Week 7: Dambisa Moyo & Dead Aid

Dambisa Moyo, in her book Dead Aid, discusses four alternative sources of funding for African economics.  They are: sovereign and private bond markets, foreign direct investment, international trade, and microfinance.

BioPic

Biography Picture of Dambisa Moyo (Source: http://www.dambisamoyo.com/biography/)

I believe that these are viable sources, but as Moyo points out, it is going to be very difficult; comparable to as she put it getting off drugs. Foreign direct investment is my favorite type of alternative funding.  Surprising foreign direct investment is very low in Africa, compared to historic examples of investment.  Africa would seem to be a primary candidate for it, but the world powers are not investing, like the counterpart in Asia.

Moyo argues about what drove aid in the past as she breaks it down by decade-

  • 1960s: Industrialization
  • 1970s: Fighting Poverty
  • 1980s: Lost age of Development
  • 1990s: “A question of governance”
  • 2000s: Glamour aid

The Washington Consensus is a set of 10 policies that financial institutions believed were necessary elements of “first stage policy reform” that all countries should adopt in increase economic growth.  The framework includes:

  • Fiscal discipline – strict criteria for limiting budget deficits
  • Public expenditure priorities – moving them away from subsidies and administration towards previously neglected fields with high economic returns
  • Tax reform – broadening the tax base and cutting marginal tax rates
  • Financial liberalization – interest rates should ideally be market-determined
  • Exchange rates – should be managed to induce rapid growth in non-traditional exports
  • Trade liberalization
  • Increasing foreign direct investment (FDI) – by reducing barriers
  • Privatization – state enterprises should be privatized
  • Deregulation – abolition of regulations that impede the entry of new firms or restrict competition (except in the areas of safety, environment and finance)
  • Secure intellectual property rights (IPR) – without excessive costs and available to the informal sector
  • Reduced role for the state.

Some critical voices about the Washington Consensus are anti-globalization protesters, developing country politicians and officials, trade negotiators, and numerous others. (Source)

One argument mentioned is that Geography is to be blamed.  A geography deterministic named Jared Diamond, states a country’s wealth and success depend on its geographical environment and topography.  Colonialism is another reason why aid is not working;  Colonialism set infrastructure back decades.

Jeffrey Sachs in, The End of Poverty, has weaknesses in his arguments about the poverty trap countered by Moyo.  Her main critique is that to get out of the poverty trap, it would require a lot of aid, and furthermore hurting the situation.

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