Development in Transition

Transitions in development: the European Green Deal and Latin America

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By José Antonio Sanahuja, Director, Fundación Carolina, Spain, Special Advisor for Latin America and the Caribbean to the High Representative of the European Union for Foreign Affairs and Security Policy

The response to COVID-19, the ecological transition and strategic autonomy are the three driving forces of the European Union’s (EU) broad transformative programme. This programme involves deep changes in its own social and economic development model and in its relationship with the world. It is a short-term reaction to a pandemic that has fast become a systemic crisis. But it is also the EU’s long-term response to an international context of globalisation in crisis and challenges to the international order. The future of EU-Latin America relations will be deeply affected by these transformations.  

For the EU, as for Latin America, the pandemic is a catalyst for change. This time the reaction has been quite different in terms of monetary or fiscal measures compared to the self-destructive cycle of austerity adopted in the European debt crisis. Following an immediate response from the European Central Bank, the council adopted a first range of modest financial support measures. But in July 2020 the European Council agreed on an unprecedented package of 1.8 trillion euro, including the new 2021-27 budget and the “Next Generation” recovery programme. The programme involves linking budget, new common taxes and Eurobonds, paving the way to a common treasury. Therefore, this agreement is an important federal step forward, that just six months earlier would have been unbelievable. Beyond its macroeconomic and fiscal impact, these investment instruments will also push the EU towards an ambitious shift in its development model.

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Regional Comprehensive Economic Partnership: why should it involve the excluded LDCs?

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By Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue (CPD)

The world’s largest trading bloc, the Regional Comprehensive Economic Partnership (RCEP), was signed in November 2020, counting 15 Asian member countries. Should the excluded countries, more specifically the low income and least developed countries (LDCs) of Asia, be worried about this development?

In recent years, the number of regional trading arrangements of various types, dealing with trade in goods or services or both, has been on the rise. 305 regional trade arrangements are already in force and the World Trade Organisation has been notified of another 496 currently under negotiation. However, the RCEP stands out for several reasons. The ten original members of the ASEAN Free Trade Area (Brunei, Indonesia, Philippines, Cambodia, Singapore, Lao PDR, Malaysia, Myanmar, Thailand and Vietnam) have now joined hands with five of the six countries with which ASEAN had bilateral free trade areas – China, Japan, South Korea, Australia and New Zealand. India opted out at the last moment, but the door has been kept open.

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Middle-income countries should not be rushed to graduate

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By Otaviano Canuto, Senior Fellow at the Policy Centre for the New South, Non-Resident Senior Fellow at Brookings Institution, and Former Vice President at the World Bank; Matheus Cavallari, Senior Advisor and Tiago Ribeiro dos Santos, Advisor at the Board of Executive Directors of the World Bank Group. Opinions here are their own. The authors wrote chapter 12 of the recent book: Alonso, J.A. & Ocampo, J.A. (eds.), Trapped in the Middle? Developmental Challenges for Middle-Income Countries, Oxford University Press, 2020

Salvador, Bahia, Brazil

Many donor countries seem eager to see middle-income countries (MICs) “master out” and graduate to a non-client status in multilateral development institutions before fully achieving their development potential. We argue that such institutions can still significantly contribute to the sustainable development of MICs, while also seizing many benefits from this relationship (Middle income countries and multilateral development banks: traps on the way to graduation).  

Multilateral development banks operate in two main ways: regular lending and concessional finance. Regular lending uses interest rates close to market levels and relies on multilateral development banks’ wealth of knowledge to create attractive projects for MICs. Concessional finance on the other hand, is attractive for low-income countries, not only because of the banks’ knowledge, but also because it is much more financially favourable, offering low interest rates or grants.

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Can middle income countries rise up to their citizens’ expectations?

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By Mario Pezzini, Director of the OECD Development Centre and Special Advisor to the OECD Secretary General on Development[i]

A call for a new social contract

Despite significant economic growth over the past years, middle-income countries (MICs) face increasingly complex challenges related to, among others, a growing demand from their new and still vulnerable middle-classes. As middle-classes have grown in recent decades, so have citizens’ aspirations and demands for quality public goods, better services and a more responsive and transparent state. More educated, better informed, and more connected than ever before, citizens are asking for more voice in public decisions. In parallel, growing aspirations confronted with chronic vulnerability of middle-classes tend to generate frustration and, more and more frequently, social turbulence. Discontent has been erupting for several years in many of these countries, going back to the Arab Spring, with recent examples like Lebanon, and some Latin American countries, including high-income countries like Chile. Today, challenges are exacerbated as the COVID-19 crisis pushes members of the middle class who had previously escaped extreme poverty, back into it. Governments seem increasingly incapable of understanding how people perceive their quality of life.

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Beyond vested interests: Reforming international co-operation post COVID-19

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By Imme Scholz, Deputy Director of the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) and Deputy Chair of the German Council for Sustainable Development[i]

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

The world is now in the eighth month of the COVID-19 pandemic. When this was written, the highest daily infection rates were recorded in India, the US and Brazil, while the highest death rates (per 100,000 inhabitants) were registered in Europe and the Americas. Africa so far has not turned into a hotspot of the disease – good news that is attributed to effective public health workers and Africa’s young population. The COVID-19 pandemic has laid bare weaknesses and blind spots in societies, economies and policies worldwide. Notably that public services the world over take too long to understand their new responsibilities under changed circumstances and as a result act too slowly, at the expense of the most vulnerable. For example, infection and death rates are high in OECD countries despite good health care systems. And insufficient digital infrastructure and access in public administrations, schools and households, exacerbated by social inequalities, affect access to education in Germany or in Latin American countries alike.

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COVID-19: A game changer for the Global South and international co-operation?

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By Debapriya Bhattacharya, Chair, Southern Voice and Distinguished Fellow, Centre for Policy Dialogue (CPD), and Sarah Sabin Khan, Senior Research Associate, CPD

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

In a short but seemingly never-ending time span, the COVID-19 crisis has propelled governments into the dilemma of balancing the response to immediate health, economic and social fallouts, with long-term recovery. Some remain vigorously engaged in saving lives. Others are seesawing between loosening restrictions and enforcing new ones to prevent a second wave. Countries from the Global South are among the worst affected by the pandemic. This is due to both their weak pre-crisis conditions as well as their disadvantaged position in global governance. There is a broad consensus that things will not and cannot go back to the way they were before. A “new normal” will emerge in terms of how governments, producers, businesses, consumers and other economic agents conduct themselves. This will be also true for global governance structures and the conventionally dialectical relationship between the North and the South.  

In this context, pessimistic views and optimistic outlooks on the post-COVID world confront one another. 

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COVID-19 and the human development crisis: what have we learnt?

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By Pedro Conceição, Director of the Human Development Report Office and lead author of the Human Development Report and Mario Pezzini, Director of the OECD Development Centre and special adviser to the OECD Secretary-General on development

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

To say COVID-19 is unprecedented is no cliché. Its simultaneous impact on multiple development areas – education, health and the economy – sets it apart. As does its geographic reach: the pandemic, and its spillover, have touched every country.

Of course, the world has seen many crises over the past 30 years, including health crises from HIV/AIDS to Ebola, and economic crises such as the Global Financial Crisis of 2007-09. Each has hit human development, devastating the lives of millions. But overall the world has still made development gains year on year. What distinguishes COVID-19 is the triple hit to health, income and education, fundamental building blocks of human development. And as a result the global human development index is on course to decline this year for the first time since the concept was introduced in 1990 – something that can still be avoided or at least mitigated with strong policy responses.

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The COVID-19 Scourge: How affected are the Least Developed Countries?

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By Debapriya Bhattacharya, Distinguished Fellow, Centre for Policy Dialogue (CPD), and Fareha Raida Islam, Programme Associate, Centre for Policy Dialogue (CPD)

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

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Dhaka, Bangladesh – March, 2020:  Lockdown amid the COVID-19 outbreak. Photo: Shutterstock

The scourge of COVID-19 continues to devastate life and livelihoods across the world. While the global community assesses the possible impact of this pandemic and commits to take action, it is becoming evident that the consequences will be more pronounced in the weaker economies, and possibly catastrophic in the least developed countries (LDCs) – a group of countries that share multiple structural vulnerabilities. A targeted package of international support measures for LDCs, realigning existing programmes, is urgently needed.

Vulnerabilities of the least developed countries

About a quarter of the United Nations’ members (47 countries) are LDCs, accounting for 12% of world population, against less than 2% of global GDP and less than 1% of global trade and foreign direct investment (FDI). These countries, penalised by geography and history, host about 40% of the world’s poor. Almost all are climate-change affected nations, and a large number are fragile states. Only about 18% of the population in LDCs have access to internet – the vast majority are victims of the digital divide. LDC governments on average spend less than 2% of their country’s GDP on public healthcare. Continue reading →

Covid-19: time to unleash the power of international co-operation

Development Matters Africa, Asia, Covid-19, Development in Transition, Latin America and the Caribbean, Policy , , , ,

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By Mario Pezzini, Director, OECD Development Centre and Special Advisor to the OECD Secretary General on Development

This blog* is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

Development co-operationThe rapid spread of the dire human, social and economic impacts of the coronavirus crisis shows just how interconnected we are. International co-operation has become –literally– vital.

A health crisis has set off a global economic crisis, where shocks on the demand and supply sides are combining in an unprecedented scenario. Many developing countries are bracing themselves. While Europe is struggling to contain and cope with a spiralling number of cases and fatalities, the effects in countries where health systems are already weak, economies are highly dependent on global demand, and strict containment policies are more difficult to implement, could be even more disastrous.

Major outbreaks in developing countries could cause the collapse of weak health systems and expose gaps in social protection programmes, especially in Africa, where so many schemes rely on official development assistance. A humanitarian crisis may be in the making: travel restrictions affect the delivery of humanitarian assistance, and infections in refugee camps – largely hosted in developing countries – will be difficult to fight. The ILO estimates that 25 million jobs could be lost worldwide, possibly more, as the majority of workers in developing countries are in the informal economy. Continue reading →

Can aid help countries avoid the middle-income trap?

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By Homi Kharas, Interim Vice President and Director – Global Economy and Development, Brookings Institution

This blog is part of an ongoing series evaluating various facets
of Development in Transition

Middle-income-trapMost aid agencies have tried to articulate a “middle-income” strategy for how to support client countries that are no longer poor. For example, see the Asian Development Bank Strategy 2030 and the World Bank’s approach to middle-income countries. In both cases, there is an emphasis on second-generation challenges, including those related to environmental, social and governance institutions. Failure to meet these challenges can trap countries in middle-income status.

The problem, however, is that there is no solid theoretical or empirical foundation on how to support growth in middle-income countries—the diversity of contexts and experiences is so large that robust policy conclusions are hard to draw, and useful interventions by aid agencies even harder to figure out.

Barro (2012) succinctly summarizes the limits of empirical work: “My view is that one has to accept the idea that pinpointing precisely which X variables matter for growth is impossible.” In a similar vein, Rodrik (2012) titled his paper “Why We Learn Nothing from Regressing Economic Growth on Policies.” Most researchers (see for example Jones (2016) and Kim and Park (2017)) find that middle-income growth is all about total factor productivity growth (TFP). TFP growth, in turn, is what is left over after accounting for the growth of all inputs. Jones breaks down TFP into two components: knowledge/ideas and M that he says stands for either misallocation or a measure of ignorance. Continue reading →