DVM2105[A] (Final) Flashcards
What is an ODA ?
–> Official development assistance
Defined by Western donors in 1969, as a way to flow ODA to developing countries AND multilateral institutions that met the requisites of :
* (a) promoting the economic development and welfare of developing countries as the main objective
* (b) containing a grant element of at least 25 per cent.
What are the 3 incentives for donors ?
- Help the less fortunate abroad (i.e. food, health care, education, basic necessities, etc.)
- Self-interest (i.e. pursue foreign policy objectives, diplomatic initiatives, international trade, prestige in IR, national defense, etc.)
- Private sector and governmental approaches (i.e. cooperation with MNCs, etc.)
What is the concept of good governance ?
5 attributes
The idea is that in order for market-oriented development strategies to be effective, the political systems has to be:
- accountable
- transparent
- responsive
- efficient
- inclusive
What is tied aid ?
Foreign aid that must be used to purchase goods/services from the donor country.
What is a major donor characteristic (pay less administrative costs) ?
Main issue (how + where)?
Some countries transfer a much larger proportion of their aid to multilateral institutions than developing countries.
By doing so, they reduce their administrative costs but also some of their control over where and how their funds are spent. (e.g. USA)
What’s the MCC goal ?
Millennium Challenge Corporation
The mcc aims to foster ECONOMIC GROWTH in a SMALLER number of countries that meet SPECIFIC CRITERIA regarding:
- Free markets
- Democracy
- Good governance
What are the three factors at the core of the African revival ?
- The surge of commodity prices (oil, copper, gold and foodstuffs) has fuelled African exports and increased export revenue.
- Market based policies instituted in the late 1980s
- Notable strides in the political landscape (less corruption)
What are the three types of aid ?
Humanitarian/emergency
Charity-based aid
Systematic aid (government-to-government)
Post-war aid can be broken down in 7 broad categories; what are they ?
- its birth at Bretton Woods in the 1940s;
- the era of the Marshall Plan in the 1950s;
- the decade of industrialization of the 1960s;
- the shift towards aid as an answer to poverty in the 1970s;
- aid as the tool for stabilization and structural adjustment in the 1980s;
- aid as a buttress of democracy and governance in the 1990s;
- culminating in the present-day obsession with aid as the only solution to Africa’s myriad of problems
Which theorists laid the foundation for BANK & IMF ?
John Maynard Keynes and Harry Dexter White
What’s the vicious circle of aid ?
- Aid fosters corruption
- Foreign aid props us corrupt governments with usable cash
- Corrupt governments interfere with the rule of law + transparency
- Investment in these countries isn’t attractive (not enough civil + institutions)
- Without the external investment = reduce economic growth
- Reduced economic growth = fewer jobs opportunities + increase poverty levels
- With increased poverty levels = foreign aid
RESTART
Why does the West keep giving $$$ when it leads to corruption ?
- Pressure to lend
- The difficulty to decifer which country is corrupt
What is structural adjustment ?
A controversial series of economic and social reforms promoted by the IMF and World Bank following the 1982 debt crisis that aimed to promote economic development through minimizing the role of the state and liberalizing markets.
In 1945, how did the IMF work for the countries lending money and those looking to have money ?
Each member country paid into the IMF a quota of its own currency + gold/dollar holdings based on the size of its economy.
When facing economic problems, countries would be permitted to draw TEMPORARILY on the reserves of the IMF to pay off international debts.
The usage of these funds was intended to provide a country with SUFFICIENT TIME to STABILIZE its economy without resorting to measures such as currency devaluation.
In the 1960s, IMF was funding primarly what ?
What is important for funding applications ?
Issue?
In the first two decades of its existence, more than 60% of its loans funded projects to build PHYSICAL INFRASTRUCTURE (e.g.: highways, airports, electricity grids, and hydroelectric dams.
To receive such funding, applications from developing countries needed to MEET THE CRITERIA ESTABLISHED by the Bank to ensure that the project was technically sound and would GENERATE SUFFICIENT REVENU TO REPAY THE LOAN.
These criteria tended to EXCLUDE many of the POORER nations because they could not guarantee a significant rate of return.
Why are the voting rights not representative ?
Voting rights are weighted according to quota subscriptions that reflect the size of a country’s economy… SUPERIORITY OF USA
What did McNamara do in Bank ?
What’s his approach ?
McNamara emphasized the need for the Bank to fund DIRECT anti-poverty efforts through social programs AND projects aimed at modernizing the AGRICULTURAL sector.
Simultaneously, by focusing on health and education programs, McNamara’s approach became = the basic needs approach.
- (1) The Bank become considerably more active and powerful on a global level.
- (2) In emphasizing the need to focus on social objectives, the Bank opened up a debate about its own purpose and that of development finance in general.
PROMOTING ECONOMIC GROWTH
What is the basic needs approach ?
An approach to development (1970s) that encouraged national governments and aid donors to prioritize policies, budgets, and actions that would ensure that disadvantaged people were able to access a MINIMUM level of well-being, including food, water, shelter, and primary education.
Why is East Asia is a miracle ?
South Korea, Taiwan, Hong Kong, and Singapore DIDN’T follow the structural adjustment model.
- Embraced export-oriented growth
- Sustained involvement of the state in protecting and subsidizing selected industrial sectors to compete on international markets.
What’s the Mexican Peso crisis ?
Market liberalization encouraged a stream of US investment into export-oriented industries in the early 1990s making Mexico appear to be booming.
The rapid economic growth would remedy low wages and high poverty levels.
In 1994, Mexico was thrown into a deep recession, with wages falling further and unemployment increasing.
The economic turmoil was resolved only when the US sponsored a massive bailout package and the Mexican government took over the debts of private banks.
What is the main aim of good governance for institution-building ?
What is it’s fault ?
- Craft a political architecture that supports market economies through transparency, rule of law, and accountable decision-making (mechanisms that would enforce transparency and accountability).
By blaming the political environment for the failure of structural adjustment, the good governance doctrine denies that there may be weaknesses in the structural adjustment strategy itself.
What is the Foreign Portfolio Investment ?
Critic ?
–> Investments not made in an enterprise form that include the purchase of foreign debt, loans, and stock market investments on foreign stock exchanges.
- This process is called “capital account liberalization,” and the IMF suggests that it complements other forms of liberalization and enhances the ability of developing countries to attract capital.
–> Critics suggested that FPI is short-term, speculative, and prone to creating financial bubbles.
What does poverty reduction strategy papers entail ?
PRSPS : Poverty reduction strategy papers
prsps are intended to cover a wide range of social, economic, and political reforms, including a firm’s commitment to good governance + a country’s ownership of reforms.
How does the World Bank use the theory ‘social capital’ ?
Market
Empowerment
The World Bank uses the theory to help explain the social dimensions as to why some individuals/groups are more successful in gaining assets to participate effectively in markets + and how they are less vulnerable to market fluctuations and other unforeseen events.
The Bank suggests that it needs to “empower the poor.”
- Empowerment is as a process where the poor are mobilized in creating reforms that reduce constraints on their economic activities and upward mobility.
The BANK says that we should empower the poor - how so (3) ?
The solution, according to the Bank, is to empower poor people by giving them VOICE :
- (1) by promoting democracy + the rule of law;
- (2) by promoting education
- (3) through technical assistance to civil society groups in forming “pro-poor coalitions” that can enforce good governance.
What was Rostow’s POV on foreign aid + USA ?
Economists like Rostow (modernization theory) proposed that aid would help countries in the Global South while maintaining US foreign interests in these contexts.
What are the three main reasons why foreign aid goes to corrupt countries ?
- The pressure to lend as the aid industry employs a lot of people.
- The fear that the poor would suffer and that countries could not repay debts.
- Donors cannot agree on what is corrupt and what is not.
Sachs mentions three channels for aid investment; what are they ?
- Households, mainly for humanitarian emergencies such as food
- A country’s budget to finance public investments
- Private businesses (like farmers) through initiatives like microfinance or similar schemes.
What is Moyo’s POV on foreign aid ?
(1) Aid is a vicious cycle that props up corrupt government
(2) Aid does not build a competent civil service
(3) Aid supports rent-seeking
(4) Aid results in poor public service contracts
(5) Aid does not build social capital/trust
(6) Foreign aid can encourage conflict
What is Moyo’s take on how aid generates economic problems for developing countries ?
(3 characteristics)
- Reduces domestic savings ;
- Crowds out private investment;
- Rise of inflation.
The Bretton Woods system was predominantly influence by who ?
US and UK
What is the structure of the World Bank?
- 189 members
- Board of Governors for each of the WB group organizations
- Voting rights are based on contribution (US supremacy)
- Decisions made by consensus
The President of the World Bank was who? Who is it now ?
Initialy, David R. Malpass (american)
Now its Jim Young Kim (2019)
What are the attributes (functions) of the World Bank?
- Raise capital on private markets through World Bank bonds
- Offers loans (soft or hard) through IDA
- Research is based on development thinking
- Not really impartial (US supremacy)
- Shifts in projects created to the worsening of extreme poverty
- Wield significant clout due to its political/financial power + economic expertise
What are the 2 purposes of the World Bank?
(1) exchange rate stability
(2) short-term financing to overcome balance of payment difficulties
How does voting really work in the World Bank ?
What are the % of voting power USA ?
Members pay a “quota” :
- (1) constitutes a pool of money;
- (2) determines special drawing rights;
- (3) voting power on board of directors.
Voting Power: US has approx. 16.5%
What are the 3 conditionalities of the IMF?
- Reduce government expenditure;
- Tighten monetary policy;
- Eliminate structural weaknesses (privatize public firms)
What are the main critics of the IMF (5) ?
- Doesn’t represent the realities of the states
- The US supremacy
- IMF + World Bank are represented by wealthy states
- The World Bank won’t lend if IMF says no
- Countries are afraid to disagree with IMF despite having talented economists familiar with the local context due to fear of fallout with the IMF and the potential negative market effects
What were the reforms talked about in the 2009 G20 Summit ?
- Reform global architecture to the needs of the 21st century
- Shift in IMF quota share to dynamic emerging markets and developing countries
- Dynamic formula to reflect countries evolving economic weight
What are the functions of UNDP ?
2 MAIN FUNCTIONS
- Executive board = 36 members
- Extensive network of Resident Coordinators
- The UNDP is funded by ”voluntary contributions from UN Member States, multilateral organizations, private sector and other sources, in the form of unrestricted regular resources (core), and contributions earmarked for a specific theme, programme or project”
– Gives grants
– Provides technical assistance/cooperation
How does McNeill and St-Clair characterize UNDP?
Positive POV
The UNDP’s strength lies in its coordinating and convening power due to its relationship with governments of poorer countries –> its more responsive + humane development agenda.
Why does the UNDP fall short ?
- Falls short in its limited financial resources
- Gaps in technical expertise
- Donors have less confidence in the UNDP, want more control
What is the structural adjustment ?
A controversial series of economic and social reforms promoted by the IMF and World Bank following the 1982 debt crisis that aimed to promote economic development through minimization of the state in societies and liberalizing markets.
What was the original role of the World Bank ?
The original role of the IBRD (World Bank) was to make loans at preferential rates of interest to European countries devastated by war.
Why are IDA loans different ?
The International Development Association (IDA) was formed in 1960 as a new organization within the World Bank = gives loans that would fund large-scale infrastructure projects.
–> These loans were provided at a virtually interest-free status over long periods of repayment. This allowed the IDA to fund a range of projects that did not qualify under the standard conditions.
Who theorized entrepreneurship?
What does entrepreneurship entail?
Joseph Schumpeter
People with a special ability to combine the factors of production in new and innovative ways to cause economic growth.
What’s the informal sector ?
What’s the main issue ?
–> Part of the economy where individuals and enterprises do business without being officially registered or regulated.
–> Usually associated with small or micro-enterprises.
- They operate businesses that aren’t legally registered,
- They can’t get bank financing,
- They don’t pay taxes,
- They don’t follow labour or health and safety regulations.
In developing countries = survival strategy
What is Hernando de Soto’s theory on entrepreneurs ?
Hernando de Soto argued that poor entrepreneurs were unable to convert the assets they controlled into capital because of an inadequate property rights regime.
- The absence of enforceable property rights is a “missing link” that condemns entrepreneurs to small-scale, unproductive, and precarious investments.
Property rights need to be strengthened and enforced to create the right incentives for productivity (e.g., collateral).
What are the 3 pillars the Commission deems necessary for the development of the entrepreneurial sector?
- Playing field with fair rules + enforcement (permit businesses to establish themselves easily);
- Access to credit;
- Support for the development of skills + knowledge (human capital).
What does property rights regime mean?
Goals ?
The legal framework defining which assets and whose assets are officially defined as property and recognized by others as such.
–> Having legally recognized property that can serve as collateral
What are the 2 features John Dunning explains for distinguishing MNCs + enterprises?
- Coordinates value-adding activities across national borders
- Internalizes the cross-border transfer of inputs used in the production process
What’s an MNCs?
How are MNCs called in developing countries?
Corporations that invest across national borders and/or establish branch plants, subsidiaries, or other operations in more than one country.
–> Usually used as a synonym for “transnational corporations” and “multinational enterprises”…
Emerging multinationals (emncs)
What’s the international division of labour (IDL) and who mentions it?
What’s the main issue?
A concept that recognizes that countries served different purposes within the global economy –> developing countries exported commodities (natural resources) to the developed countries, who in turn exported manufactured goods back to them
- Paul Baran
- Unequal terms of trade + exchange –> superiority of CORE countries
High value manufacturing remained in the core countries and commodity and resource extraction was conducted in developing countries, maintained and deepened the underdevelopment of the periphery. Profits made in the periphery were sent back to the head offices in the core countries of the North.
What’s Peter Evans’ POV ?
He argued that the state can create its own state-owned firms and promote joint-ventures between the state, MNCs, and local firms.
This way, the state could push industrialization forward by benefitting from the technology, management skills, and capital contributed by foreign firms.
What’s the OLI paradigm and who mentions it?
other name + 3 points
Developed by John H. Dunning and also known as the “eclectic” approach.
–> The internationalization of MNcs through the interaction of three factors related to its
- Ownership (O)
- Location-specific (L)
- Internalization (I) advantages
What are the 3 categories of the OLI paradigm?
Ownership advantages :
- Elements unique to the firm and generally not available to other firms (e.g.: patents, processes, organizational abilities, marketing and management, and access to capital, resources, and markets).
Location-specific advantages :
- Factors in a country where the investment takes place that fit with the firm’s other advantages and may include political and economic factors.
- When the factor is important to the firm, it will internationalize (become multinational) instead of simply trading with that country.
Internalization advantages :
- Advantages of coordinating production within the hierarchical governance structure of the firm instead of buying and selling the parts needed to produce…
What’s a transaction cost ?
The economic costs of performing a market transaction.
What does transfer prices mean?
Concern?
The internal price that a MNC attributes to a product it trades across borders between different branches of its organization.
That price is fixed by administrative decisions.
Used as a strategic transfer pricing to reduce their overall tax burden by spreading it across more than one country.
What does the resource-seeking strategy entail?
MNCs require specific resources that are ONLY available abroad.
Typically, these resources may include natural resources + agricultural goods, desirable services that can only be accessed locally.
–> Needs specific managerial or technical skills.
What does the efficiency-seeking/cost-reducing strategy entail?
MNCs plan to make their global operations more efficient through exploiting differences in the availability and cost of labour, capital, and resources.
E.g. : The location of light manufacturing and assembly plants in low-wage countries.
What does the market-seeking strategy entail?
What are its characteristics?
MNCs establish a subsidiary to serve the consumer demand of a local market directly instead of by trade.
- FDI is chosen over trade because it is required by law to enter the new markets
- Permits the product to be adapted to local conditions
- Less expensive
- Strategic response to competing firms.
What does the strategic asset-seeking strategy entail?
MNCs buy up assets of other corporations as part of a global strategy to improve their competitiveness.
What does the obsolescing bargaining model (OBM) mean and who mentions it?
Raymond Vernon argues that each actor— state + firm—wants to capture a greater share of the benefits of foreign investment and that over time the relative strength of each actor changes.
At the time of the investment, the multinational corporation is in the stronger position, but over time, the initial contract over the terms of investment erodes as the state becomes more powerful.
