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Financial Sector

Is Bangladesh Getting Public Investment Right?

Zahid Hussain's picture

Economic growth in Bangladesh began to decline since FY06 at roughly the same time that its public investment rate started falling. The decline in growth also appears to coincide with slowdown in growth of infrastructure capital in the hard infrastructure sectors; particularly energy, transport and communication. It is therefore tempting to think that the two may be correlated.

Indeed, economic theory suggests that the availability of economic and social infrastructures makes it conducive for the private sector to invest; higher public capital increases productivity and reduces production costs; and by increasing demand public investment gives rise to profit and sales expectations which in turn induce private investments. These are known as the crowding-in effects of public investment.

Crowding in, however, cannot be taken for granted. Public investment can also crowd out private investment if it is made in activities that compete with the private sector. In addition, the growth impact of increased public investment depends on how it is financed. If it is financed through higher public debt, which implies higher future taxation levels, private investments may get crowded out.

Innovation: An Un-Level Playing Field for Developing Countries

Tom Grubisich's picture

Innovation has always been crucial to economic growth, and never more so than in this era of globalisation.  But globalisation can create innovation winners and losers.  The new book Innovation and Growth: Chasing a Moving Frontier, published jointly by the Organisation for Economic Co-Operation and Development (OECD) and the World Bank, describes how innovation -- not principally from newer science but the penetration of older, infrastructure-intensive technologies like improved water source and sanitation -- puts developing countries on an un-level playing field compared to developed countries.

A book launch and seminar are being held today from 9:45 a.m. to 12:45 p.m. at the World Bank Main Complex (Room MC2-800).  It will feature the book's editors -- Pier Carlo Padoan, Secretary-General and Chief Economist, OECD; Carlos A. Primo Braga, Director, Poverty Reduction and Economic Management Network (PREM), World Bank; Vandana Chandra, Senior Economist, PREM and Development Economics (DEC), World Bank; and Deniz Eröcal, Coordinator, Enhanced Engagement with Non-Member Economies, OECD.

This blog will have more on this event, but here's an excerpt from the book's Introduction summarizing the innovation dilemma:

"In the past few decades, as the international flows of trade, capital and labour have expanded across the global marketplace, the competitiveness and prosperity of high-income economies has come to rely increasingly on their innovative capability. Unlike OECD countries, developing countries’ competitiveness and prosperity remains largely tied to their endowments of natural resources. Their governments have been less successful in fostering technological innovation. Moreover, low productivity levels continue to constrain their competitiveness in the global market.

 "The unique nature of innovative activity and the growing interconnectedness of the world economy call, however, for greater attention to the interplay of openness and technological innovation not only in OECD countries, but also in developing economies.  Innovation systems increasingly rely on 'open' platforms and collaboration side by side with competition. At the same time, the geography of innovation is being redrawn as economic interdependence grows, emerging economies accumulate immaterial assets, and modern communication networks redefine opportunities for 'leapfrogging.' The experience of the so-called 'BRICs' (Brazil, Russia, India and China) is illustrative in this context.

After Copenhagen: DM2009 Winner Has a Message for World Leaders

Leonardo Rosario (beneath banner in photo) of the Philippines was a winner at DM2009 with his Trowel Development Foundation's project to protect subsistence fishing communities from climate change, while also improving their production and marketing and restoring mangrove forests.  Here's his message for leaders at the international climate talks in Copenhagen.

How I wish the finalists of DM 2009 could have presented their “100 Ideas to Save the Planet” to international leaders gathered at the U.N. Climate Conference in Copenhagen.

What those leaders would have seen would have been not only passion and commitment but also solutions that were innovative, pragmatic, and cost-efficient.

It’s too late to go to Copenhagen.  But Copenhagen is only the beginning of the search by world leaders for climate adaptation solutions that are worthy of their support. 

The DM2009 finalists’ projects meet all the objectives of that search.  They enhance and strengthen people’s capacity to manage climate risks and adapt to changing climate patterns, and even to build community resiliency among the most vulnerable – Indigenous Peoples, women and children, marginalized farmers, and small-scale fishers.

Building disaster-resilient communities may seem far-fetched to skeptics, but it is do-able.  With innovative, community-based management of natural resources as well as the synergy of ancient and traditional knowledge systems combined with modern technology, a quarter of the DM finalists showed how it can be done.  The main objective of the projects was to show how food, which is most important in times of disaster, can be secured.  The techniques included climate-adapted production systems, participatory plant breeding, introduction of “Family EarthBox,” bioculture systems, cultivation of drought-resistant rainforest tree food, and merging traditional indigenous production practices with environment-friendly modern farming technologies.

Does Successful Development and Economic Transformation Require State Intervention in Industry and Technology?

Raj Nallari's picture

Proponents of state intervention argue that ‘market failures’ in information, coordination, credit and others necessitate ‘infant-industry protection’ and therefore an activist role for the government. For example, information about success or failure of new industries or technological adoption may be only available to investors and innovators and not shared with other entrepreneurs. Also, new industries and technologies require complementary human capital, and basic infrastructure among other things.

How Can South Asia Overcome its Infrastructure Deficit?

Ejaz Ghani's picture

Last week, I discussed the two very different South Asias and the need for regional cooperation to bring the lagging regions up to the standards of thriving regions. However, increased market integration by itself will not be sufficient to accelerate growth and benefit the lagging regions. South Asia suffers from a massive infrastructure deficit. Infrastructure is like second-nature geography, which can reduce the time and monetary costs to reach markets and thus overcome the limitations of physical geography.

Improved infrastructure that enhances connectivity and contributes to market integration is the best solution to promoting growth as well addressing rising inequality between regions. The Ganga Bridge in Bihar in India is a good example of second-nature geography. The bridge has reduced the time and monetary costs of farmers in the rural areas in north Bihar to reach markets in Patna, the largest city in Bihar. The Jamuna Bridge in Bangladesh is another good example of spatially connective infrastructure. The bridge has opened market access for producers in the lagging Northwest areas around the Rajshahi division. Better market access has helped farmers diversify into high value crops and reduced input prices.

South Asia suffers from three infrastructure deficits. First, there is a service deficit, as the region’s infrastructure has not been able to keep pace with a growing economy and population.

Launch update: World Investment and Political Risk

Mallory Saleson's picture

Just back from London where MIGA launched its new report, World Investment and Political Risk, and partnered with the Financial Times to host a symposium on Managing Global Political Risk.  The event was standing-room only, packed with experts from the political risk insurance industry. Debate was lively on the future for investing in emerging markets, managing global political risk in uncertain times, and whether investors are moving into a riskier world.

Pour que la terre tourne….aussi à Madagascar : Vers un agenda de relance économique

Jacques Morisset's picture

Le déclin économique à Madagascar s’inscrit dans la durée. Depuis 1980, il n’y a que 7 pays en développement qui ont reporté une croissance de leur revenu par habitant moindre que Madagascar. Cette performance traduit des insuffisantes criantes en matière de développement humain et en infrastructure ainsi que des retards technologiques, qui sont les moteurs de la croissance.

Madagascar Economic Policy Update

Noro Andriamihaja's picture

For the first time since the beginning of the crisis, the Government spent massively in October through a combination of debt-service and investment outlays. Over the next few months, the new Government is expected to face three daunting challenges with significant financial implications:

  • Organizing institutions and the electoral process (US$10-20 million for each election and an additional US$5-7 million per month to run the institutions)
  • Managing humanitarian vulnerability to climatic and external shocks (e.g.,US$40 recovery cost in 2007/2008)

How One Finalist Views DM2009

Tom Grubisich's picture

What did the DM2009 finalists think about the competition and how it might be improved?  Here's a mini-interview with Andrew Reitz, who was a DM2009 finalist from Ecuador.  Reitz is a rural enterprise specialist with Conservacion y Desarollo, whose project is a combination market/conservation approach to community agriculture that would help 100 indigenous and mestizo rural households in the Andes commercialize a native blueberry while reforesting the local ecosystem.   Reitz describes his project in this YouTube clip from the Development Markektplace Channel.
 
Q. What most impressed you about your week at the competition?

A. I was most impressed that the World Bank took the opportunity to reach out to the participants with some of the curriculum from the World Bank Institute.  These sessions touched base on some of the fundamentals to project management that, if applied correctly, will surely help participants achieve higher levels of success in future projects.   I also particularly enjoyed the panel discussion of past DM winners.
 
Q. What would you like to see added to future competition programs to help ensure that all finalists have the richest possible experience from their week?

A. I don't believe finalists were given enough time to properly present their projects to the jurors.   A half hour would have allowed for a proper question and answer period.  In addition, finalists need to be better prepped on the types of questions that jurists will ask.   The session on "selling your project/idea" was interesting; however, it would have been more beneficial if past jurors were involved.
 
Q. Should there be a bigger money pool so there can be more winners among the 100 finalists?

DM2009 Adaptation Theme Catches On Worldwide

Tom Grubisich's picture

The theme of DM2009 -- "Climate Adaptation" -- is looking very timely.  Today in the Washington Post there's a revealing Page One feature on how adaptation is catching on in countries around the world, with a special focus on what the Dutch, who have had centuries of experience coping with flooding, are doing to manage perhaps worse threats coming from climate change.

Most adaptation strategies assume the Earth will get hotter -- by at least 2 degrees C. no matter what countries do to mitigate the buildup of greenhouse gases.  Adaptation doesn't try to control climate, but to adjust to its destructive impacts, like flooding and drought.  The goals are to protect people and their community, including natural resources.

The frustration with DM2009 wasn't its mission, but that there wasn't enough money to fund all the worthwhile adaptation projects that made it to the finals.  The nearly US$5 million pool funded 26 projects.  But at least some jurors thought there were many more worthy projects.  After all, the 100 finalists had survived a screeening that eliminated 94 percent of applicant projects.

The post-competition challenge is how non-winners can stay alive.  Twenty-two of the projects aim to bring help to Least Developed Countries (LDCs), those which stand to be the biggest losers from climate change, like Bangladesh in South Asia, Nepal (photo of Nepalese villager by Simone D. McCourtie, World Bank) in East Asia and the Pacific, and Mozambique and many other countries in Sub-Saharan Africa.  To improve their chances, LDC project sponsors should make an all-out effort to be included in their countries' National Adaptation Programs of Action.  Most of the world's 49 LDCs have produced NAPAs as a key step toward getting funding for their adaptation efforts from developed countries.  While the LDC Fund contains only US$172 million -- hardly enough for adaptation projects in 49 countries -- the amount is likely to be increased as a result the U.N.-sponsored climate change negotiations that begin in Copenhagen on Monday.  Furthermore, the World Bank's Pilot Program for Climate Resilience (PPCR) has US$546 million to help finance NAPA adaptation projects of LDCs that are in the pilot.  So far, PPCR includes six LDCs.  Thirteen of the non-winning DM2009 finalists come from four of those six pilot countries (Bangladesh, Cambodia, Mozambique, and Nepal). 

The 22 non-winning DM2009 finalists from LDC countries can make strong cases for inclusion in NAPAs.  First, they have already been closely scrutinized by evaluators.  Second, these early-stage projects are minimally expensive -- none would cost more than US$200,000.  Third, they meet the top NAPA "guiding element" of local focus because they're strongly community-based.  Fourth, they were designed to be replicated.  And fifth, their specific objectives dovetail with the more general ones of their countries' NAPAs.

There's a common message for all those finalists: Go for it.


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