals (and continue pushing at the WTO) to tackle gender apartheid in the workplace. Seventy-nine countries restrict the kind of jobs women can do purely on the grounds they are women. Fifteen countries say men can stop their wives getting a job. These kinds of restrictions mean that women have fewer opportunities to benefit from global exchange than do men, and they stand in contravention of Article 11 of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW)—to which Canada is party alongside 109 other countries. Canadian trade officials could highlight removal of gender apartheid laws as areas for pre-ratification reform.
Canada’s migration policy could both benefit the country and some of the world’s most discriminated-against women with a tweak in the system. Worldwide, women want to migrate equally with men. Women from gender-unequal countries are particularly keen to move, but the extra barriers they face means that fewer actually manage to leave. About 45 percent of all immigrants to Canada are women, but from countries that put specific legal barriers in the way of women emigrants, the female share drops to 36 percent. Given the extra barriers these women face, the ones who manage to leave are likely to be particularly able and motivated—and so of high value to Canada. And given the increasing evidence of “social remittances”—migrants repatriating not just money but attitudes to their home countries—increased women’s migration will be a force for change in sending countries. That suggests a triple win for the migrants, Canada, and sending countries from a policy of favoring women emigrants from gender-unequal countries. The change would be simple to introduce given that Canada already uses a points system for immigration decision: just add a few points for women from the selected group of gender-unequal countries.
Regarding investment, Canada is about to set up its own Development Finance Institution— to support private investments in developing countries. Along with the rest of the World, Canada itself has a real problem with gender equality in private sector management. Women hold less than nine percent of the five highest-paid jobs in each of Canada’s 100 largest listed companies. One (more) reason that’s a problem is that women-managed firms hire considerably more women staff. So if Canada wanted to maximize the impact of its DFI on women’s economic empowerment worldwide, it would search out women-run companies to support—perhaps even offering preferential terms. It should also prioritize investments that help overcome barriers to women’s entrepreneurship—partnering with financial institutions to promote women’s financial inclusion, for example. At the same time, Canada should ensure that it doesn’t support gender-unequal investments. Given the number of countries worldwide have laws that specifically discriminate against women’s participation in the workforce, and the fact such laws are associated with considerably lower female labor force participation, companies receiving DFI support should be encouraged to mitigate the impact of local discriminatory legislation to the extent possible within the host country’s domestic laws by following a code of conduct regarding women’s employment and reporting data on employment by gender. If the government wanted to go further and help the Canadian private sector as a whole become a world leader in gender equality it could encourage the same code of conduct and mandate the same reporting on all Canada-based multinationals. And it could also take the emerging idea of supplier diversity goals for Canadian government procurement global—setting goals for aid and other overseas procurement, and encouraging multilateral institutions like the UN and World Bank to follow suit.
While aid resources are moving towards prioritizing women and girls, Canada’s overall aid budget fell by 4.4 percent last year. ODA as a proportion of GDP is now at 0.26 percent—that’s considerably below the OECD average. Better aid is at least if not more important than more aid. And shifting resources towards programs like family planning where there is a strong evidence base of effectiveness is likely moving towards better aid. But girls and women also benefit when Canada provides resources for quality education, vaccines, access to productive assets, gender-responsive infrastructure to reduce unpaid care work burdens, or (even) budget support. An improved feminist international assistance policy would involve both better and more ODA.
A global partnership
Finally, the Canadian government could use its global leadership position on gender to support international partnership. Women’s economic empowerment is an area where all countries (and firms) have a long way to go, with developing countries often ahead of (at least some) OECD countries: 32 percent of firms included in the World Bank’s enterprise surveys of East Asia and the Pacific are managed by women compared to 15 percent in high income OECD countries, for example. That suggests there are lessons to be learned across income divides in both directions. A global partnership of business and political leaders could make and track commitments on how they will help level the playing field for women in the economy, as well as sharing what has worked.
I’m excited to see Canada’s burgeoning leadership on gender in international relations. From this side of the border, it is hard not to be a little jealous. But it would be great if the New Year brought even more to be jealous about.
The US Department of the Interior announced last week that the United States would no longer seek to comply with the Extractive Industries Transparency Initiative (EITI), an international multi-stakeholder organization that aims to increase revenue transparency and accountability in natural resource extraction. The move—while disappointing—is not altogether unexpected. And sadly, it will put the United States further behind the curve when it comes to corporate transparency.
Why This Matters
EITI established a global standard for reporting financial flows in extractive sectors, a critical element of promoting good governance of oil, gas, and mineral resources—in what the OECD cites as the world’s most corrupt industry. While transparency alone is not enough, citizens and civil society can use published data to increase government accountability, protect revenues, and fight corruption. Given that natural resource wealth too often finances kleptocrats and wars rather than investment and development, this is surely a good thing.
The message from the Department of the Interior suggests that the US government “remains fully committed to institutionalizing the EITI principles of transparency and accountability,” but the decision to no longer implement EITI offers yet another instance of the United States walking away from an international commitment. And in doing so, the US government forfeits its ability to meaningfully champion extractive sector transparency at a time when evidence of EITI’s impact is growing.
In February, Congress used the Congressional Review Act to kill a proposed rule from the Securities and Exchange Commission—scheduled to take effect next fall—that would have required public companies that extract oil, natural gas, or minerals to disclose payments made to foreign governments or the US federal government. The proposed rule was a long-delayed attempt to implement Section 1504 of the Dodd-Frank Wall Street Reform Act—also known as the Cardin-Lugar Provision after its Senate champions.
According to a report from the Department of the Interior’s Office of Inspector General (OIG) published in May, the United States had managed to fulfill seven of the eight requirements for EITI compliance. But the remaining requirement—for the federal government to reconcile its revenue collection data with extractive payment data provided by companies—was proving difficult. The Section 1504 rule would have mandated disclosures from oil, gas, and mining companies. Without it, the Department was left to rely on voluntary disclosures of data—and most companies weren’t providing it. The OIG pointed out that the US government had been pursuing an alternative avenue to fulfilling this requirement, but would ultimately need approval from the EITI board. And if the United States underwent validation (a required assessment of its EITI performance) without such an agreement and was found short of full compliance, its status would be downgraded from “implementing country” to “supporting country.” With the United State slated for validation in April 2018, the clock was ticking.
A Growing Problem?
So why exit EITI now? It is possible the US government was concerned about losing face following a validation process that results in a downgrade, which it sought to avoid by preemptively adopting the “supporting country” moniker. Or perhaps the Department of the Interior simply ceded to pressure from extractive industry companies concerned about privacy and compliance costs.
In any case, the challenge of US EITI compliance was certain to grow. The Initiative is slated to phase in another major requirement in 2020—one on beneficial ownership. EITI countries will be required to report the identity of individuals who own or control extractive companies. The motive behind public disclosure of beneficial ownership is to prevent anonymity that could conceal transnational financial crimes, from terrorist financing and sanctions busting to money laundering and tax evasion. But there are obstacles to mandating beneficial ownership disclosure in the United States (as discussed here), which is complicated by the fact that state governments manage the registration of corporations.
EITI initially had the support of both US industry and government. The American Petroleum Institute, an industry group, is a partner organization of EITI, and contrasted EITI’s level playing field with the Section 1504 Dodd-Frank provision in a press release last year. But times have changed. EITI’s disclosure requirements are growing more stringent. The considerable majority of the Initiative’s implementing countries appear capable of keeping pace. But, sadly, that does not apply to the United States. In extractives transparency, America has long since lost the mantle of leadership. The announcement on EITI suggests that these days it can’t even keep up with the pack.
Under managing director Christine Lagarde, the International Monetary Fund (IMF) has become a champion for gender equality. This note examines how much the IMF’s dialogue with its member countries has changed as a result of the labeling of gender as a "macrocritical" issue. In short, there has been increased attention to the issue as reflected in word counts and discussion of women’s labor force participation, but there is still a long way to go.
Nicola Gennaioli, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer have just published a fascinating paper in the QJE: “Human Capital and Regional Development”. They constructed a database of 1,569 subnational regions across 110 countries covering GDP, population, education levels, geographic and institutional factors, and looked at correlates with higher per capita income. They suggest that geography and education are significant correlates of regional GDP, while their measures of institutions and culture are less well correlated. They have followed up with a working paper using an expanded dataset, “Growth in Regions” that reports regional convergence of 2.5% a year and note that a rate so slow suggests “significant barriers to factor mobility within countries.”
Convergence has been slow enough within countries that very significant subnational income variation remains–for example, the richest Mexican state (Campeche) is 16.4 times richer than the poorest state (Chiapas). That suggests looking at national-level average GDP per capita misses a big part of the picture when thinking about relative income around the world.
La Porta and the team were kind enough to share not only their data but also an ESRI shapefile which allowed us to create a world map of regional GDP per capita, below. The map is in ten shades from red to blue with each shade representing a decile of regional GDP levels (so the poorest 149 regions are in bright red, with an income of below $2,000, the next 149 poorest are between $2,000 and $3,500 –and so on up to the richest states on an income over $33,900). We’ve also made a country-level map using data from the World Development Indicators and the same income categorizations below that.
Looking across the planet it is interesting to see pockets of poverty in Asia, Latin America and even Eastern Europe. Similarly, there are pockets of OECD-level wealth across those same regions. Looking within countries, Russia and Mexico go through much of the spectrum. All of this suggests there’s certainly a lot more to the (income) development story than national history and institutions.
A warning on data. Gennaioli et. al.’s regional GDP numbers come from a diverse range of sources including Human Development Reports and government agencies. They’re adjusted so that, when population weighted, they equal the (Purchasing Power Parity) GDP reported at the country level in the World Development Indicators. GDP numbers in much of the developing world are not very reliable.
(Click on maps below to view higher-resolution versions)
Source: regional data and GIS map from Nicola Gennaioli, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer “Human Capital and Regional Development” QJE 128,1. National data from World Development Indicators. We used the latest available data for each region. Regions without GDP data between 2000-2010 were not included. Our .do file is here. Full-resolution subnational maphere.
Given the vital importance of child vaccination programs to US national security interests, intelligence-community participation in public health services should be explicitly banned. Doing so might help restore confidence in vaccination programs—benefiting those immunized and the health and security of Americans here at home.
Funding the global public good of technology is a useful way for donors to leverage the impact of their aid. Different types of technologies appear to be important to development progress, and to spread, in different ways. ‘Lab coat technologies’ (inventions) spread easily and improve quality of life, ‘process technologies’ (institutions) spread with difficulty and are important to economic growth. For all donor interventions, however, it appears that context matters—the same technology or investment has varied impact in different environments. Donors should take the importance of context on board when designing their technology interventions.
This paper seeks to determine the degree to which a gender lens has been incorporated into World Bank projects and the success of individual projects according to gender equality-related indicators. We first examine the World Bank’s internal scoring of projects based on whether they encompass gender analysis, action, and monitoring and evaluation (M&E) components, as well as project development objective indicators and outcomes according to these indicators.
This podcast was originally recorded in March 2011. Development is easy, right? All poor countries have to do is mimic the things that work in rich countries and they’ll evolve into fully functional states. If only it were that simple. My guest this week is Lant Pritchett, a non-resident fellow at the Center for Global Development and chair of the Harvard Kennedy School’s Master’s program in international development. His latest work looks at how the basic functions of government fail to improve in some developing countries (a dynamic he defines as a “state capability trap”). Part of the problem, says Lant, is that donors often insist on transplanting institutions that work in developed countries into environments where those institutions don’t fit at all.__
Despite decades of development assistance, on a wide variety of indicators of how well governments provide certain services—policing, delivering the mail, building roads, etc.—some countries are simply stuck in the mud. Lant’s work meticulously illustrates the depths of the problem. “We thought we would be able to replicate the development process very fast. We thought, these [countries] are going to develop in about 10 – 20 years,” explains Lant. “At the current rate of progress, it will take literally thousands of years for many developing countries to reach Singapore’s level of capability. That’s the capabilities trap.”
In our conversation, Lant unpacks the problems inherent in what he calls “isomorphic mimicry”: building institutions and processes in weak states that look like those found in functional states. “They pretend to do the reforms that look like the kind of reforms that successful [countries] do, but without their core underlying functionalities,” says Lant. “Instead, countries wind up with all the trappings of a capable system—institutions, agencies, and ministries—without its functionalities.” How to break this bad habit? To start with, Lant says, the development community needs to understand that a lot of what it’s been doing hasn’t worked: “It’s just surreal, the disjunction between any grounding in what the empirical realities of the acquisition of state capabilities have been, and the way in which development plans of official organizations often assume that capabilities can be grown.” To paint a more realistic image, Lant suggests that it’s important to develop indicators that showcase real progress (and are resistant to the mere appearance of progress). In the education sector for example, instead of measuring enrollment rates, he suggests more effort to measure learning (see Charles Kenny). Listen to the Wonkcast to hear our full conversation, including a discussion of Andy Sumner’s concept of the “New Bottom Billion” late in the interview. Have something to add? Ideas for future interviews? Post a comment below, or send me an email. If you use iTunes, you can subscribe to get new episodes delivered straight to your computer every week. My thanks to Will McKitterick for his production assistance on the Wonkcast recording and for drafting this blog post.
A set of more or less arbitrary lines continues to do very strange things to discussions about development. Most strange and arbitrary: country income classifications, with their division into low (<$1,036), middle ($1,036–$12,625), and high (>$12,625). Almost as strange and still pretty arbitrary: $1.25 and $2 poverty lines. We worry about aid allocations, who should give aid and contribute to global public goods, and poverty and middle-income traps all based on measures that only matter because we say they do: they’re the placebo poison of development. To focus on the country-income classifications, here are two reasons they really can’t be justified:
1. There is no natural grouping of economies based on GNI per capita.
Figure 1 lines 178 economies up according to their current Atlas GNI and then plots their GNI on a log scale alongside a trend line. If there were natural groupings of countries based on clusters of economies with similar GNIs separated by income bands with very few countries in them, the GNI line would have flat stretches followed nearly vertical stretches. But in fact, the GNI line follows the trend line very closely, showing that countries are spread fairly evenly in the space between richest and poorest. There is no strong sign of natural country groupings here. The dotted lines mark (approximately) the current income cutoffs. They appear to be poorly placed to capture what clustering does occur.
Source: World Bank
2. Country income status does not correlate with trend breaks or end points in anything else we care about
Take the slightly less arbitrary cutoff of $1.25 a day. As we all now know, most people living on the wrong side of that cutoff are in countries that have only just recently crossed the threshold out of low-income status. Figure 2 (the dotted lines are, once again, the income cutoffs) suggests middle-income status does not guarantee an end to $1.25-a-day poverty — it doesn’t even mark a break in what is a messy relationship. (One reason it is messy: $1.25 poverty is measured in purchasing power parity while income classifications are measured using market exchange rates). Surely out of all of the potential variables out their covering health, education, components of national output, the environment, and everything else there are some indictors that suggest some sort of break somewhere near the low- or middle-income cutoffs, but it would be fair to say that’s by luck not design.
Source: World Bank
And yet, despite the fact country-income classifications really don’t have any grounding in anything apart from our imaginations, we have imbued these lines with awesome power. Some examples:
1. We declare countries no longer need IDA when they reach just into middle-income status. Countries only a little way into lower-middle-income territory are no longer eligible for World Bank IDA or GAVI funding. You might have thought decisions on aid allocation might take into account some actual measure of need for external financing to achieve goals we want to promote with assistance. But why bother with that when we have an arbitrary cutoff? If IDA really matters for growth (and this paper suggests it does), our allocation based on arbitrary lines is really bad news for aid effectiveness. (Of course the cutoff is far from universal: the global share of ODA to low-income countries has actually declined from a high of 58 percent in 1994 to less than one-third today).
2. We think we have a whole new development challenge because a bunch of big countries that have only just recently crossed the threshold out of low-income status still have some people living on below $1.25 a day. To some extent this is the flip-side of the first problem — it turns out middle-income countries aren’t rich. The real challenge is to our classification scheme (and possibly to Paul Collier’s Bottom Billion royalties).
3. We think that only high-income countries should give ODA and otherwise act as responsible global citizens in areas from trade to the environment. At the other end of the classification schedule, you don’t stop being a developing country until you have a GNI of $12,616. Using purchasing power parity rather than the (odd) Atlas GNI methodology, around 3.5 billion people worldwide — half the planet — live in countries with a 2010 average income of $6,000 or above. That’s about the same as the GDP per capita of Italy in 1960 and above that of Ireland or Spain in the same year. Italy was a founding member of the OECD Development Assistance Committee (DAC), and not the poorest one. It is time for the countries home to those 3.5 billion people to accept that while they might be differentiated, their responsibilities to global public good provision are becoming increasingly common.
4. We conjure ‘poverty traps’ because some countries are still in low-income status. Aart Kraay and David McKenzie look for evidence of poverty traps and find little of it. In particular, they divide the world by 1960 income into five quintiles and find the poorest 22 countries grew at an average rate of 2.2 percent per capita over the next 50 years compared to the richest quintile growing at 2.1 percent (it is true the second poorest quintile grew an average of only 0.9 percent — perhaps potential evidence for a ‘lower-middle-income trap’ if someone was looking for a new trap to find. But even that 0.9 percent over 50 years translates into a 65 percent income increase, suggesting that even were this not a mere statistical fluke, the trap would eventually be escaped.) Kraay and McKenzie note that “the initially-poorest 10 percent of countries has grown at a rate similar to the historical growth rate of the United States over the past 200 years is difficult to square with models of poverty traps.”
5. We conjure ‘middle-income traps’ and appear concerned about incomplete structural transformations because fewer countries have crossed from middle- to high-income status than from low to middle. Otherwise sensible World Bank senior advisors fret that “only 13 of 101 middle-income economies in 1960 reached high-income status by 2008” and conclude “middle-income countries seeking to reach the next stage of development can no longer import or imitate existing technologies or capabilities; they must build their own.” But there isn’t something especially difficult about crossing the $12,000 line (otherwise we’d see the line in Figure 1 go flat sometime before crossing it). The reason comparatively few countries have crossed it is because most middle-income countries started their life as middle-income designees a long way from the cutoff, and the middle-income range is considerably larger than the low-income range. From the poorest low-income country to the low-income threshold is about a fourfold increase in GNI per capita. From the bottom to the top of the middle-income category is a twelvefold increase in GNI per capita. And there’s no evidence that countries in the middle of the distribution tend to grow more slowly than countries at either end. Figure 3 looks at per capita GDP growth rates by income decile over time. The first bar for each decile records average growth rates for countries in that decile between 1960 and 2010. The second bar records average growth rates for countries in that decile between 1970 and 2010 –and so on. Countries in the middle appear on average to grow faster, if anything.
Source: Penn World Table
So, given that these boundaries are arbitrary, what should we do?
1. Accept that income cutoffs divide a world which doesn’t want dividing, and act accordingly. We should be thinking about gentle graduations from IDA or GAVI or any of the other income-determined aid programs. At the other end we should think about gentle enrollment matriculation into common but differentiated responsibilities including action to limit greenhouse gas emissions and the expectation to provide ODA.
2. Try to design groupings fit for purpose. For example, if we want to divide the world into countries that are ODA eligible and those that aren’t, why not take some definition of what we most want ODA to do. As I’ve suggested previously, take Martin Ravallion’s work on which countries could plausibly end $1.25 poverty without outside assistance and declare that the cutoff (around $2,300 Atlas GNI). Or, as it might be, all countries that would need external finance to meet a post-2015 agenda of zero $1.25 poverty, child mortality below 3 percent, and universal access to clean water. If you think aid only works in countries with a CPIA above 3, use that as an additional cutoff. If you think aid only works if you give more than $10 per capita and you only have $10 billion to give, use a calculation that takes that into account.
So, come on World Bank and GAVI and MCC and all you other folks who use an arbitrary line drawn in shifting sands to make aid allocation decisions — you in particular need to try for a better approach.
Results Not Receipts explores how an important and justified focus on corruption is damaging the potential for aid to deliver results. Noting the costs of the standard anticorruption tools of fiduciary controls and centralized delivery, Results Not Receipts urges a different approach to tackling corruption in development: focus on outcomes.