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CGD's annual Commitment to Development Index ranks 27 of the world’s richest countries on their dedication to policies that benefit people living in poorer countries. We measure hundreds of indicators across seven policy areas: aid, climate, finance, migration, security, technology, and trade. Our rankings not only help citizens understand how their country’s policies help or harm developing nations; the CDI is also used by governments to learn how to do better.
In a world with the 2030 Agenda for Sustainable Development, the international investment policy system stands as an obsolete regime in urgent need of revision and reform. This is the main conclusion of the analysis that the think tank CIECODE conducted for CGD’s 2017 Commitment to Development Index (CDI). The analysis measures the amount of “sustainable development content” included in International Investment Agreements (IIAs) signed between developing and developed countries. Here, we look at best practices, main issues and which countries could do better.
But, first, what do IIAs have to do with sustainable development? By balancing foreign investor’s protection on one hand and States’ right to pursue public policy interests on the other, IIAs have the capacity to influence the type of foreign investments and the conditions under which they are made. Foreign investments have been developing countries’ main source of external finance for the last two decades (beyond remittances, external debt, or ODA) and that they have concrete implications in host countries’ day-to-day realities (job creation, environmental impact, fiscal revenues generation, or the promotion of vulnerable social groups).
Worldwide, the investment regime is a complex spaghetti bowl made up of more than 3300 IIAs (mainly, Bilateral Investment Treaties and Free Trade Agreements), which has been expanding relentlessly since the early 80’s.
Figure 1: Trends in Number of IIAs Signed, 1980-2017
Note: Preliminary data for 2017. 3,323 is the cumulative number of all signed IIAs, independently of their entry into force. Terminated IIAs, for which termination has entered into effect, are not included.
CIECODE has analyzed over 300 IIAs signed by developing countries with the 27 CDI countries, and has observed that sustainable development is often poorly secured in these agreements. When IIAs include social or environmental safeguards, they are so weak and full of caveats that their impact is highly diminished. They are focused on protecting foreign investors’ rights and interests leaving aside their obligations. Finally, they have failed in finding equilibrium between protecting foreign investors from unjustified discrimination measures by the host states and ensuring that these retain their right to regulate for pursuing public policy interests. This bias has prevented IIAs from becoming a useful tool to boost and promote sustainable investments at the global and domestic level.
CIECODE’s analysis also shows that IIAs signed with those developed countries most in need are the ones presenting the scarcest development content.
Figure 2: Development Content of IIAs Related to Human Development of Partner Country
Source: CIECODE’s analysis for 2017’ Commitment to Development Index. Data available.
Leaders and laggards
These general conclusions hide many interesting facts and variance at country level. For instance:
Four EU countries (Denmark, Germany, Portugal, and Spain) have obtained the minimum score on all the analyzed issues, meaning that in their treaties there is no disposition in place promoting sustainable development through foreign investment. This is a surprising result as both Denmark and Germany are leaders on the CDI overall—ranked first and fifth in the 2017 edition.
At the upper end of the scoreboard, Canada stands alone as the best student of the class, with the United States and New Zealand in second and third, respectively. In their treaties, they explicitly recognize the right of the Parties to regulate in pursuit of their legitimate public policy objectives. Further, detailed provisions to ensure the independence and transparency of the dispute resolution system are in place.
Although none of the existing IIAs are yet perfect instruments to promote sustainable development, the results of the analysis indicate that some countries are aware of the links between foreign investment and sustainable development when drafting and negotiating their agreements. There is a huge opportunity for countries to learn from each other’s policy design and make their investment agreements more development-friendly.
There is some good news
In terms of the inclusion of sustainable development and human rights content in investment treaties, the overall situation is still unsatisfactory (the average score of the 300 IIAs analyzed by CIECODE is below 2 out of 10). But, it’s at the same time true that almost all the improvements have taken place in the last 5 to 10 years (see Figure 3). The Investor-State Dispute Settlement system (ISDS) is a relevant area in which some advances have been observed.
Figure 3: The Evolution of Development Content on IIAs (2017-2000)
Originally, the ISDS was designed as a tool to protect foreign investors against undoubtedly discriminatory measures by host states. It grants foreign investors the possibility to take their disputes with host states to private international arbitration courts and seek for economic compensation if they believe any law or measure by the host state has damaged its investments and reduced its expected profit.
Today, with more than 60 new ISDS cases presented to tribunals each year, the system has mutated into something vastly different from its original expectations—at times with grave consequences. It gives foreign investors the power to challenge democratic choices by host states, elevates property rights over any other consideration (incl. human rights) and allows for fully confidential procedures. In recent decades, it has allowed investors to oppose health legislations against tobacco and environmental laws against industrial discharges' contamination, and even to challenge the end-of-apartheid laws in South Africa. States, exposed to unforeseen legal and financial risks, may decide to freeze legitimate government policymaking or even withdraw existing regulations. Many actors—from the UN and the EU to academia—agree on the main strands of this verdict.
CIECODE’s analysis shows that the ISDS dispositions are the ones in which few improvements have been made. Around 70 percent of the analyzed agreements do not include any meaningful content to improve the ISDS’ transparency, impartiality, or due process standards.
But there is a new and promising trend. More than 20 States have signed the UN’s Convention on Transparency in ISDS since 2014. This Convention, once in force, will oblige States (and their investors) to comply with a set of stringent transparency standards such as the publication of all relevant documents by the ISDS tribunal or the admittance of any “third persons” affected by the dispute to the process. While these might seem as minor improvements, they are almost disruptive innovations in a system that has remained untouched for almost three decades.
Sustainability and public pressure
One of the most unexpected conclusions of the analysis comes from applying CIECODE’s methodology to the investment chapter of the draft version of the EU-US Transatlantic Trade and Investment Partnership (TTIP). Despite the concerns with loss of democracy and the power of big corporations that the TTIP provoked in European and North American societies, none of the 300 IIAs analyzed in CIECODE’s study have shown a more development-friendly approach than the TTIP’s draft. This draft safeguarded states’ policy space to “achieve legitimate policy objectives, such as the protection of public health, safety, environment or consumer protection” and granted that the ISDS would operate under adequate independence, fairness, and openness.
The fact that the TTIP’s draft—being produced under high levels of social awareness and public scrutiny—is the IIA with the most advanced provisions in terms of development-content and transparency highlights the importance of public scrutiny to achieve sustainability outcomes in policymaking.
Meeting the 2030 Agenda
Today, it is no longer enough for investments to create jobs, contribute to economic growth, or generate foreign exchange. The development challenges that lie ahead demand investments that, on top of everything else, are not harmful for the environment, bring social benefits, promote gender equality, and help local companies to move up the global value chain.
If the 2030 Agenda for Sustainable Development is to be taken seriously, the international community must rise to the occasion and fast track the reform of the global investment policy regime in a coherent and ambitious manner. There are evidences, experiences, and best practices ready to be exploited.
Javier Perez is the director of CIECODE, a Spanish research institute working in development and specialized in the analysis of public policies with an impact on sustainable development, social justice and human rights. Economist and jurist, his main area of expertise is international trade policies and its implications for development and human rights. Lately he has lead two innovative projects to monitor and evaluate the Spanish parliamentarian activity from a PCD perspective. Javier worked until 2011 at Oxfam International as Economic Justice Research Coordinator.
Maria Vega is a researcher at CIECODE. She holds a BA in Journalism from Universidad Complutense de Madrid and a MA in International Public Administrations and Politics from Roskilde University. Her main area of expertise is the analysis of migration public policies from a PCD perspective.
Think tanks and international organisations publish a lot of indices that rank countries or institutions by their policies. We ourselves here at CGD we have recently published the fifteenth edition of the Commitment to Development Index (CDI), which ranks 27 rich countries by how their policies affect the lives of people in poorer countries. As we embark on a review of the CDI, here we start by looking other across country-level indices to see if the CDI is still distinct.
Reviewing the CDI
Because we strive to continuously update and improve the methodology, “before the CDI launch is after the CDI launch.” Indeed, the CDI has evolved substantially over since its inception. Still, we think 15 years is a good point to step back and think about its aims and design: the world has changed since we launched the CDI in 2003: the Agenda 2030 and the SDGs replaced the MDGs; emerging countries such as China and several Arab countries have diversified the donor community and global issues such as climate change; gender and migration receive more attention—and rightly so. In the coming months and years we’ll be taking a fundamental look at the CDI, in particular: how it assesses “development;” whether it measures the most important countries; and whether there are new or alternative components and measures we should consider. We look forward to discussing these issues with you further.
As part of our early thinking, we looked at other country-level indices and the CDI’s comparative advantage—but before we look at those, let’s revisit why indices are potentially valuable.
First, why are indices generally are so popular with the public, with policymakers, and with the think tank world?
But indices truly do have distinct advantages, they can:
Formalize and quantify the things they assess
Holistically assess issues, rather selectively picking on a single element
Create a race to the top and engage the media and public
Consistently assess non-market goods—like global public goods (GPGs)
Initiate discussions about what is important, and what can hopefully change
Secondly, what other indices are out there that are similar to the CDI, and what is our competitive advantage?
To answer this we have surveyed our competitor indices. But there are so many indices that we had to restrict our assessment. Given the CDI is a meta index with subindices measuring countries policies on aid, finance, technology, environment, trade, security, and migration, we have decided to focus our survey on those (a meta-meta index if you will).
Below are the main indices that we identified as comparable to the CDI (if you can think of any indices that fit our search criteria and we’ve missed—we’d love to hear from you in the comments section below).
Country-level indices: aims, measures, and coverage
Name of the index
Tagline / aim
Number of indicators
Commitment to Development Index
Ranks 27 of the world’s richest countries on their dedication to policies that benefit people living in poorer nations.
Seven components: aid, finance, technology, environment, trade, security, and migration
27 countries (OECD)
Good country index
To measure what each country on earth contributes to the common good of humanity, and what it takes away, relative to its size.
Science, Technology & Knowledge; Culture; International Peace and Security; World Order; Planet and Climate; Prosperity and Equality; Health and Wellbeing
Social progress index
An aggregate index of a country’s own social and environmental indicators that capture three dimensions of social progress
Basic Human Needs (nutrition, health, etc.), Foundations of Wellbeing (knowledge, environmental quality), Opportunity (rights, tolerance, advanced education, etc).
Sustainable Development Goals index
Provides a report card for country performance on the historic Agenda 2030 and the SDGs. The annual report shows how leaders can deliver on their promise and it urges countries not to lose the momentum for important reforms.
set of indicators for each of the 17 SDGs
77 indicators of which 14 variables are only available for OECD countries
149 of the 193 UN member states
INFORM Index for risk management
To understand and measure the risk of humanitarian crises and disasters within a country, and how the conditions that lead to them affect sustainable development.
Hazard and exposure to natural and human made risks; Vulnerability; Lack of coping capacity
The Good Country Index (GCI) is perhaps closest in terms of its mission in what it is trying to measure: how much countries do for other countries (we published a more detailed blog post of the GCI from a CDI-perspective previously). This is in contrast to the SDG index, the Social Progress Index, and the INFORM index for risk management, that all measure countries based on their own development progress and performance. This point in particular is where the CDI adds value relative to the SDG index.
Rich countries in particular have the duty and the means to contribute to global development.
This explains our focus on relatively few rich countries for which policy improvements seem most tractable given that only some countries governments will be receptive to policy ideas and are inspired to perform well in international comparisons. For instance, after the poor performance of Japan on the CDI in 2006, the Japanese Ministry of Foreign Affairs issued a statement that started a constructive discussion on the methodology of the CDI.
The other thing that jumps out is that, although the CDI covers far fewer countries than the indices above that aim for virtually exclusive coverage, we do have more indicators overall. There is a clear tradeoff between higher country coverage and fewer indicators due to data availability. Even though all else being equal it would of course be ideal to measure every country’s performance, for poorer or smaller countries, data is often scare. The Sustainable Development Index doesn't have complete data for all its indicators, but only managed to have all the indicators for the OECD countries. Limited data availability severely affects how we can track the implementation of the SDGs.
Building on the CDI’s comparative advantage
In conclusion, the CDI is distinct in its focus on policy effort of developed countries' (rather than all countries) and how they affect poorer countries (including through global public goods). This contrasts with indices that assess outcomes, how countries do in terms of their own development, or only how they contribute to global public goods. Even after 15 years, the CDI’s focus is still unique—and highly relevant to the SDGs. However, the increasing importance of other development actors like China, the changing nature of development, and better data availability on global issues will lead us to review its structure over the next couple of years. We will keep you posted on our next steps and appreciate you sharing any of your ideas.
Germans have given Chancellor Angela Merkel a fourth term as chancellor, but once again without a parliamentary majority. It seems likely that Merkel will now try to negotiate a black-green-yellow “Jamaica coalition” (referring to the parties’ colors) with the Greens and the pro-business Liberals replacing the Social Democrats as coalition partners. Despite the gain in vote for nationalists, our analysis suggests the Jamaica coalition could actually strengthen Germany’s role in accelerating global development, as well as benefitting Germany.
In this blog, we look at the what the Jamaica coalition means using the framework of our Commitment to Development Index—which ranks rich countries on aid, migration, technology, environment, trade, finance, and security.
Germany’s starting point on Commitment to Development
Overall, Germany ranked fifth (out of 27 countries that we assess) and first on migration, largely because it has accepted so many refugees in recent years. We counted migrants as “1” when they came from the poorest country (Democratic Republic of Congo) and “0” when coming from the richest country (Norway). This method quantified that Germany lifted the equivalent of “880,000 poverty weighted migrants” out of extreme poverty last year! But a ratio of one new migrant for every 92 Germans, contributed to the rise of the far right nationalists (AfD) who have become the third largest party in parliament. Regardless of the election results, mounting public pressure will reduce migration. But a poll of economists thinks the Jamaica coalition is actually more migration-friendly than a continuation of the previous grand coalition would have been.
On aid, Germany met the international commitment of 0.7 percent of national income (GNI) on aid (overseas development assistance) for the first time in 2016. This included high expenditure on hosting refugees—but to maintain 0.7 when fewer refugees arrive, overseas development assistance would have to ramp up quickly.
On environmental policies, high emissions per capita mean Germany might not meet the Paris agreement commitment to reduce emissions by 40 percent by 2020. The global poor will suffer the consequences: climate change might push 100 million people back into poverty by 2030. This is partly due to Germany’s poor policy choices, like burning and subsidising fossil fuels. Both the Greens and Liberals want to phase out these subsidies.
On technology more widely, there has been an increase in overall R&D spending to 0.88 per cent of GDP, but this is still lower than in many other countries. Spending more to create new technologies like mobile phones or biometric IDs can transform development and is a perfect example of investing in global public goods. All major parties want to increase R&D spending to 3.5 per cent of GDP by 2025—a “Jamaica coalition” will not change anything significantly here but this is a positive direction for development.
Germany’s trade policies have a significant impact on developing countries. Free trade agreements such as the EU’s “everything but arms” initiative give poor countries tariff-free access and have the potential to dramatically reduce poverty. For instance, a recent natural experiment suggests trade deals such as these can lower infant mortality by about 9 per cent.
On security policy, Germany has been criticized by the US for failing to spend 2 per cent of GDP on defence. This figure includes spending on UN peacekeeping, for which Germany spends only 0.03 per cent of GDP—less than the OECD average, and this at a time when the UN peacekeeping budget is facing deep cuts. This is a matter of real concern because security and development are closely interlinked—for instance, one study suggests that civil wars decrease GDP per capita by 17.5 percent. Merkel’s conservatives want to double defence spending to reach 2 percent of GDP by 2024. The Liberals also want to increase defence spending, unlike the Greens, who want to specifically focus on increasing support for UN peacekeeping.
Overall then, taking the policy commitments of the Liberals and Greens and adding them to Merkel’s conservative bloc in a “Jamaica coalition” could bode well both for Germany, and development beyond aid.
How well do your country's policies make a positive difference for people in developing nations? That’s the question CGD seeks to answer each year in our Commitment to Development Index (CDI). It’s a ranking of 27 of the world’s richest nations based on seven policy areas: aid, finance, technology, environment, trade, security, and migration.
The team behind the CDI, deputy director of CGD Europe Ian Mitchell and policy analyst Anita Käppeli, join me this week on the CGD podcast to discuss why these rankings matter and how countries stack up.
In first place this year is Denmark, followed by Sweden, Finland, France, and Germany. Greece, Japan, and South Korea rank at the bottom—though South Korea actually ranks first on the technology component.
Among the countries in the middle are the UK, tying with the Netherlands for 7th place, and the US, all the way down at 23rd. In the future, how might these scores be impacted by the changing politics of the two nations?
“On Brexit, there’s real potential for this to affect the CDI score,” Mitchell tells me in the podcast. “The UK will take control of its own migration policy more fully and it will have its own trade policy and it will take control of agricultural policy form the EU. All of those things feature in the Commitment to Development Index.”
As for the the Trump Administration’s America-first approach, Mitchell says, “It’s surely in the interest of countries to see other countries developing to reduce the security risk, to make sure there’s lower risk of disease emerging . . . and the CDI is a framework for prioritizing action on that.”
Overall, Käppeli tells me, the CDI is a reminder to countries that “policy coherence is an issue; that they should not pursue policies in [only] one field—for instance, give a lot of aid, but then close the boarders for products from developing countries.”
“The CDI is holistic,” Mitchell adds, pointing out that the CDI’s focus on policy is “complementary” to the Sustainable Development Goals’ focus on outcomes: “If you think about how we’re going to achieve the SDGs, then looking at the CDI [is] a great way to do that.”
Today, we published this year’s Commitment to Development Index (CDI), which ranks 27 of the world’s richest countries in how well their policies help to spread global prosperity to the developing world.
We will be presenting the Index and our recommendations at the high-level period of the UN General Assembly (UNGA) later this month. As political leaders prepare to meet for UNGA, here are some key takeaways from our research that should help guide their policies and discussions.
1. Leadership on global development isn’t only for the richest!
The CDI analyzes the policies of 27 of the world’s richest countries in seven key areas: aid, finance, technology, environment, trade, security, and migration. The indicators adjust for size and economic prosperity—and the results demonstrate that country wealth does not determine the results. The wealthiest countries—represented by the G7—rank anywhere between fourth and twenty-sixth. Income per person averages half that of the United States in Visegrád countries (Czech Republic, Hungary, Poland, and the Slovak Republic), but all four now rank higher in their commitment to development. Portugal, who ranks sixth, performs well in most components despite being less prosperous than many of the CDI countries. Smart policy design is not a matter of prosperity only. Therefore, our first key message to all the leaders of the 27 CDI-countries:
Domestic economic challenges needn’t prevent leadership on smart policies to increase global prosperity.
2. Development is about much more than aid
The CDI draws attention to the fact that global development is about so much more than the amount or quality of foreign development assistance provided. Policymaking in various policy fields directly affect the lives of poor people around the globe.
For example, the design of our policies on technology or finance affect the prospect for people living in poorer countries. Both research and development policies and investment policies are mainly pursued for domestic goals. However, they have a lasting effect on developing countries. Smart intellectual property rights can enable knowledge sharing and technology transfer. Also, bilateral investment agreements with developing countries recognising specific public policy goals such as labour rights, environmental standards, or human rights can have an important effect on the prospect for development.
The commitment to implementing balanced and sustainable policies domestically also sends a strong signal about their importance globally and irrespective of countries borders. Money spent on foreign development assistance does not have the same lasting effect if countries don’t recognise the international impact of their actions in other policy areas. Therefore:
In our integrated world, your policies and decisions as a leader of a rich country have an important bearing on the lives of people in developing nations.
3. Even the bottom-ranked country has smart policies we all can learn from
Like the Sustainable Development Goals (SDGs), the CDI recognizes development has many angles. But while the SDGs cover all nations and their outcomes, the CDI concentrates on the richest countries and emphasizes how policies can make a huge difference to development globally. The fact that we limit our evaluation to high income countries means that policy recommendations are more tailored and relevant. Even the best-ranked countries have weaknesses where they can learn from their peers. Overall leader Denmark performs weaker on migration and could learn from the migration policy designs from countries as varied as Luxembourg, New Zealand, or neighbouring Sweden. Similarly, bottom-ranked South Korea could advise all other 26 CDI countries on how to build long-lasting support for research and development. Accordingly:
Use the CDI as a tool to learn from others and to inspire change through your own best-practice policies.
4. Some overall progress on the Environment component but stronger commitments are needed
Tragically, Hurricane Harvey has reminded the United States how vulnerable we all are when natural disasters hit. Further, people in South Asia were left suffering after massive flooding and devastation affected millions, while earlier this year we saw how the unprecedented drought in Africa affected the lives of millions facing malnutrition. These tragic events, sadly far from unique, remind us that we all need to do more to combat climate change.
This year’s CDI points out that progress has been made—CDI countries report progress in curbing new greenhouse gas emissions and the amount of Ozone-depleting substances has been cut significantly. However, many environmental challenges remain. We need to see an even bigger commitment to development from the CDI countries in the future, such as a complete support for the Paris Agreement and the willingness to tackle issues such as overfishing and deforestation. Thus, our final recommendation:
While progress has been made, many global challenges remain. We ask this generation of world leaders to strengthen and deepen their commitment to development.
These findings show that we and our governments can do so much more to spread prosperity to poorer countries. The CDI serves as a useful tool to identify which national policies still have potential to be designed in a more development friendly way. We hope world leaders use the opportunity of UNGA to discuss ways to make further progress in all policy fields, inspiring each other to achieve more on global development.
On September 5, we launched the results of the 2017 Commitment to Development Index (CDI), which scores 27 countries on how development-friendly their policies are. This year, we include two new indicators assessing how rich-country “tariffs” (taxes on imports) and “subsidies” (payments to domestic producers) inhibit development. But which is more damaging, and therefore deserves a greater weight in the Index?
Using the approach embedded in previous CDI calculations, we calculate that tariffs may be over three times as damaging as agricultural subsidies in inhibiting developing country trade. Below, we look at how tariffs and subsidy inhibit development, and assess their respective impact.
How do rich-county trade and agriculture policy matter to development?
Trade is just one of seven components in the CDI, but it’s a crucial one: no country has prospered without strong trade relationships. However, rich countries often protect their markets with tariffs on imports, or support their industries with subsidies—in either case, it is harder for developing country producers to sell to those markets. Alongside measures on impediments to imports and openness to services trade, the CDI attempts to capture the effect of this “market protection” on developing countries.
This year we’ve decided to assess agricultural subsidies separately so their policy impact is clearer. In previous CDIs, agricultural subsidies were converted into their tariff equivalent, and then added to tariffs to produce a measure of overall “market protection.” In order to separate tariffs and subsidies we need to assign respective weights in the index. In other words, do tariffs or agricultural subsidies inhibit trade more?
Below we look at each in turn.
What trade tariffs do developing countries face?
Assessing tariffs is a major analytical task. There are some 5,300 different product categories and tariffs differ between them and bilaterally across country partners. Many tariff assessments are flawed due to what has become known as the “endogeneity problem”: they understate the distortive effect because there is little trade in products with high tariffs (leading them to be underweighted). David Roodman, the creator of the CDI, developed a method that overcame this—weighting tariffs by production, instead of trade volumes. The data for this method is not available past 2007—but the “Roodman” effective applied tariff on developing country trade was estimated around 7.7 percent across CDI countries (this includes tariffs on agricultural products which averaged 28 percent). Even though many rich countries grant reductions in tariffs for developing countries (“preferences”), this estimate is only just below the global average trade tariff which applies outside of trade deals of 9 percent in 2013 (i.e., the applied tariff for the “most favoured nation”).
So, in previous years across the 27 CDI countries, the effective tariff using Roodman’s method, and weighted across all sectors, averaged just under 8 percent.
How distortive are agricultural subsidies?
Agricultural subsidies increase domestic output, lower prices and reduce imports. This creates an uneven playing field in a sector that’s a large part of developing economies.
Agricultural subsidies are usually expressed as a proportion of production. Some subsidies are more more damaging than others (for example, the EU’s “decoupled” subsidies are less distortionary as they are not directly dependent on production levels) but the overall subsidy rate, as proportion of agricultural output using OECD data, is now around 13 percent for CDI countries.
Previous editions of the CDI drew on Cline (2002) to convert subsidy levels into tariff-equivalents. Higher subsidies increase domestic output, lower prices and reduce imports. Cline’s model also suggests the impact is higher for a given level of subsidy if a country’s imports were small relative to its domestic production (this is an arithmetic point—a given proportional increase in domestic production from subsidy would have a higher impact on imports when they were a low proportion). So, these variables also fed into the CDI tariff-equivalent estimates for each country, visible in table 6 of Roodman (2013).
Using Cline’s approach, the average tariff-equivalent of agricultural subsidies was between 10 percent and 15 percent in the relevant years in the CDI. However, this estimate only applied to the agriculture sector—which accounts for roughly a sixth of developing economies. So, averaging the effect over an entire economy implies they’d be equivalent to a tariff on all sectors of perhaps 2 percent.
Tariffs appear more distortionary than subsidies
Based on the Roodmand and Cline methods above, effective tariff levels were just under 8 percent and the (whole-economy) tariff-equivalent of agricultural subsidies were roughly 2 percent. This suggests tariffs were more than three times as distortionary as agricultural subsidies in CDI countries.
The new trade tariff and agriculture subsidy indicators in the CDI trade component will therefore be weighted to reflect these respective impacts. These weights will be kept under review in the light of new research or new data on tariffs and subsidies (alas neither have moved transformatively in the last decade).
CDI 2017 and next steps
The updated CDI will use the latest data on agricultural subsidies, and newer “average applied tariff” data from MacMap (which correlates strongly with Roodman’s measure). These scores will help rank countries on trade, as well as on their overall commitment to development. We'll also be making the spreadsheets behind the CDI full calculations available for the first time.
Of course, this is far from the final word on measuring the developmental impact of subsidies and tariffs. On tariffs in particular, we hope to bring in a poverty-weighting—where tariffs against trade partners count more where income per head is lowest. Comments and suggestions on our current and future approach are very welcome.
Note: This post was updated to reflect that the CDI results are now available online.
Each year, CGD’s Commitment to Development Index (CDI) rates 27 of the world‘s richest countries on their commitment to sustainable and fair policies towards poorer countries. In 2016, Finland topped the table, with the highest Index score, while Germany, this year’s G20 chair and the third largest economy that the CDI measures lies barely above the middle of the table (the larger economies, Japan and the US, rank even lower). This blog, translated and adapted from a version written for German think tank DIE, looks at why Germany’s performance is only mediocre, why the Finns do so much better, and how Germany’s policies could become more coherent, sustainable and fair.
Like the Sustainable Development Goals (SDGs), the CDI assesses several different policy fields. The CDI project team evaluates institutional commitments, policies and actual outcomes of public actions not only in aid, but also in security, environment, finance, trade, migration and technology.
Learning from the Nordics
In the latest edition of the CDI, Germany is only mid-table (position 15 out of 27). A Nordic trio leads the CDI 2016: the leader in sustainable and development friendly policies is Finland, followed by Denmark and Sweden. France ranks 4th and Portugal completes the top 5. However, with the CDI, the Center for Global Development is not pointing the finger at certain states nor intending to name and shame. Rather, we want to encourage discussions and enable mutual learning. Below, based on two distinct policy fields, we look at where Germany could learn from leader Finland but also where Finnish policy makers get inspiration from their German counterparts. The following two graphs illustrate where Germany and Finland have relative deficits and strengths.
The graphs above illustrate Germany and Finland’s respective performance in each policy field (coloured bars) as well as overall (black bar). The stars show us the leader in each policy field and how much potential for better policies in comparison to the leaders still exists (space between the bars and the stars).
Germany’s comparatively weakest policy fields are finance (position 25 out of 27) and security (22 out of 27). Its strongest performance is in migration (6th of 27) and environment (9th of 27).
Germany’s dual-natured openness: migration vs. finance
Not surprisingly, Germany’s humanitarian migration policy could inspire many other CDI-states, such as overall leader Finland, which has its weakest performance in migration (rank 16). Germany’s openness to migrants has attracted new interest, especially since the summer of 2015 in relation to the vast inflow of people from the Middle East and North Africa. However, our data for the composition of the CDI 2016 placing Germany sixth in migration originates from 2014 and does not yet reflect that period.
Germany also deserves praise for the design of its integration policies as reflected by the MIPEX Index. This Index, which is included in the CDI migration component, scores the rights of migrants in each of the CDI states in eight different policy areas and is a good proxy for how states promote the integration of migrants. Although Germany’s integration policies are not the friendliest overall (Sweden and Portugal are top) they improved significantly, whereas in many other European states policies have become less accommodating.
As illustrated by the length of the orange bar, Germany receives a relatively low score for its financial policies. Its position in the finance component (position 25—only Ireland and Switzerland have financial policies which are even less development-friendly) is mainly due to the design of policies aimed at the financial sector. In the CDI, we measure the finance component in two equally weighted subcomponents; the transparency of the financial sector and the strength of the international investment policies of each country.
The first subcomponent (financial transparency) reflects the results of the Financial Secrecy Index (FSI) of the independent organisation «Tax Justice Network». Their verdict is mixed: the current design of German financial policies enables and facilitates illegal financial transactions. Despite recent progress in new commitments to international anti-money laundering frameworks and obligations, the German financial sector is still too open to illicit financial flows, un-transparent financial and secrecy instruments.
On the second subcomponent, the German government could enhance its standing by making its international investment agreements (IIA) with developing countries more well-rounded. In this area, Germany could learn a lot from CDI-leader Finland which has the most development-friendly finance policies. Investment agreements with developing countries should go beyond safeguarding the interests of investors from unjustified interventions by foreign states as, in most cases, investment agreements with poorer countries contain an inherent power imbalance. In the CDI, we therefore reward countries such as Finland whose IIAs strengthen poorer states’ public policies like labour and environment standards.
Finland demonstrates that it is possible to conclude equally profitable, lucrative and at the same time sustainable investment agreements that incorporate the interests of both parties and societies. Promoting compliance with environment standards and employment rights abroad generates not only a sustainable social and economic benefit in developing countries.
The CDI: a valuable tool to highlight mutual benefits of sustainable development
The example of the fair and, at the same time, profitable Finnish investment policy demonstrates that thorough and development-friendly policy-making can support and benefit us all: when poor countries move up the global value chain in the longer term, this will also benefit us by smoothing access to new consumers for our products and services, and protect the global environment. In addition, with so much scepticism in developed countries over the value of globalisation, the example of investment agreements shows how—by using the principle of sustainable development—the benefits of global prosperity can be shared between rich and poor alike. We need to get better at highlighting the sustainability of global and fair policies for the good of us all.
These mutual benefits are at the heart of sustainable development—and, as with the SDGs, Germany and other countries can use the Commitment to Development Index to understand opportunities in a coherent framework.