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Foreign direct investment, financial flows, private-sector development, humanitarian assistance, Africa
Vijaya Ramachandran is a senior fellow at the Center for Global Development. She works on the impact of the business environment on the productivity of firms in developing countries, and is the coauthor of an essay titled "Development as Diffusion: Manufacturing Productivity and Africa's Missing Middle,” published in the Oxford Handbook on Economics and Africa. Vijaya is also studying the unintended consequences of rich countries’ anti-money laundering policies on financial inclusion in poor countries. She has published her research in journals such as World Development, Development Policy Review, Governance, Prism, and AIDS and is the author of a CGD book, Africa’s Private Sector: What’s Wrong with the Business Environment and What to Do About It. Prior to joining CGD, Vijaya worked at the World Bank and in the Executive Office of the Secretary-General of the United Nations. She also served on the faculties of Georgetown University and Duke University. Her work has appeared in several media outlets including the Economist, Financial Times, Guardian, Washington Post, New York Times, National Public Radio, and Vox.
Agglomeration theory holds that clustering firms together allows them to share of knowledge and ideas, access a larger labor pool, and benefit from lower costs of production and transportation. How does that hold up in the real world?
De-banking is an ugly word, but it’s the focus of a new working group launched by CGD in Europe. Banks in rich countries, under pressure from anti–money laundering and counterterrorism enforcement efforts, are increasingly “de-banking” money transfer organizations that operate in poor countries. In other words, to prevent criminals transferring their ill-gotten gains around the world electronically, they are denying banking services to legitimate companies that are a vital route for millions of people and businesses. And we are talking huge sums of money.
In Burkina Faso, where most live on less than $2 a day, people want better infrastructure even more than they want jobs. In Benin, Guinea, Liberia, Mozambique, Tanzania – some of Africa’s poorest nations – it is the same. In fact, the cry for more and better basic services is heard in nearly every African country.
The need for infrastructure improvements is a top-tier economic, political, and social issue in nearly every African country. Although the academic and policy literature is extensive in terms of estimating the impact of infrastructure deficits on economic and social indicators, very few studies have examined citizen demands for infrastructure.
Clay Lowery, our group’s chair, is Vice President at Rock Creek Global Advisors, an international economic policy advisory firm, where he focuses on international financial regulation, sovereign debt, exchange rates, and investment policy. He is also a Visiting Fellow at the Center for Global Development and serves on the Policy Advisory Board at the European Institute. He was an Adjunct Professor at Georgetown University in international finance and a lecturer at the National War College.
Originally published in October 2013 and updated January 2015
Food security has arisen again on the development agenda. High and volatile food prices took a toll in 2007–08, and in many low-income countries agricultural yields have risen little, if at all, in the last decade. Moreover, food production in these poor countries is especially vulnerable to climate change. Meeting this demand is a global challenge. The Food and Agriculture Organization of the United Nations (FAO) is expected to lead the way in meeting this challenge and, with the arrival in 2012 of the first new director-general in 18 years, it has an opening to restructure itself to do so.
On January 12, 2010, an earthquake of magnitude 7.0 struck close to the densely populated city of Port-au-Prince, Haiti, killing over 200,000 people and reducing the city to rubble. Five years later, I still cannot figure out where all the money has gone.
FOR IMMEDIATE RELEASE
Report: Time for FAO to Shift to a Higher Gear
Focusing the FAO on Global Public Goods
Experts Urge FAO to “Shift to a Higher Gear”
Agriculture and development policy experts recommend a renewed focus on global public goods to meet growing demand for global food security
Washington, D.C. – Experts are urging the Food and Agricultural Organization (FAO) of the United Nations, the leading global institution dedicated to raising agricultural productivity, to shift to a higher gear in the face of trends likely to worsen food scarcity.
A new report from the Center for Global Development says that the FAO, despite its respected status as the premier global food agency, risks squandering its potential at a time when demand for food is rising fast, supplies are under threat, and hundreds of millions of people already don’t have enough to eat.
The report says that the FAO should stop backing the pet projects of agricultural ministers and instead focus on global public goods—activities like coordinating research to raise agricultural productivity, especially in poor countries with little research capacity of their own, global data gathering and monitoring, and early warning systems for plant diseases and pests. No single country can undertake these activities on its own.
“Now more than ever before, the world needs an effective FAO,” says Vijaya Ramachandran, CGD senior fellow and head of the working group. “The FAO is uniquely placed to help prevent more widespread hunger in the face of adverse global trends. But it won’t succeed if it continues to putter along with business as usual.”
“This report makes a compelling case that the world needs the FAO today as never before. It shows that the FAO can make a huge difference in the world, but only if it does the right things better—and stops doing things that can be done as well or better by national governments, NGOs, and bilateral and multilateral funders,” says CGD president Nancy Birdsall.
The CGD report, Time for FAO to Shift into a Higher Gear, notes that the UN organization itself is the source of data that reports about one-in-nine people routinely go hungry and that as many as one-in-three people currently suffer from micronutrient deficiency—they have enough calories but lack specific vitamins or minerals. These statistics are increasingly built on sound databases and analysis, and reflect the ability of FAO to produce public goods of the highest quality.
“Food deprivation is already unacceptably high and it will get much worse in the years ahead without forceful leadership from FAO,” says Peter Timmer, one of the world’s top experts on agricultural economics and a CGD non-resident fellow who served on the working group.
“Trends such as lower yields due to climate change, rising energy prices, increased demand for meat and protein-rich foods due to income growth in emerging economies, and two billion more people in the world by 2050 will all combine to make it incredibly hard to provide enough safe, nutritious food for everybody,” says Timmer.
Timmer acknowledges that the FAO cannot solve all food security problems on its own. Poor people go hungry not because there is too little food in the world but because they lack the means to buy what they need. Nonetheless, with demand from more affluent people expected to continue to rise quickly, and supplies under threat, poor people who already have too little to eat will suffer the most.
“Increased production will be key. It is impossible to consume food that is not produced,” says Timmer. “Increasing supply should be the first order of business for FAO.”
Jikun Huang, a member of the working group and the director of the Center for Chinese Agricultural Policy at the Chinese Academy of Sciences, says “FAO’s expertise in many areas has been severely eroded. FAO needs to reestablish its world-class expertise in areas where it has a comparative advantage.”
The Center for Global Development working group report is not the first to call for an overhaul of the FAO.
Established after World War II to coordinate relief and agricultural development, the FAO became a trusted source of assistance for poor countries on technical issues ranging from veterinary services to forest management. In recent decades the agency slipped into stagnancy and dysfunction, and has struggled to maintain funding for its core activities.
In 2007, the FAO itself commissioned an independent outside review that recommended sweeping reforms. The report found that the FAO’s governing bodies and leadership failed to make strategic choices about which activities to drop in the face of declining funding in the 1990s, and that it did not form effective partnerships with the many new players in the food security field. As a result, FAO’s expertise in many technical areas was severely eroded. Western donors, in particular, faulted FAO for its reliance on support from agricultural ministers who often represented narrow constituencies even in their own countries.
Six years later, the CGD study finds that the FAO has implemented many of the recommendations of the earlier study, but it needs to do much more. The CGD working group, which is comprised of nearly two-dozen food policy experts from a wide variety of nationalities and technical backgrounds, offers two main suggestions:
For FAO Management: Focus on Global Public Goods
The FAO’s global perspective and cross-border reach, the respect and trust it continues to enjoy in developing countries, and its network of agricultural and economics experts are the FAO’s strongest assets.
To make the most of these, the FAO should focus on global public goods—activities that individual countries do not undertake on their own. Examples include:
increasing agricultural productivity, especially among small holder farmers, since increases in small holder production can lead directly to increased consumption and improved nutritional status;
the collection and dissemination of data on global food production and consumption;
early warning systems related to hunger, disease, and pests;
and providing a neutral forum for international policy dialogues on food and agriculture.
The report recommends that about half of the FAO’s non-emergency spending should focus on global public goods such as these, with an additional quarter of its non-emergency funding going to regional activities.
Currently less than half of the non-emergency spending goes to global and regional public goods, and almost four out of ten dollars is spent in local community projects—a low priority that the report says should attract no more than 5% of the organization’s non-emergency spending.
Within the FAO, these public goods activities are sometimes seen as being limited to the organization’s headquarters in Rome—and at odds with a strong FAO presence in member countries. The report argues that this is not the case. Many of these activities, such as long-run investments to raise productivity of small holder farmers and collecting data for early warning systems, require a strong local field presence.
For FAO Member States: Improve FAO Governance
The working group report urges that FAO member states—especially large donors such as Europe, Japan, and the United States—should ensure that financing for the FAO is aligned with these priorities.
Rather than funding earmarked, short-term programs, members should provide a reliable stream of funds for the FAO’s core activities – namely, the provision of global and regional public goods. For most of the large donors in the OECD countries, this will require stepping away from domestic self-interest and towards a focus on reducing global hunger.
Developing country FAO members, meanwhile, should stop pushing for highly visible pet projects within their borders and instead seek a greater say in FAO policy formulation , advocacy, and development activities that offer longer-term benefits. Focusing on its strengths instead of the pet projects of national agricultural ministers will enable the FAO to better serve all its members, the report says.
Among FAO staff there is a clear recognition of the importance of global public goods. Regina Birner, a department chair at Germany’s University of Hohenheim and a member of the working group, recalls that when she asked staff at FAO headquarters what they would consider their biggest achievements, most referred to global public goods, such as the eradication of rinderpest, a viral disease of cattle eliminated by a decade-long, worldwide vaccination campaign led by FAO.
Adds working group member Sushil Pandey, an agricultural economist and author of several studies on food security in Asia, “the FAO is an important source of national and regional data on food production, utilization and prices. These data are critically important for monitoring the long-term trends on various aspects of agricultural production and are used by national and international agencies for their planning purposes. This provision of public good by FAO needs further strengthening.”
The CGD working group report identifies several valuable activities that the FAO already performs. Noting that the FAO is well placed to provide these important services, it urges that these be shifted into higher gear given the coming strains on the global food supply. These include:
Support for increasing agricultural productivity, especially among small holder farmers. Donors have often cut back on funding for agricultural research when short-run commodity prices are low. The FAO should focus on longer-run signals of scarcity.
Issuing early warnings on hunger, pests, and diseases in collaboration with other international agencies. Tracking emerging threats and emergencies, and helping countries to mount rapid response programs.
Gathering global data on food and agriculture, including information about production, trade, irrigation, inputs, land and soil, forestry, fisheries, and investment. Continuing to produce reports, policy analysis, and statistical information about these issues and remaining the primary repository for such data.
Providing a neutral forum on food and agricultural policy issues. This would capitalize on the organization’s reputation for neutrality and objectivity and provide a venue to exchange expertise and views on food security. FAO has been active in mobilizing research and policy advice on food price volatility, and should continue to emphasize this role.
Overseeing standard setting agencies including the Codex Alimentarius Commission and the International Plant Protection Convention Secretariat.
Read the full report here.
The Center for Global Development is an independent, non-partisan think tank which works to reduce global poverty and inequality through rigorous research and active engagement with the policy community. CGD combines world-class research with policy analysis and innovative communications to turn ideas into action.
Economists are increasingly focusing on the links between rising inequality and the fragility of growth. The relationship between inequality, leverage and the financial cycle which sowed the seeds for 2007-08 global financial crisis, together with the disproportionate political influence of the rich, create a narrative of excess. Andrew Berg will discuss the effect of this narrative on the financial crisis in his new paper, coauthored with Jonathan Ostry and Charalambos Tsangarides.
The authors offer three key findings. First, more unequal societies tend to redistribute more. This makes it imperative that we understand the relationship between growth and inequality, in order to distinguish between market and net inequality. Second, this distinction allows us to see that lower net inequality is robustly correlated with faster and more durable growth. Finally, redistribution appears benign in its impact on growth; only in extreme cases is there evidence of a negative effect on growth. They conclude that combined direct and indirect effects of redistribution are, on average, pro-growth, when the growth effects of resulting lower inequality are taken into account.
The first-ever National Business Census began in Haiti this month. A census of formal and informal businesses has never been conducted and there is no comprehensive business database. Although a daunting task, the census will likely help to strengthen small and medium enterprises and increase local procurement.
The survey began September 3rd and will be conducted by 500 interviewers recruited by 42 supervisors from across the country – at a cost of 26 million gourdes (around $600,000). Wilson Laleau, the Minister of Trade and Industry, explained that this survey will enable the government to assist entrepreneurs with access to credit, help meeting standards, and entering new markets. Maintaining crops, inventories, and production is notoriously difficult with disasters such as Hurricane Isaac. A comprehensive census could improve access to credit and insurance coverage for natural disasters. Prime Minister Laurent Lamothe said: “Everyone recognizes the importance of such an activity… [a census is a] prerequisite to any policy to support the development of entrepreneurship in Haiti.”
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.
In 2012, the Center for Global Development (CGD) convened the Working Group on Food Security, bringing together 22 experts in food policy, nutrition, agriculture, and economic development from around the world. The group’s task was to review pressing challenges to agricultural development and food security and take stock of the Rome-based United Nations food agencies charged with addressing them. The working group decided to focus on the largest of those agencies—the Food and Agriculture Organization (FAO)—and has two key recommendations.
How do employers decide whether to provide their employees with HIV/AIDS prevention services? CGD Visiting Fellow Vijaya Ramachandran's data from 860 firms and 4,955 workers in Uganda, Tanzania, and Kenya shows that larger firms, and those with more highly skilled workers, invest more in HIV/AIDS prevention. Firms in which more than 50 percent of workers are unionized also are more likely to provide more prevention services.