Ideas to Action:

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July 29, 2003

Economic Policy and Wage Differentials in Latin America - Working Paper 29

This paper applies a new approach to the estimation of the impact of policy, both the levels and the changes, on wage differentials using a new high-quality data set on wage differentials by schooling level for 18 Latin American countries for the period 1977–1998. The results indicate that liberalizing policy changes overall have had a short-run disequalizing effect of expanding wage differentials, although this effect tends to fade away over time.

updated 07/04/2006

Jere R. Behrman and Miguel Székely
July 28, 2003

Financing Pharmaceutical Innovation: How Much Should Poor Countries Contribute? - Working Paper 28

We use a public economics framework to consider how pharmaceuticals should be priced when at least some of the R&D incentive comes from sales revenues. We employ familiar techniques of public finance to relax some of the restrictions implied in the standard use of Ramsey pricing. We use this framework to examine on-going debates regarding the international patent system as embodied in the WTO's TRIPS agreement.

William Jack and Jean O. Lanjouw
Cover of The Other War: Global Poverty and the Millennium Challenge Account
June 1, 2003

The Other War: Global Poverty and the Millennium Challenge Account

This book tackles head on the tension between foreign policy and development goals that chronically afflicts U.S. foreign assistance; the danger of being dismissed as one more instance of the United States going it alone instead of buttressing international cooperation; and the risk of exacerbating confusion among the myriad overlapping U.S. policies, agencies, and programs targeted at developing nations, particularly USAID.

Lael Brainard , Nigel Purvis , Steven Radelet and Gayle Smith
May 1, 2003

National Policies and Economic Growth: A Reappraisal - Working Paper 27

National economic policies' effects on growth were over-emphasized in the early literature on endogenous economic growth. Most of the early theoretical models of the new growth literature (and even their new neoclassical counterparts) predicted large policy effects, which was followed by empirical work showing large effects. A re-appraisal finds that the alleged association between growth and policies does not explain many stylized facts of the postwar era, depends on the extreme policy observations, that the association is not robust to different estimation methods (pooled vs. fixed effects vs. cross-section), does not show up as expected in event studies of trade openings and inflation stabilizations, and is driven out by institutional variables in levels regressions.

Cover of Challenging Foreign Aid: A Policymaker's Guide to the Millennium Challenge Account
May 1, 2003

Challenging Foreign Aid: A Policymaker's Guide to the Millennium Challenge Account

In this study, Steven Radelet examines the MCA's potential promise and possible pitfalls. He offers a rigorous analysis of the MCA’s central challenge: making foreign aid more effective in supporting economic growth and poverty reduction in the poor countries. He systematically explores what makes the MCA different and pinpoints the critical issues that will determine its success or failure.

April 1, 2003

The Millennium Challenge Account: Soft Power or Collateral Damage?

In March 2002 President Bush proposed establishing the "Millennium Challenge Account"(MCA), a new foreign aid program designed to provide substantial assistance to low-income countries that are "ruling justly, investing in their people, and encouraging economic freedom." The MCA could bring about the most fundamental changes to U.S. foreign assistance policy since the Kennedy administration. The significance of the initiative lies partly in its scale: the proposed $5-billion annual budget represents a 50-percent increase over the FY02 foreign aid budget and a near doubling in the amount of aid focused strictly on development objectives. Perhaps even more important, the MCA brings with it the opportunity to improve significantly the allocation and delivery of U.S. foreign assistance as well as a recognition of the value of both hard and soft power in the pursuit of a safer and more secure world. If the new program is not implemented carefully, however, it could lead to greater fragmentation and confusion in U.S. foreign assistance policy, weaken the U.S. Agency for International Development (USAID), and impede coordination with other donors. Much will depend on the details of how the MCA is established during its first year, as well as the extent to which the administration implements changes in other assistance programs. This policy brief is a preview to the analysis and recommendations in Challenging Foreign Aid: A Policymaker's Guide to the Millennium Challenge Account by Steven Radelet, available April 30, 2003.

April 1, 2003

From Promise to Performance: How Rich Countries Can Help Poor Countries Help Themselves

At the United Nations Millennium Summit in 2000 the nations of the world committed to join forces to meet a set of measurable targets for reducing world poverty, disease, illiteracy and other indicators of human misery—all by the year 2015. These targets, later named the Millennium Development Goals, include seven measures of human development in poor countries. At the same summit, world leaders took on several qualitative targets applicable to rich countries, later collected in an eighth Goal. The key elements of the eighth Goal, pledge financial support and policy changes in trade, debt relief, and other areas to assist poor countries'domestic efforts to meet the first seven Goals. Combined, the eight Goals constitute a global compact between poor and rich to work today toward their mutual interests to secure a prosperous future.

February 27, 2003

Aid, Policies, and Growth data set

CGD working paper 26, "New Data, New Doubts: Revisiting "Aid, Policies, and Growth" by CGD non-resident fellow William Easterly, research fellow David Roodman, and Ross Levine (also published as "Aid, Policies, and Growth: Comment" in the American Economic Review, June 2004), concludes that the Burnside and Dollar (2000) finding that aid raises growth in a good policy environment is not statistically robust. This dataset is a four-year panel covering 1966–97. It includes all the Burnside and Dollar data and Easterly, Levine and Roodman's expanded data set.

Ross Levine and David Roodman
February 27, 2003

New Data, New Doubts: Revisiting "Aid, Policies, and Growth" - Working Paper 26

The Burnside and Dollar (2000) finding that aid raises growth in a good policy environment has had an important influence on policy and academic debates. We conduct a data gathering exercise that updates their data from 1970-93 to 1970-97, as well as filling in missing data for the original period 1970-93. We find that the BD finding is not robust to the use of this additional data. (JEL F350, O230, O400)

Ross Levine and David Roodman
February 25, 2003

Privatization in Africa: What has Happened? What is to be Done? - Working Paper 25

Sub-Saharan African states urgently need expanded and more dynamic private sectors, more efficient and effective infrastructure/utility provision, and increased investment from both domestic and foreign sources. The long-run and difficult solution is the creation and reinforcement of the institutions that underpin and guide proper market operations. In the interim, African governments and donors have little choice but to continue to experiment with the use of externally supplied substitutes for gaps in local regulatory and legal systems.

John Nellis
February 24, 2003

Bootstraps not Band-Aids: Poverty, Equity and Social Policy in Latin America - Working Paper 24

After a decade of economic reforms that dramatically altered the structure of economies in Latin America, making them more open and more competitive, and a decade of substantial increases in public spending on education, health and other social programs in virtually all countries, poverty and high inequality remain deeply entrenched. In this paper we ask the question whether some fundamentally different approach to what we call "social policy" in Latin America could make a difference — both in increasing growth and in directly reducing poverty. We propose a more explicitly "bootstraps"-style social policy, focused on enhancing productivity via better distribution of assets. We set out how this broader social policy could address the underlying causes and not just the symptoms of the region's unhappy combination of high poverty and inequality with low growth.

Miguel Székely
February 23, 2003

The Millennium Challenge Account: How Much is Too Much, How Long is Long Enough? - Working Paper 23

The US government's proposed $5 billion Millennium Challenge Account (MCA) could provide upwards of $250-$300m or more per year per country in new development assistance to a small number of poor countries judged to have relatively "good" policies and institutions. Could this assistance be too much of a good thing and strain the absorptive capacity of recipient countries to use the funds effectively? Empirical evidence from the past 40 years of development assistance suggests that in most potential MCA countries, the sheer quantity of MCA money is unlikely to overwhelm the ability of recipients to use it well, if the funds are delivered effectively.

February 4, 2003

The Millennium Challenge Account

Steven Radelet testified before the Senate Foreign Relations Committee at a hearing titled “Millennium Challenge Account: A New Way To Aid” on March 4, 2003.

From Radelet’s Testimony:

January 9, 2003

A Comment on the MCA Proposals

Recent discussions surrounding the Millennium Challenge Account (MCA) proposal suggest that it seeks to address two somewhat distinct goals in the general area of foreign aid: increasing aid volume and making aid more selective. This brief comment seeks to clarify the nature of these goals and suggests that taking these goals seriously has fairly obvious implications for how the MCA should be implemented.

January 1, 2003

Why it Matters Who Runs the IMF and the World Bank - Working Paper 22

In this paper I set out the economic logic for why good global economic governance matters for reducing poverty and inequality and argue that a step towards better global governance would be better representation of developing countries in global and regional financial institutions.

December 21, 2002

From Social Policy to an Open-Economy Social Contract in Latin America - Working Paper 21

I suggest in this paper the logic of going beyond the standard, poverty-targeted, elements of good social policy to a modern social contract adapted to the demands and the constraints of an open economy. Such a contract would be explicitly based on broad job-based growth. Second, it would be politically and economically directed not only at the currently poor but at the near-poor and economically insecure middle-income strata.

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