RSS feeds from globalization research centers

We Can’t Undo Globalization, But Can Improve It

RSS Source: YaleGlobal - January 10, 2017 - 2:28pm
Job hunters should relocate, and companies could expand export capability

Globalization Has Done a Lot of Great Things for Americans

RSS Source: YaleGlobal - January 4, 2017 - 12:52pm
Benefits include innovation and low prices

How to Cure the Globalization Backlash

RSS Source: YaleGlobal - December 22, 2016 - 11:15am
The developed world has lost its confidence

Development blog: Call for Papers: 8th International Conference on Migration and Development

I’m delighted to be helping organize again, for 2015, the world’s premier research conference on the economics of migration and development. Full-paper submissions are due January 20, at migdevconference@cgdev.org.

I’ve gushed before about the uncommon rigor and innovation in the papers at this highly selective conference, year after year. The people who come are simply the best in the field. The conference is part of a historic shift in how development researchers think about migration and vice versa. Human mobility shapes, and is shaped by, the development process in ways that scholars are only beginning to understand.

This year we’ll have keynote speeches from two stars, Dani Rodrik of the Institute for Advanced Study and Ran Abramitzky from Stanford University. The papers selected for presentation will be considered for a special issue of the World Bank Economic Review.  As in previous years, the heavy lifting is being done by our collaborators at the Paris School of Economics, the Agence Française de Développement, and the World Bank—to all of whom we’re very grateful.

Click below to enlarge the full conference announcement:

Authors: Michael Clemens View Profile

Development blog: Four Futures for International Tax Rules

Consensus on the reform of international tax rules may be splintering under the combined pressures of post-crisis austerity and revelations about cut-throat tax ‘competition’ (see my discussion on this here). In light of this, I sketch out four possible directions for international rules and one major trend common to all, and then assess the likely implications for developing countries.

1. Staying the BEPS course

The Base Erosion and Profit Shifting initiative (BEPS), led by the OECD at the behest of the G-8 and G-20 countries, aims to create better alignment between multinational profits and the location of their actual economic activity. The OECD’s remit, set out in a detailed action plan, is to deliver progress in a set of largely discrete areas to make the current system function better.

The BEPS approach rests on a commitment to “arm’s length pricing” (ALP) for transactions among members of the same multinational group, which is intended to give rise in turn to the real (market-equivalent) distribution of profit across the group. Setting aside whether this is an economically sensible way of looking at a group of related parties with common control, the approach simply may not be consistent with the aim – there is no evidence to suggest that ALP, if effective, would necessarily align profit with economic activity.

The UK’s proposed ‘diverted profits tax’ embodies the challenge for BEPS. Despite playing an important role in bringing BEPS into being, the UK government’s frustration with the inability of ALP to deliver politically acceptable taxation of major multinationals has led it to take a quite different tack: in effect, to require explicitly some degree of alignment of profits and activity (sales).

Will leading states maintain their commitment to the OECD approach? The answer may depend on a return to stronger economic performance, and the easing of broader fiscal pressure. Continuing anaemic growth may lead to continuing political pressure and proliferation of work-around measures like the Google tax that cut across the ALP by requiring some alignment of profits and activity. 

2. A bigger fix for BEPS

A more consensual future for BEPS can also be envisaged (hat tip to a necessarily anonymous official at a major ministry of finance), involving a rather broader fix but maintaining the fundamental nature of the current system.

This would involve countries signing up to three basic principles, which it has been suggested could eliminate 90 percent of the BEPS problem in one stroke:

  • A common tax base (so there is no incentive for arbitrage on the base)
  • Minimum tax rates (limiting, though not eliminating, the incentive for arbitrage on rates)
  • Elimination of preferential regimes (such as the patent box)

This would require a substantial shift in perceptions of the problem. Since some policymakers see this type of harmonization as a threat to sovereignty, progress seems likely only if such a view is eclipsed by the perception of tax ‘competition’ as the greater threat.

3. Unitary tax revolution

The most dramatic change conceivable would involve broad agreement to adopt the major alternative to the ALP, which is unitary taxation with formulary apportionment. In other words, the new approach would take the multinational group as the unit for taxation purposes, rather than individual companies within it, and apply a formula based on the location of economic activity to apportion the group’s tax base between different jurisdictions, where each may apply whatever level of tax they choose.

Given this approach is explicitly designed to align profits with economic activity, progress towards the agreed aim of the BEPS initiative is highly likely, and would benefit lower-income countries. While pressure for lower rates might build over time, the increase in tax sovereignty – the ability to make policy changes that matter – would remain.

However, political opposition has hindered the prospect of a global agreement to rip up the rules and start afresh. EU attempts to move towards an apportionment basis under the Common Consolidated Corporate Tax Base project appear stalled, and major powers like the US (despite its largely positive experience using unitary taxation among its own states), and the vast bulk of the multinational and accounting sectors continue to oppose, rendering a revolution unlikely in the medium term at least. 

4. Unitary tax evolution

A more likely scenario is one where the current system evolves gradually towards something more consistent with unitary taxation (UT). There are two main, complementary channels through which this could occur.

First, continuing dissatisfaction with the ALP – and the sense that developing countries’ concerns are not well reflected in BEPS – may give rise to a breakaway. Developing countries will soon be able to examine country-by-country reporting from multinationals operating in their jurisdiction, which will highlight the misalignment between the shares of activity hosted and shares of profits declared.

A single developing country or a regional grouping could reach a tipping point and decide to switch unilaterally to taking as tax base some formulary apportionment of the global profit. The demonstration effect could be powerful and drive others to follow suit.

The second channel is even more gradual. It involves the ongoing growth in the diversity of methods allowed under OECD rules and the use of methods that include some profit attribution on the basis of activity, as distinct from any ALP or other pricing decision.

Between the two channels, the world seems likely – ceteris paribus – to move at least a little further in this direction over time. Again, this scenario would offer the possibility of greater tax sovereignty for many developing countries.

Development prospects and a common trend

Lower-income countries obtain, on average, much smaller shares of GDP in corporate tax revenue. In no small part this is due to a combination of limits to states’ technical capacity and negotiating power with large multinationals, and to the incentives that the international system provides for profit-shifting. As such, the four futures can be considered in terms of their likely impact on these two factors. 

Source (columns A and B): McNabb & LeMay-Boucher, 2014; data from ICTD Government Revenue Dataset.

The BEPS course (future 1) address specific weaknesses in the rules, which may reduce profit-shifting incentives somewhat, but at a broader level will do little to diminish the complexity of rules that make technical capacity such a constraint. The ‘bigger fix’ (2) offers the possibility of greatly reduced incentives for multinationals, and so could have an appreciable benefit.

The unitary revolution (3) could change the power dynamic for lower-income countries entirely, both in relation to multinationals but also vis-à-vis higher-income countries – but partly for this reason is an implausible scenario. Evolutionary steps towards UT (4), however, seem likely, and have the potential to sharply reduce the importance of capacity constraints and to change the balance of negotiating power also.

In fact, the common trend in all four futures is in this direction. The presence of country-by-country reporting information, now established as OECD standard, provides a simple risk mechanism by allowing a check on the profit misalignment of each taxpayer. Any tax authority requiring this information from multinationals will be in a position, regardless of the range of possible outcomes under ALP (or directly under UT), to set effective limits on the extent of profit misalignment that they are willing to accept. This has the potential to change the relative negotiating power of even the least well-resourced tax authorities.

Publishing the data would provide a powerful accountability mechanism for both multinationals and tax authorities, in respect of each other and for civil society; but even held privately, this is information that can support substantial change. Not all transparency is equal; in this particular case, information is indeed power.

Authors: Alex Cobham View Profile

Development blog: #Luxleaks: The Reality of Tax ‘Competition’

Aside from lurid revelations about individual companies and the big four accounting firms, the leaks of multinationals’ tax deals with Luxembourg confirm­—and expose to a wider audience­—the true nature of the tax ‘competition’ that prevents the emergence of effective international rules.

#Luxleaks

The International Consortium of Investigative Journalists published the second tranche of leaked files, showing tax agreements the big four accounting firms reached, on behalf of their clients, with Luxembourg. The general pattern is of establishing internal corporate finance companies in Luxembourg and using these to shift in billions of dollars of profits earned elsewhere, after obtaining confidential rulings from officials that ensure a very low effective tax rate — in many cases less than one percent.

The ICIJ’s reporting and detailed analysis of documents on individual companies from Disney to IKEA is outstanding. It clearly shows a systematic pattern of behaviour in Luxembourg, and adds to a range of other evidence suggesting the pattern is systematic across multiple jurisdictions. 

Widespread tax base poaching

Several recent examples show other countries doing deals knowingly to shift in, and not (fully) tax, profits that arose elsewhere. The European Commission has initiated proceedings against Ireland for allegedly providing “State Aid” to Apple since the 1990s through unjustifiably beneficial tax treatment. This had effectively capped the level of profit Ireland would recognize as tax base, leaving untouched the vast majority of profit shifted in. Meanwhile, a more formalized version of this approach dating back 10 years, Belgium’s system of ‘excess profits rulings’, has also come under scrutiny.

In all three cases­—Luxembourg, Ireland, and Belgium—the pattern is consistent. Companies, through their big four accounting firm advisers, have obtained advance agreement not to tax profits that arise, but are not taxed, elsewhere.

A less blatant but increasingly common instrument is the patent box, or knowledge box, which provides a very low tax rate in relation to R&D. There are already generous tax breaks for R&D in most countries. A patent box can, controversially, allow one country to capture the tax base associated with the R&D that was supported by taxpayers in another.  

Such tax incentives for intellectual property exist in Belgium, Cyprus, France, Hungary, Ireland, Luxembourg, Netherlands, and Spain.  In addition, the UK, which had introduced the measure from 2013, recently bowed to German pressure to phase it out (albeit not fully until 2021). The decision came after initially resisting, along with Luxembourg, Netherlands, and Spain, the suggestion that the tax break should only apply to R&D actually carried out in the country offering the patent box.

Google tax

Less than a month after its compromise over the patent box tax break, the UK government proposed a measure designed to protect its own tax base against similar poaching. The ‘diverted profits tax’ (DPT), now subject to public consultation, seeks to ensure profit arising from sales in the UK do not escape taxation by claiming to have no permanent establishment in the UK, nor through ‘certain arrangements which lack economic substance’. Perhaps unsurprisingly, given criticism of the apparent disconnect between Google’s UK profitability and tax payments, media are calling the measure the ‘Google tax’.

The expected revenue impact is small. Despite a marginally penal rate of 25 percent (compared to a standard 21 percent), the forecast is to raise around £1.3 billion over five years. The highest forecast annual take of £350 million implies a base of £1.4 billion of ‘diverted’ profits, which is equivalent to just 1.4 percent of the most recent quarterly UK corporate profits. (The basis for these estimates has not been published.)

The change of direction may nonetheless be important. During his announcement of the DPT, UK Chancellor George Osborne stressed “the government’s commitment to an internationally competitive tax system.” However, the DPT reflects an understanding that, too often, countries are competing not to attract real economic activity but only the taxable profit that arises from activity taking place in another jurisdiction.

The tension between playing this game, while trying to limit the counter-success of others, in large part explains the failure to develop more effective international rules – and hence the tilting of benefits towards multinationals rather than to (especially lower-income) states. Still, pressure is growing, and the eventual direction of travel will have important implications for developing countries. A companion post explores future scenarios for international tax rules, and the implications for developing countries.

Authors: Alex Cobham View Profile

Development blog: 12 Reasons for Climate Optimism This Holiday Season

It’s easy to feel down about climate change.  The annual pace of emissions of greenhouse gas to the atmosphere reached an all-time high in 2014. The concentration of carbon dioxide in the atmosphere spent more than a month above 400 parts per million for the first time in 800,000 years. And global temperature will likely be the hottest in recorded history.  Research published in May shows a slow but unstoppable melting of the Greenland and West Antarctic ice sheets. Business as usual puts the planet on a path to warm by  4 °C (7.6 °F) by the end of the century, with consequences that are awful for the rich and catastrophic for the poor

Furthermore our global response to climate change remains woefully inadequate.  All signs from last week’s United Nations climate conference in Lima indicate that international climate actions fall far short of what’s needed to avoid a dangerous temperature rise of 2 °C (3.8 °F). An already weak international process of “pledge and review” (in which countries’ pledges of climate actions would be formally reviewed by other countries) was watered down even further to effectively just “pledge.”  And the $10B committed by rich countries to the Green Climate Fund so far amounts to less than what rich countries spend on fossil fuel exploration in just six weeks.

So why, in spite of everything, have events in 2014 made me more optimistic than ever about the prospects for a safe and stable climate?  With apologies to the popular Christmas song Twelve Days of Christmas, let me count the ways…

Twelve states-a-pricing

The gold standard for climate policy is a global economy-wide price on carbon pollution.  That is, either a cap-and-trade system, or its twin solution, a carbon tax. Without an economy-wide price on carbon, efforts to reduce emissions will be needlessly low for some countries, industries, companies, and people, and needlessly expensive for others.  While a global carbon price remains in the cocoon, there is now a price on carbon pollution in twelve US states and Canadian provinces:

  • Nine northeastern states in the Regional Greenhouse Gas Initiative (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont)
  • California, which is deliberating how to include REDD+ offsets in its cap-and-trade program
  • Quebec – which jointly auctioned carbon pollution permits with California earlier this month
  • British Columbia, which has had a revenue-neutral carbon tax since 2008

Governor Jay Inslee is expected to unveil plans this week to make Washington state lucky number 13.  

Carbon pricing is catching on around the world, from Chile to Mexico to Korea.  China has announced plans to have the world’s largest carbon market in 2016, eclipsing the European Union’s Emission Trading Scheme.

Eleven years of slowing (Amazon deforestation)

More than 10 percent of greenhouse gas emissions come from net forest loss, and up to 24-30 percent of potential mitigation can be achieved by halting and reversing tropical deforestation.  One of climate’s biggest success stories in the last decade has taken place in Brazil, which has cut greenhouse gas emissions more than any country on earth by slowing deforestation.  In the nine years from 2004-2012, Brazil slowed the pace of Amazon deforestation by 75 percent while increasing cattle production by 25 percent and soy production by 65 percent.  Brazil-watchers had been worried by an uptick of deforestation in the tenth year, 2013. But deforestation slowed again in the eleventh year, 2014, which may indicate that deforestation rates have stabilized. 

Hopeful signs are emerging from Guyana as well, where the deforestation rate fell by 14 percent in 2014 after several years of growth—a success the government has attributed to the spotlight shined by the monitoring of a pay-for-performance agreement with Norway on the deforestation activities of the informal mining sector.

Ten years-a-waiting

According to a scientific paper by Katherine Ricke and Ken Caldeira published in December, carbon pollution in the atmosphere reaches its peak warming potential after just ten years, as opposed to 40-100 years as previously thought. This means that the damaging effects of climate change will be felt much sooner than previously realized.  That’s bad.  So why do earlier damages make me optimistic?  Because part of what makes climate change such a “wicked problem” is the long lag time between actions and consequences.  This new research dramatically shortens that lag. 70 years is within our children’s or grandchildren’s lifetime; ten years is within our own lifetime. More importantly, ten years is within a single political lifetime.  A senator who votes on climate change today will see the benefits of action in her next term.

Nine-in-ten agreeing

The World Value Survey asked nationally representative samples of people from 44 countries how serious a problem they considered climate change.  Nine in ten (89%) responded “very serious” or “somewhat serious.”  This near-unanimous agreement transcended rich and poor.  Even in the United States, where a well-funded disinformation campaign has worked for years to sow doubts about climate change, the number of Americans who respond that climate change is occurring and is human-caused is on the rise.

Eight religious leaders proclaiming

What would the holiday season be without the Pope?  Pope Francis has exercised inspiring moral leadership on the environment.  He has implored political leaders to “take good care of creation” and is said to be preparing an encyclical on climate change. Last week he urged delegates at Lima to work together to find solutions, and he reportedly plans to convene fellow religious leaders on climate ahead of the 2015 climate meeting in Paris.  Imagine the moral force that could be invoked by a joint climate proclamation by leaders of eight world religions.

Seven pay-for-performance agreements

One of the most promising ways to reduce tropical deforestation is through pay-for-performance agreements, in which rich countries pay tropical forest countries for measured and verified performance, funded by public budgets or carbon market offsets.  Pay-for-performance agreements have been in place in Brazil ($1B) since 2008, in Guyana ($250M) since 2009, and Indonesia ($1B) since 2010. 

The latter months of 2014 have seen the ranks of pay-for-performance agreements expand to seven countries, with the recent addition of Peru ($300M), Liberia ($150M), Colombia ($65M), and Ecuador ($65M).  And the donor pool has expanded as well, to include Germany in addition to Norway.  More pay-for-performance agreements increase the “n” from which we can learn how to successfully reduce emissions from deforestation.   It’s important for these agreements to be diverse as well as numerous, which is why I’m looking forward to programs under the Carbon Fund, BioCarbon Fund, California’s Cap-and-Trade System, and Japan’s Joint Crediting Mechanism.  

Six reference levels

The linchpin of any pay-for-performance agreement is the reference level—the benchmark of emissions relative to which reductions are calculated and payments are made.  A reference level is not just a technical calculation; it has financial, environmental, and political implications.  Six forest countries have now officially put forward reference levels to the United Nations. Brazil in June, joined by Colombia, Guyana, Indonesia, Malaysia, and Mexico in December.  Together these countries comprise 38% of tropical forest area and 53% of tropical deforestation. The gauntlet has now been thrown to rich countries to pay for the resulting emission reductions.  Peter Graham of the World Wildlife Fund notes, “This now represents a challenge to donor nations and financial institutions to take full advantage of this opportunity for significant mitigation in the pre-2020 timeframe.”

Five-cent solar

In March of 2014 the City of Austin signed a 25-year agreement to purchase power from two West Texas solar plants for just 5 cents per kilowatt hour—the lowest solar price ever.  The long-falling cost of solar energy has finally become cheaper than average electric prices in 10 states, according to Deutschebank, and by 2016 will be cheaper in 47 states (and in 36 states without tax credits).  Cheap renewable energy fundamentally changes the economic calculus of climate action, turning fossil fuel divestment and anti-pipeline campaigns from righteous sacrifices to shrewd bets.

2014 was also the year that the Intergovernmental Panel on Climate Change put forward a “carbon budget” of how much fossil carbon can still be burnt while avoiding dangerous climate change  (about one trillion tons, implying that 80% of known fossil fuel reserves would need to be left in the ground).   And in one of the few bright spots of the recent Lima climate negotiations, climate negotiators inserted placeholder language in the draft negotiating text aiming for the first time for a total international phase-out of fossil fuels by 2050. 

Four satellites flying

Forest monitoring technology has enabled advances in many aspects of humanity’s response to global climate change, from science, to international negotiations, to national policies, to performance-based finance partnerships.  The recent quantum leap forward in forest monitoring technology means that capacity to monitor forests is no longer the barrier to international finance for forests and climate that it was in the 1990s when the Kyoto Protocol was negotiated.  Four of the most important technologies for monitoring the world’s forests include

  • Landsat, thanks to which anyone with a computer can freely download a global map showing areas of forest losses and gains the size of a baseball diamond every year from 2000 to 2012.
  • Modis, which enables bi-weekly alerts of where deforestation is happening, allowing authorities to match illegal clearing to specific landholdings and to enforce forest laws
  • The Orbiting Carbon Observatory (OCO), launched in early 2014, which measures greenhouse gas concentrations in the atmosphere and enables independent assessment of terrestrial fluxes of carbon to and from the atmosphere
  • Lidar, which will be mounted on the International Space Station in 2018, letting scientists directly monitor losses and gains in forest carbon stocks at a resolution smaller than a baseball diamond
Three hundred thousand marching

September 2014 saw more than 300,000 people take to the streets of New York City to march for a safe and stable climate ahead of the United Nations General Assembly.  People power fueled many of the great social movements of recent history, from civil rights to peace to the fall of apartheid.  Now it may be doing so for climate.  The same week saw:

  • more than twenty-five countries commit to halve deforestation by 2020 and strive to end it by 2030;
  • dozens of major players in the palm oil, soy, paper, and beef industries commit to deforestation-free supply chains by 2020;
  • hundreds of businesses publicly call for a price on carbon pollution;
  • and an announcement by Norway, Germany, and the UK to provide funding for up to 20 pay-for-performance partnerships to reduce deforestation
Two titans handshaking

The biggest surprise of 2014 came in November when President Obama and Premier Xi shook hands on a US-China climate deal.  Together these countries account for more than a third of annual greenhouse gas emissions.  The US pledged to reduce emissions 26-28% below 2005 levels by 2025, while China pledged for its emissions to peak and decline before 2030, and to obtain 20% of its electricity from renewable sources by 2030. 

Following a commitment by the European Union in October to cut its emissions 40% below 1990 levels by 2030, this accord will put tremendous peer pressure on India, Russia, Australia, and other big polluters.

For a visionary take on how this “G2” alliance could snowball to a safe and stable climate in 20 years, read this “future history” by my former colleagues Lawrence MacDonald and Jing Cao.

One shared sky

September 2014 brought the heartwarming news that, for the first time in decades, the planet’s ozone layer expanded. This is tangible proof that humanity truly can come together to effectively solve global environmental challenges, as it did with the 1989 Montreal Protocol banning ozone-depleting chlorofluorocarbons.  And doing so can cost far less than initially anticipated, once the first steps are taken. 

Decarbonizing our modern economy represents a far greater challenge than eliminating a few refrigerants.  But I’m more optimistic than ever that humanity is equal to the task, thanks to:

Twelve states-a-pricing

Eleven years of slowing

Ten years-a-waiting

Nine-in-ten agreeing

Eight religious leaders proclaiming

Seven pay-for-performance agreements

Six reference levels

Five-cent solar

Four satellites flying

Three hundred thousand marching

Two titans handshaking

One shared sky

 

Authors: Jonah Busch View Profile

Rethinking US Foreign Assistance: CRomnibus Analysis – 8 Takeaways from FY15 SFOPS Appropriations

The Government Didn’t Shut Down

Thanks for keeping the lights on, Congress. We’re also grateful for a full SFOPs bill (even if it took a couple of deadline extensions). Unfortunately, hurried negotiations may be to blame for a longer-than-usual list of reporting requirements and directives. Wherever the final joint explanatory statement is silent, agencies and departments are instructed to comply with language from both House and Senate reports that accompanied the draft bills released this summer.  

OCO Takes Over

At $50.9 billion, the International Affairs programs for FY15 receive a whopping .6 percent more than FY14 appropriations. No decline? Time to celebrate! Not just yet. Base appropriations did fall: 5.6 percent below FY14 and 16 percent below FY10. Overseas Contingency Operations funding made up the rest. This doesn’t bode well for SFOPS funding in future years as OCO’s magic money will dry up as the US presence in Afghanistan draws down.

Who Needs Multilateralism?

No IMF quota reform. Again. And based on the bill summaries, this was a point of pride with more than a few House Republicans. Folks at CGD (and lots of other experts) might sound like a broken record on this, but, seriously, this makes zero sense. Failure to act has and will continue to weaken US legitimacy in international financial policymaking; not to mention undermine growth and financial stability; and limited other US foreign policy goals such as support for Ukraine. Over at PIIE, Ted Truman has a Plan B. Members might just wish they’d gone with the Plan A and enacted the IMF legislation after all.

Dimming Power Africa

Plus-ups to support President Obama’s ambitious Power Africa initiative are nowhere to be found for OPIC, MCC, and other agencies key to driving energy access for hundreds of millions. But, OPIC was reauthorized and we don’t spot anything indicating a real opposition to the initiative. Let’s just hope Energize Africa gets to a vote so that we can be on our way to ensuring the initiative outlasts the current administration.

Forecasting Future Climate Fights

When it comes to the international climate agenda, everyone seems to be bracing for the battles ahead. The bill gave level funding for US contributions to the Climate Investment Funds, as well as the Intergovernmental Panel on Climate Change and UN Framework Convention on Climate Change; but it was domestic emissions policies that received the lion’s share of attention. While the President didn’t request funding for the Green Climate Fund, a multilateral fund to help developing countries transition to clean energy and avoid the worst effects of climate change, the bill’s explicit prohibition on contributions to the new fund portends a tough road ahead for delivering on a $3 billion US pledge.

Same Old Food Aid

While not strictly part of SFOPs (food aid is still funded through agriculture appropriations), the United States’ largest international food assistance program received $1.466 billion. But even as both sides of the aisle boasted funding above the President’s request, the bill failed to include any of the President’s requested changes to improve the program’s notoriously inefficient sourcing and delivery. Also disappointing was the lack of funding for a local and regional procurement program authorized in the farm bill. Meanwhile, reform champions were forced to fend off a lame-duck sneak attack in legislation reauthorizing the Coast Guard. Fingers crossed that next year will bring real reform.

Ebola Really Scares Congress

At $5.4 billion, Congress largely funded President Obama’s $6.18 billion emergency funding request for the Ebola response. State and USAID get $2.5 billion of the request; HHS $2.7 billion. While Congress did not fund the requested contingency fund, just about everything else was funded (or quietly allowed in transfer authorities, like WHO and UNMEER contributions).

#Nicelydone:  A few other items of note

  • Noting growing humanitarian needs in the Middle East, appropriators boosted funding for International Disaster Assistance ($505 million above the President’s request) and Migration and Refugee Assistance ($1.01 billion above the President’s request).
  • Appropriators fixed the silly face value limit at USAID’s Development Credit Authority, which was preventing DCA from bringing other guarantee agencies to the table to unlock larger volumes of much-needed development finance. $1.5 billion available is a vast improvement from $750 million.
  • A new reporting requirement might provide a shot in the arm for USAID’s Local Solutions initiative.  A provision requiring the USAID Administrator to submit a plan for better aligning human resource practices with the agency’s sustainable development goals. This could mean that in the future, USAID Foreign Service Officers would see greater value placed on expertise in local capacity building, additional training where needed, longer overseas assignments, and increased incentives for effectively carrying out sustainable development.
  • And in a semi-win for government transparency, public disclosure of agency reports requested by the Appropriations Committees now encouraged (“upon a determination by the head of such agency that to do so is in the national interest;” heavy redactions sure to ensue).
Authors: Beth Schwanke View Profile Erin Collinson View Profile

Development blog: What We Can Learn from Service Guarantees on the London Tube

A few days ago, my colleague Jenny Kendra was delayed on the London Tube.  Jenny wrote “Major delays on the District Line due to a signal problem at East Putney.  Stuck on Tube at present, not moving.” When Jenny finally got to the office, she mentioned that she would be compensated for the delay.  Given our interest in service guarantees, we went to the TFL (London Underground) website to find out more:

  • Service refunds are provided for delays of 15+ minutes underground, and 30+ minutes overground.
  • Refund is equivalent to the fare paid for the delayed trip.
  • Reasons that qualify for a refund include signal failure, faulty trains, defective tracks, and unplanned engineering works.
  • Refunds are not applicable if service changes and engineering work were planned, the consumer took an alternative route, or the delay was due to causes outside the control of TFL (security alert, customer incident - ill person for example, weather incident).
  • Application for a refund must be made online, must be completed within 14 days of the journey, and requires a TFL account (which does not seem to ask for many personal details).

This type of guarantee might be very relevant for countries that are trying to attract investors. In a recent paper, we proposed the idea of Service Performance Guarantees (SPGs). As we wrote in an earlier blog post:

Foreign or domestic firms investing in the country or in a special economic zone would be offered the opportunity by the relevant government authority to purchase a contract guaranteeing the delivery of specified services up to a minimum standard and for a prescribed period, possibly around 10 years.  These might include, for example, the quality and reliability of power supply, the time needed for customs clearance at ports or airports, the time for port turn-around, and the speed of processing and approvals of duty drawbacks as well as a range of other services and permits.   The guarantees would be contractual legal agreements between the service provider and the firm.  Contracts would be standardized rather than customized, except for the largest anchor firms (to extend the mall analogy).

Service performance guarantees would be covered by a “domestic reserve” funded from paid-in premiums and backed up by a further guarantee issued by an agency like MIGA or by USAID’s Development Credit Authority, which already has the authority to issue guarantees to domestic and foreign investors.  IDA or another donor could issue a backup guarantee.  These guarantees, together comprising the SPG mechanism, would be components of loans provided to the country to create or rehabilitate infrastructure or to help streamline business processes.  An “external reserve” would be set aside out of the loan amounts to cover the back-up guarantee.

Calls on performance contracts that exceeded the domestic reserve of the fund would trigger calls on the external reserve and a payment from the development agency to the firms via the SPG. At the end of the prescribed period, any unused balances in the domestic and external reserve funds would revert to the country as a bonus for providing good services. Countries that have made improvements in their business climate but are yet to attract investors may be good candidates for SPGs.  Special Economic Zones or Export Processing Zones, which typically offer a package of services to investors, might also be good candidates for a pilot.

The experience of service guarantees offered by the London Tube suggests that investors might need to be made aware of such guarantees. In 2010, only about 330,000 Tube passengers claimed compensation for delays, out of a potential 11 million, despite the availability of smartphone apps to make the process easier.

Jenny, however, received a refund of 2.20 pounds today.

Authors: Vijaya Ramachandran View Profile Alan Gelb View Profile Alice Rossignol

Development blog: Time for the BIG Idea in the Developing World

There is growing support in the rich world for a basic-income guarantee (BIG), in which the government would provide a fixed cash transfer to every adult, poor or not. In 2015, for example, the Swiss will vote on a referendum to introduce a BIG. We have not yet seen a national BIG rolled out, although there are policies in place with similar features. (For example, the US earned-income tax credit, while not strictly a BIG, contains some similarities.) Proponents say it’s an easy way to reduce poverty and inequality; if that’s so, it’s time to think BIG in the developing world, too.

Support for the BIG idea (also known as a poll transfer, guaranteed income, citizenship income, or an unmodified social dividend) has spanned the political spectrum. Some supporters see it as a “right of citizenship,” or a foundation for economic freedom to relax the material constraint on peoples’ choices in life. Others have pointed out that a BIG is an administratively easy way to reduce poverty and inequality, with modest distortionary effect on the economy as a whole. There are no substitution effects of a BIG on its own (there’s no action anyone can take to change their transfer receipts). Supporters also note there’s no stigma associated with a BIG, since it’s not targeted only to poor people. And a BIG may well be more politically sustainable than finely targeted options that may have a narrow base of support. 

Opponents, on the other hand, echo longstanding concerns that the welfare state undermines work incentives. There may well be income effects of a BIG on demand, including for leisure. The effect on employment is unclear, however. The BIG could ease constraints on work opportunities, such as those that hinder self-employment or migration. On balance, work may even increase.

As with any social policy, a complete assessment of the implications for efficiency and equity of a BIG must also take all costs and how it is financed into account. The administrative cost would likely be low, though certainly not zero given some form of personal registration system would be needed to avoid “double dipping” and to ensure larger households receive proportionately more. One low-cost way of doing this would be to establish a personal identification system, such as the Aadhaar in India

Further, a BIG could be a feasible budget-neutral way of reforming social policies. There could be ample scope for financing it by cutting poorly targeted transfer schemes and subsidies heavily favoring the non-poor. A BIG scheme would easily replace many policies found in practice today. For example, it would clearly do better in reaching the poor than the subsidies on the consumption of normal goods (such as fuel) that are still found in a number of countries.

The un-targeted nature of a BIG runs against the prevailing view in some circles that finer targeting is always better. But that view is questionable. For example, recent research has shown that once one accounts for all the costs involved in India’s National Rural Employment Guarantee Scheme, including the forgone earnings of participants, a BIG with the same budgetary cost would have greater impact on poverty than the labor earnings from the existing scheme. The work requirements of the employment scheme ensure that it is very well-targeted. Even so, it is likely to be a less cost-effective way to reduce poverty than an untargeted BIG with the same budgetary cost. There may well be other advantages to India’s current scheme; for example, asset creation, risk mitigation, and empowerment. But it is not clear whether these benefits would tilt the balance relative to a far simpler BIG.

The BIG idea should be put on the menu of social policy options for developing countries.  

Authors: Martin Ravallion View Profile

Rethinking US Foreign Assistance: A Big Year for MCC: The Board Picks Five Countries for New Partnerships

The votes are in!  Yesterday, MCC’s board of directors met to select countries for FY2015 compact and threshold program eligibility.  Last week, I made some predictions about the choices the board would make.  Let’s look at yesterday’s decisions and see how I did…

Compact Selections

As predicted, Nepal was selected for compact eligibility for the first time.  It had been working with MCC to develop a threshold program, but the board shifted them to compact-eligibility in recognition of the country’s progress increasing peace and stability.

I also predicted that MCC might select India in order to develop some kind of regional approach to the Nepal compact—after all, this is an area in which the agency has expressed interest.  A compact nod for India didn’t happen.  But…MCC does appear to have some type of partnership with India in mind with respect to the Nepal compact, saying, “the Board also confirmed its support for MCC’s exploring strategic, regionally oriented partnerships, especially in South Asia because, under the right circumstances….”  This will be something to watch.

MCC also selected the Philippines and Mongolia as eligible to start developing second compacts.  I flagged these as the most likely new second compact selections, though I hedged my enthusiasm a bit since neither was an entirely straightforward choice.  The Philippines has nearly a year and a half to go on its current compact, and Mongolia’s income is rising rapidly and may put the country in upper middle income range (i.e. out of MCC candidacy) soon. 

As expected, the board reselected all the countries currently developing either first or second compacts that continued to pass the scorecard this year: Benin (second compact), Lesotho (second compact), Liberia (first compact), Morocco (second compact), Niger (first compact), and Tanzania (second compact), though it expressed some concern about corruption in Tanzania.

Also as expected, the board did not reselect Sierra Leone for compact eligibility since this is the second year in a row it fell short on the important Control of Corruption indicator.  There was, however, a bit of a surprise twist, which leads us to the next section…

Threshold Program Selections

While Sierra Leone was not reselected to continue developing a compact, it was picked for the threshold program (MCC noted its desire to support the country’s continued commitment to reform).  I didn’t predict this move, but it is perhaps unsurprising.  The board made a similar threshold-program-as-consolation-prize choice with Timor-Leste back in FY2009 when the board felt it couldn’t continue a compact development relationship with a country that didn’t pass the Control of Corruption indicator (among other factors).  

One key difference between the Timor-Leste and Sierra Leone choices is how MCC rationalizes the switch to threshold program eligibility.  Recall that the threshold program’s legislated goal is to help a country become compact eligible.  The original concept of the threshold program was that it would accomplish this by helping countries improve their indicator scores (hence, Timor-Leste’s threshold program funded anticorruption activities).  However, in a 2010 internal review, MCC realized that this formulation of the threshold program wasn’t well-suited for achieving its objective, not least because many eligibility indicators tend to be very broad (e.g. “anticorruption”) and thus don’t capture the effects of narrow programmatic interventions.  As a result, MCC refocused the threshold program, which is now expected to help a country become compact eligible by testing the government’s willingness to undertake the kind of substantial policy reforms that would likely be required as part of a compact partnership.  This reasoning raises some questions (see p. 25), and few of MCC’s recent choices for the threshold program seem to fit this rationale well.  In Sierra Leone’s case, was it nice for MCC to offer a consolation prize to a country that had no actual policy decline and whose compact eligibility was revoked essentially on the basis of statistical “noise”?  Yes.  Is it clear how the threshold program will help Sierra Leone become compact eligible?  Not really.

In addition, as predicted, the board selected Cote d’Ivoire as eligible for the threshold program, in recognition of its strong improvement on the scorecard (it passed for the first time this year).  Again, it’s a bit unclear how the threshold program will help Cote d’Ivoire become compact eligible.  It seems like MCC wanted to reward and start working with a high-growth reformer, but didn’t yet want to risk entering into a compact relationship with a country that hasn’t proved it can pass the scorecard somewhat consistently.  This is not necessarily unreasonable.  But it doesn’t conform to the stated objective of the threshold program.  It’s time for MCC to be more systematically clear about the purpose and objective of the threshold program, and how, based on this, as a results-oriented agency, it will measure the program’s success.

Finally, the board did not reselect Guatemala, which had been developing a threshold program for the last two years, but instead approved its program (obviating the need for reselection).  This makes Guatemala the second country (after Honduras) to finalize one of the new-model threshold programs.

Authors: Sarah Rose View Profile

Rethinking US Foreign Assistance: What You Did (and Didn’t) Hear at the Congressional Ebola Hearing

What you heard:

From a head of state

In a nearly unprecedented gesture for a sitting head of state, Liberian President Ellen Johnson Sirleaf joined the Senate Foreign Relations African Affairs subcommittee hearing on “The Ebola Epidemic: The Keys to Success for the International Response” to provide a statement, as well as to answer questions. Heartfelt gratitude for US leadership and support; the havoc Ebola is inflicting on Liberia’s development gains; and the recent progress fighting the disease led her remarks. 

But no (good) congressional testimony would be complete without an ask, and President Sirleaf’s remarks included two direct asks of the US government: (1) continued US support to achieve full eradication of the disease and (2) an MCC Compact. With Congress readying to vote on a $5.4 billion emergency Ebola supplemental (nearly funding President Obama’s $6.2 billion request) as part of the CRomnibus and the MCC just announcing Liberia’s re-selection for first compact development, both appeals seem on track.

From NGOs

Representatives of Partners in Health, World Vision, IntraHealth International, and Mercy Corps each provided testimony. The two most important takeaways:

  1. don’t just focus on the emergency response, build sustainable health systems;
  2. this is not just a public health crisis, it’s a systems crisis and should be addressed as one (this wasn’t a big focus of the hearing, but Mercy Corps was spot on in this characterization).

From Senators

If not quite as rare as an appearance from a sitting head of state, a fairly full roster of members attended the subcommittee hearing. Senators Coons (D-DE), Flake (R-AZ), Durbin (D-IL), Shaheen (D-NH), Murphy (D-CT), and Markey (D-MA) each joined, rather than the usual lonely conversation dialogue between the witnesses and the chair and ranking. Smart questions from all, particularly around building sustainable health systems and ensuring new facilities have a use beyond the immediate crisis.

What I hope we’ll hear more of in future hearings:

How to Stop Making the Same Mistakes 

There is much that is unprecedented about the Ebola epidemic. But the United States and the international community respond to major humanitarian disasters every year. Donor governments should know how to do emergency responses and disaster recoveries. And for the most part, we do. The US response, in particular, has been extraordinary. However, I fear that once we move beyond this initial phase, we could find the same problems on the donor side that were in painful evidence in the response to the Haiti earthquake and other recent disasters: a failure to “build back better,” little ability to identify where the money went but clear indications of a lack of effective donor coordination, and a failure to work with the local governments and communities that need to carry on the recovery once the donors leave.

The International Health System is Broken—How the US Can Help Fix It

Future health crises are coming and the international health system isn’t ready for them. Strengthening national health systems should be a priority, but it is one that is difficult, costly, and slow. We also need an improved WHO: one that can lead on public health preparedness and provide active disease surveillance capabilities. The United States can—and must—lead the drive for a newly effective WHO.

How to Help Drive an Economic Recovery

The economic costs of the Ebola outbreak are potentially catastrophic to Liberia, Guinea, and Sierra Leone. And it is critical to immediately address the second-order costs of the outbreak, which include critical challenges such as food security. But it’s also more than time to start planning for post-Ebola economic recovery. The US government and our private sector have a role to play as President Sirleaf told SFRC—I hope SFRC and HFAC will examine how the US should and does plan to help put West Africa on the road to economic recovery.

Authors: Beth Schwanke View Profile

Development blog: Unsung Climate Hero: Forest Monitoring Technology

Delegates from hundreds of countries are in Lima, Peru, this week, facing the heroic task of negotiating a global climate deal under the auspices of the United Nations.

As negotiations reach their climactic closing hours, it’s worth reflecting on a different set of climate heroes: the satellites and airplanes that monitor the state of the world’s forests, and the scientists that keep them flying.

In a new CGD-commissioned working paper, Dr. Scott Goetz of the Woods Hole Research Center and colleagues describe the current state of technology for monitoring forests and how this technology can be put to use in service of international efforts to reduce climate-changing emissions from deforestation and forest degradation (REDD+).

The story told by the working paper is rosy, if highly technical. (Picture a pixelated rose viewed through 3D glasses.) All in all, technological capacity to monitor forests is no longer the barrier to international finance for forests and climate that it was in the 1990s when the Kyoto Protocol was negotiated. Technological capabilities are now sufficient to meet the critical REDD+ needs of measuring, reporting, and verifying emissions (MRV), and setting reference levels (the baseline emissions against which emission reductions are measured). For other areas of importance to REDD+, including safeguards for natural forest and biodiversity, monitoring capabilities are approaching operational in the near term.

Figure 1 below shows the current state of forest monitoring technology—which technologies are available now (green), which will be available within months or years (yellow), which are still in development (orange), and which are unlikely any time soon (red).

Figure 1. Current state of forest monitoring technology

Why is forest monitoring technology so important? As explained below, forest monitoring technology has enabled advances in many aspects of humanity’s response to global climate change, from science, to international negotiations, to national policies, to performance-based finance partnerships.

Current forest monitoring capabilities are astounding, and are improving rapidly

When the first in NASA’s series of Landsat Earth observation satellites was launched in 1972, a single Maryland-sized image took the better part of a day for a researcher to interpret by hand. An image cost $5000 to acquire in the 1980s. A country the size of Brazil requires thousands of such images to obtain complete cloud-free coverage of its territory. In 2008 the USGS made the entire Landsat archive available for free download. As of 2014, thanks to scientists at the University of Maryland and elsewhere, anyone with a computer can freely download a global map showing areas of forest losses and gains the size of a baseball diamond every year from 2000 to 2012.

Figure 2. First-ever map of forest losses and gains globally (Hansen et al. 2013)

Forest monitoring technology underpins scientific understanding of climate change

In 2012, two research teams from the Jet Propulsion Lab and the Woods Hole Research Center independently mapped the world’s pan-tropical aboveground forest carbon stocks at half-kilometer resolution. Thanks to such analyses, we know that net deforestation is responsible for more than 10 percent of greenhouse gas emissions, and halting and reversing deforestation offers up to 24–30 percent of climate mitigation potential.

These maps of forest carbon stocks are freely available online and are rapidly being improved to cover the whole globe, every year, in finer detail. In 2018, thanks to LIDAR sensors mounted on the International Space Station, it will become possible to directly monitor losses and gains in forest carbon stocks at a resolution smaller than a baseball diamond. (For more on the future direction of remote sensing capabilities, tune in to this session from Lima moderated by my colleague Frances Seymour.)

Figure 3. Map of live woody vegetation aboveground biomass (Baccini et al. 2012)

Advances in forest monitoring technology have unblocked international negotiations

Improved technological capability to monitor forests has been widely credited as key to unblocking international climate negotiations. In 1997, international climate negotiators excluded tropical forests from the Kyoto Protocol. One of the main excuses given at that time for doing so was the difficulty of accurately monitoring forests. A decade later, thanks in part to advances in monitoring technology, an international mechanism for reducing tropical forestation was included in climate negotiations in Bali, and finalized in Warsaw in 2013. This story is described in a recent CGD-commissioned working paper by Tony la Vina and Ayala de Leon. In fact, the successful conclusion of negotiations on tropical forests last year in Warsaw meant that little was expected, nor achieved, on tropical forests at this year’s climate conference in Lima.

Forest monitoring technology helps countries enforce their forest policies

Forest monitoring has been instrumental to effective national policy responses to deforestation in Brazil and elsewhere. From 2004 to 2013 Brazil decreased the rate of Amazon deforestation by nearly 80 percent while increasing soy and cattle production by 65 percent and 21 percent respectively. Brazil’s success would not have been possible without a satellite program called DETER, which sends out alerts of where deforestation is happening across the Amazon every two weeks. This technology allows Brazilian authorities to match illegal clearing to specific landholdings and to enforce forest laws. Economists at the Pontifical Catholic University of Rio de Janeiro figure that deforestation in the Amazon would have been 59 percent higher without the DETER program. Now DETER-like data is available globally through FORMA, a program first developed by David Wheeler at CGD.

Figure 4. Global map of forest clearing alerts (FORMA). Courtesy Global Forest Watch

 

Forest monitoring technology enables payments for performance

In 2009, the governments of Guyana and Norway signed an agreement that Guyana would agree to keep its rate of deforestation at near-zero levels in exchange for up to $250 million from Norway. Thanks to forest monitoring technology, that agreement has been monitored, and respected. Importantly, both Guyana and Norway agreed to keep monitoring simple and move quickly, rather than wait around for technologies that could count every ton of carbon perfectly. Last year Guyana’s deforestation rate fell by 14 percent after several years of growth—a success the government has attributed to the spotlight shined by the monitoring of the pay-for-performance agreement on the deforestation activities of the informal mining sector.

Figure 5. Today’s technology lets us calculate emission reductions from forest loss for payment-for-performance agreements

A message to climate and development finance decision makers

The working paper by Dr. Goetz and colleagues isn't meant to be a primer for forest ministries in tropical countries on how to establish forest monitoring systems. There are other reports that do that. Rather, it describes the expanding frontier of current monitoring capacities. The message to climate and development finance decision makers is clear: thanks to rapid advances in our technological capacity to monitor forests, a big barrier to performance-based finance for tropical forests has come tumbling down. 

Authors: Jonah Busch View Profile

CGD Publication: Measurement and Monitoring for REDD+: The Needs, Current Technological Capabilities and Future Potential - Working Paper 392

Measurement and Monitoring for REDD+: The Needs, Current Technological Capabilities and Future Potential - Working Paper 39212/11/14

This paper presents an overview of the state of measurement and monitoring capabilities for forests in the context of REDD+ needs, with a focus on what is currently possible, where improvements are needed, and what capabilities will be advanced in the near-term with new technologies already under development. 

CGD-Climate-Forest-Paper-17-Goetz-et-al-Measurement-Monitoring-REDD.pdf

Development blog: The $138.5 Billion Question: When Does Foreign Aid Work?

Related Research

The policy debate around whether foreign aid—now $138.5 billion a year—works has been polarized between the “Oh yes it does” camp and those who respond “Oh no it doesn’t.” (Christmas pantomime anyone?)

Claims that aid is responsible for impressive improvements in human development over the past couple of decades are clearly not credible. Yet, equally difficult to sustain are claims that aid has been entirely useless. It’s more useful to ask when aid works, not whether.

Scholarly studies have been doing just that for at least a decade. So Jonathan Glennie (now director of policy and research at Save the Children) and I thought we’d take a look and review the state of thinking on aid effectiveness. Specifically, we looked at the cross-country, peer-reviewed, econometric studies that focus on assessing if or under what conditions aid is effective in achieving its stated outcomes, particularly those related to economic growth or social development. The resulting CGD Policy Paper is here.

Before reaching any conclusions, however, we had to overcome some definitional challenges:

What does ‘work’ even mean?

Take growth, for example. Does aid ‘work’ when growth is higher than it would have been without aid? Or is it establishing the preconditions for self-sustained growth without aid in the future? Or is it a contribution to growth that represents value for money (however that is defined)? 

In our paper we are constrained by how the literature has approached this question. We thus take aid ‘working’ or ‘effective aid’ to mean aid that contributes to or is associated with, even if only modestly, positive development outcomes such as economic growth and social development. Of course, the lack of a counterfactual is the biggest barrier to ever knowing for certain the impact of aid.

What counts as aid?

Aid is delivered in many forms and has diverse and complex objectives and motivations. It is quite plausible and, given the copious amounts of conflicting opinions on the subject, also probable that different types of aid achieve (or don’t achieve) different objectives.

Most of the recent econometric studies our paper reviews use effective development assistance, which is an aggregate measure of aid flows that includes all grants and grant equivalents of loans. In other words, it’s a measure of concessional transfers to developing countries that emanate from governments of donor countries (funded by taxpayers of these countries) and that at least in principle or in claimed intent aim to contribute to development.

So, what did we find?

First, the majority of studies on aid are positive—but the impact of aid is often modest. Of course there are numerous methodological caveats as we discuss though suffice to say a review of studies puts aid skeptics in the minority at the moment.

Regarding social development, there are relatively few studies, so caution is required. Still, the cross-country education aid studies and monetary poverty studies are positively associated with growth, and health aid studies, while more mixed overall, are also mostly positive.

However, emerging from all of the reading was one fact—the conditions under which aid works are mentioned in most studies. We developed a way of mapping this as: (1) the country context, meaning the characteristics of the recipient country and national government policies; and (2) aid management, meaning the characteristics of aid and donor policies and practices.

We then took a look to see where we might say there are signs of convergence or signs of divergence or insufficient studies to make any judgment.

We also linked our discussion to the other aid effectiveness literature—the policy literature of Paris/Busan and so forth.

We found four factors likely to improve aid effectiveness suggesting donors might want to look at each of the as country level.

First, aid levels: aid is more likely to work in the correct dosage but is ineffective if too high or too low.

So more aid is good for the world’s poorest countries right? Not necessarily so. One needs to consider existing levels of aid. Aid is likely to have diminishing returns as it grows relative to the size of the economy and those returns can even turn negative. In addition, at low levels, aid may have little impact on growth. But there are differences in the level below or above which aid is ineffective in promoting growth.

This is an important finding not because it is surprising—it shouldn’t be—but because of the neglect of this critical element of aid effectiveness in policymaking circles. In the most important aid effectiveness process (the Paris agenda and its successor meetings) the issue barely merited a mention. 

Second, domestic political institutions: aid is more likely to work if the institutions are in place—for example, political stability and not too much decentralisation.

Also unsurprising is that some of the papers we review emphasize the role of domestic political institutions. Although an article of faith for many for at least a decade, the type of domestic political institutions likely to increase aid effectiveness is less clear. Political stability and levels of decentralization are two issues the evidence points towards. The difficulty here is whether donors can do much about these or accept working in contexts with certain kinds of institutions is likely to be less effective.

Third, the aid composition: aid is likely to be more effective in certain sectors and aid objectives and time horizons matter a lot.

The effectiveness of aid depends on its objectives, sectors, modalities, and time horizons—essentially what the aid is intended for. For example, aid effectiveness for growth is improved if aid focuses on ‘developmental aid’ (i.e., aid that seeks to promote development objectives such as growth) or if the composition of aid is directly aimed at affecting growth (e.g., building roads, ports and electricity generators, supporting agriculture).

Additionally, budget support (or ‘program’ aid) and project aid for real sector investments is likely to be more effective for growth than other types of aid. But caution is required as aid in sectors like health and education may only affect growth after a long period of time and thus may simply be difficult to detect rather than be non-existent.

Fourth, aid predictability and concentration: aid is likely to be more effective if it is not volatile and fragmented.

While our finding on aid levels is nearly absent from dominant aid effectiveness debates, our finding on aid volatility is ubiquitous in them. Reducing aid volatility and fragmentation has been a key feature of the Paris agenda. Unfortunately, this focus has not led to significant improvements. According to the 2011 Paris Declaration Monitoring Survey, only 43 percent of aid was predictable in 2010 (compared to 42 percent in 2005) and there was a similarly disappointing increase in the use of common arrangements, joint donor missions, and joint analytical work. 

And finally, two big unknowns

There are two areas where there is little convergence in the evidence, despite oft-cited claims to the contrary.

The first is goodie-goodie—read orthodox— macroeconomic policy. Bill Easterly’s 2004 rebuttal placed a large question mark over a previous core belief in official development circles that aid supports growth when the recipient country is implementing certain macroeconomic policies generally described as ‘good’ or orthodox policies. Now there is no consensus. There are studies on both sides of the fence.

And the second is that there is no consensus that grants are better than loans (or vice versa) for aid effectiveness. This is not to say that in different contexts grants may be more appropriate than loans, or vice versa, simply that there no generalizations can be made.

What to conclude?

So what to conclude from all of the above? First you just read in four or five minutes a 45 page paper, so nuances get lost.  Further, methodological contentions still remain, so don’t get too carried away. But it’s clear that despite the yes-it-does, no-it-doesn’t character of the public policy debate, the scholarly debate has moved sufficiently beyond that pantomime to tell us more about when aid is more likely to work. So while we and CGD pals would be first to say that development is about a whole lot more than aid, we can say that shifting the debate from whether aid ‘works’ to when aid works and how it can work better would contribute to better aid policy decisions in the real world, move away from mostly theatrical claims and counterclaims, and might even serve to reinvigorate global support for aid.  We hope our paper lays some of the groundwork for that to happen.

 

Authors: Andy Sumner View Profile

Global Health blog: Responding to Ebola’s Long-Term Threat to Development

View of the ECOSOC chamber during the Ebola impact discussion 12/5/14. The ears belong to me (on the left) and Dr. Melanie Walker of the World Bank (on the right)

On December 5, the United Nations’ Economic and Social Council (ECOSOC) hosted its first meeting on the Ebola epidemic’s long-run implications on development in the affected countries.  

The meeting agenda was overstuffed with speakers. UN Secretary-General Ban Ki-Moon and WHO Director-General Dr. Margaret Chan both gave strong presentations detailing the Ebola threat and progress on the response. However, neither speech contained information that would be new to those reading newspaper accounts of the epidemic or following blogs like ours. The most compelling presentations came by video from the ministers of finance of Guinea, Sierra Leone, Liberia, and Mali, the four countries currently managing the active spread of Ebola. They provided a litany of examples of economic breakdown, which I and others at the World Bank forecasted here and more recently here.

As a panelist, I fielded two questions from Dr. Paul Farmer, Special Adviser to the Secretary-General on Community-Based Medicine and Lessons from Haiti. The first was on how the West African economies will be impacted by Ebola. I explained fear—or more precisely “aversion behavior”—not the disease itself, will have the greatest effect on the countries battling the epidemic. (Read more about the impact of aversion behavior here.) 

The second question was on how to mitigate aversion behavior after the epidemic is under control.  Unfortunately, because of continued aversion behavior, economic growth may not resume at the same pace on its own. Rapid abatement of observed aversion behavior will require that people everywhere perceive all African countries as safe places to live, work, and visit. In order to have the confidence to resume trade and travel, people need to be assured another disease outbreak like Ebola is not imminent.

One possible answer mentioned by other participants is “strengthening African health systems,” but this phrase doesn’t specify how “strong” the systems need to be or how governments and donors can bring about the desired “strengthening.” Do African health systems need to be as strong as European or American ones, which limited the Ebola outbreak to individual cases? Or only as strong as the Nigerian and Senegalese systems which have so far seemed capable of containing the disease? Still, Liberia had only 50 physicians for the whole country before the epidemic, so even bringing the country’s health care up to Nigerian standards would require more money and health providers than available.

I advocated for a more cost-effective approach that has the added advantage of versatility: active case detection. This strategy refers to the deployment of mobile workers to test everybody in the population several times a year at their places of residence. With simple diagnostic kits, disease surveillance could be added to the tasks of other mobile teams, such as vaccination workers and even agricultural extension workers.  The practice is the opposite of “passive case detection,” which is building health centers and waiting for sick people to come, be tested, and sometimes declared infected with the disease.  In contrast to a passive approach, active case detection would act as an “early warning system,” so diseases are discovered and contained before health systems are damaged or infections spread to urban areas.

Health systems advocates are not going to like the suggestion that active case detection will achieve cost-effective disease surveillance, because it suggests one could graft a disease surveillance strategy onto an otherwise weak health system. But I’m not sure their objection is justified. For me, it’s an open question whether any African health system, no matter how comprehensively it is strengthened, could withstand an Ebola (or similar) outbreak unless it has forewarning from an active case detection system and benefits from a rapid deployment outbreak response team mobilized by such a system.

If we are to reassure workers, parents, investors, and tourists that a future outbreak is unlikely (or would be immediately contained) in West Africa, while protecting the world from future zoonotic disease outbreaks, we need to improve the response time of outbreak response units.  Active case detection may be the quickest and most cost-effective path to this objective. 

Authors: Mead Over View Profile

CGD Publication: Value Subtraction in Public Sector Production: Accounting Versus Economic Cost of Primary Schooling in India - Working Paper 391

Value Subtraction in Public Sector Production: Accounting Versus Economic Cost of Primary Schooling in India - Working Paper 391 12/9/14

We combine newly created data on per student government expenditure on children in government elementary schools across India, data on per student expenditure by households on students attending private elementary schools, and the ASER measure of learning achievement of students in rural areas. 

CGD-Working-Paper-391-Pritchett-Aiyar.pdf

Development blog: CGD to Help Pick 2015 “Win-a-Trip” with Nick Kristof Contest Finalists

You can probably recall the moment when you caught the ‘global development bug.’ CGD president Nancy Birdsall has talked about an eighth grade report on Africa, and Todd Moss has said it was when he studied in Zimbabwe. As an avid New York Times reader, my moment was Nicholas Kristof’s coverage of Darfur in 2004. I was intrigued by Nick’s ability to make the complicated and tragic events taking place in a country so far away – and a culture so far removed from my own – understandable and relevant. Now, after a decade of following Nick’s column, and in an exciting turn of events for me personally, my colleagues and I will help Nick choose the winner of his 2015 “Win-a-Trip” contest.

On Sunday, Nick kicked off his annual contest to select a student to take on a reporting trip to the developing world (possibilities this year include Congo, India, and Nepal). And for the fifth year in a row, CGD is thrilled to help Nick vet and narrow down the applicants to a short list of finalists, from which Nick will select the winner. 

So, what’s Nick looking for in this year’s winner?  In his own words, the winner will be “a smart undergraduate or graduate student with great storytelling skills who wants to help shine a light on neglected issues.” One goal of the trip is for the winner to inspire other students to become interested in development issues through blogs and videos that will be posted on the New York Times website.

But, Nick warns, this opportunity is not for someone who is easily frightened by bedbugs or warlords: “We will be bouncing over awful roads, we’ll be eating wretched food, and you may well get sick. Hotel rooms may come complete with bedbugs and rats. And we’ll be on the go from dawn to dusk.” (If you want to see what you’re getting yourself in for, watch Nick’s interview with 2014 winner Nicole Sganga or check out Reporter, an HBO documentary based on Nick’s 2007 Win-a-Trip journey to Congo.)

Interested applicants can apply by submitting their 700-word essay and/or 3-minute video here. Submissions should explain why Nick should pick you – not gush about his writing (although I hope he forgives me for doing so above!). Nick’s looking for a great communicator, so be sure to mention if you blog or have video experience, and share links where possible.

Apply here

The application deadline is midnight (Eastern Time) on January 7, 2015. To be considered you must be a resident in the United States, a student at an American university, and available to travel with Nick in spring 2015. All applicants are encouraged to review the full contest rules here.

Best of luck to all the applicants!

Authors: Lauren Post View Profile

Development blog: Growth as the Cornerstone of the SDGs

I’m pleased to be on this list of “top economist” signatories of an open letter to UN Secretary-General Ban Ki-Moon endorsing the simple idea that economic growth should be the foundation stone on which the other Sustainable Development Goals, especially poverty reduction, are built. (I’m the only non-professor on the list; whether professor or not, and whether economist or not, if you agree, leave a comment below, or tweet this blog post).

Most people can agree that everything on the current list (of 17 proposed SDGs) makes sense; the issue is what gets priority, for domestic and foreign financing, as a means (growth is a means to many ends), and what gets priority for financing as an end, directly (e.g., health and education). In the case of the Millennium Development Goals, ends such as reducing infant mortality got more attention and investment (and more aid money) than what might in some cases have been higher-return investment in means such as growth and infrastructure.  The word on the street is that developing countries now want more attention to the means to achieve many ends.  

Growth is mentioned in the proposed list of 17, but it’s #8 and the central truth of its necessity is obscured by complicated and compromise-driven (I suspect) modifiers: “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.”

A simpler goal would be clearer: “Promote economic growth,” or perhaps “Promote poverty-reducing growth.” 

It is growth that ultimately empowers societies and their peoples to find their own solutions; with healthy growth in Africa in the last decade, Africans (Andrew Mwenda, Dambisa Moyo) are asking whether foreign aid is a good thing at all. The same is true at the level of families and people: even if you’re still poor by Western standards, being able to buy a scooter expands not only your access to good jobs but your mental horizons.

I realize endorsing “growth” without any caveats is controversial.  It is true that growth without appropriate pricing of carbon and other pollutants, water, access to fisheries, and other public goods is problematic; climate change and its threat to development outcomes is an apt example. But the fundamental problem is not growth itself but the difficulty of forging appropriate and far-sighted public policies to deal with public goods and other so-called externalities; that difficulty is only worsened by low growth and shrinking opportunities, which weary citizens and discourage legislators from ambitious policy fixes. The historic record suggests that it is growth that creates social demand for environmental services, reduces intolerance, and encourages public and private investment in technological change.  Growth in that sense has beneficent “moral” consequences and so provides far more than merely material benefits.

To endorse growth is not to deny the logic of ending poverty as a worthy goal; it is only to remind that growth has proved (so far) necessary and often sufficient for reducing poverty (in China, in India, in Latin America despite high inequality, and in Africa over the last decade), and to admit that ending poverty is far too modest a goal in today’s world (as Lant Pritchett argues here).  Nor is to endorse growth to ignore the challenge of fair growth (aka inclusive growth aka shared prosperity) or the fact that inequality matters for many reasons including because, in an often vicious circle, it can inhibit growth itself.

If you agree, as our open letter concludes, that a clear commitment to strong, economic growth needs to be at the forefront of the post-2015 development, leave a comment below. If you disagree, well, let’s have that comment too.

Authors: Nancy Birdsall View Profile

CGD Event: Global Health Market Shaping Forum: Discussion of the Practice and Potential

Global Health Market Shaping Forum: Discussion of the Practice and Potential 12/17/14

Global health is inextricably linked to the health of the marketplace that delivers lifesaving products to low-income populations. A well-functioning health care market requires manufacturers to produce high-quality products, distributors to deliver the necessary quantities, providers to administer them correctly, and patients to be educated and active participants in their own health care. However, markets sometimes fall short.

The USAID Center for Accelerating Innovation and Impact (CII) recently launched Healthy Markets for Global Health: A Market Shaping Primer, a report that examines how market shaping can increase access to critical health commodities by reducing transaction costs, increasing market information, and balancing supplier and buyer risks.

We hope you are able to join us on December 17th for a discussion of the Market Shaping Primer and how market shaping experiences across the HIV, malaria, and other health sectors can inform future opportunities.

Registration begins at 4:00 p.m. and light refreshments will be available.

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