Monday, December 22, 2008

Development related reading

I promised in class to point out to you interesting, short and easy for you to understand articles written by the very best in the world on development related issues.

Please save, print and read these articles trying perhaps to make short summaries of their most important points.

We'll discuss some of these in class. Try using incorporating them into your essays.

This one is by Dani Rodrik: Let Developing Nations Rule

He claims that the current crisis may weaken the US and the EU to such an extent that the weight of the bigger developing countries will increase permitting them to influence the 'rules of the game'.
To make the best of this outcome, developing nations will have to have a good sense of their interests and priorities. So, what should they seek?

First, they should push for new rules that make financial crises less likely and their consequences less severe. Left to their own devices, global financial markets provide too much credit at too cheap a price in good times, and too little credit in bad times. The only effective response is counter-cyclical capital-account management: discouraging foreign borrowing during economic upswings and preventing capital flight during downswings.

So, instead of frowning on capital controls and pushing for financial openness, the International Monetary Fund should be in the business of actively helping countries implement such policies. It should also enlarge its emergency credit lines to act more as a lender of last resort to developing nations hit by financial whiplash.

The crisis is an opportunity to achieve greater transparency on all fronts, including banking practices in rich countries that facilitate tax evasion in developing nations. Wealthy citizens in the developing world evade more than $100 billion worth of taxes in their home countries each year, thanks to bank accounts in Zurich, Miami, London, and elsewhere. Developing countries’ governments should request and be given information about their nationals’ accounts.

Developing nations should also push for a Tobin tax – a tax on global foreign currency transactions. Set at a low enough level – say, 0.25% – such a tax would have little adverse effect on the global economy while raising considerable revenue. At worst, the efficiency costs would be minor; at best, the tax would discourage excessive short-term speculation.

The revenues collected – easily hundreds of billions of dollars annually – could be spent on global public goods such as development assistance, vaccines for tropical diseases, and the greening of technologies in use in the developing world. The administrative difficulties in implementing a Tobin tax are not insurmountable, as long as all major advanced countries go along. It would then be possible to get offshore financial centers to cooperate by threatening to isolate them.

Developing nations also need to enshrine the notion of “policy space” in the World Trade Organization. The goal would be to ensure that developing countries can employ the kind of trade and industrial policies needed to restructure and diversify their economies and set the stage for economic growth. All countries that have successfully globalized have used such policies, many of which (e.g., subsidies, domestic-content rules, reverse engineering of patented products) are currently not allowed under WTO rules.

Not a very easy article for the IB economics level but I'm sure you can benefit by reading it. We'll talk about it in class.

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