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July 10, 2018
10 Jul 2018

Benevolent Finance: How Development Impact Bonds Work

Development Impact Bonds
Development impact bonds are an emerging financial model that is outcome-based — donors and governments only pay if the proposed interventions achieve set goals for improving the lives of people in poor countries. Original funding for development programs comes from the private sector.

In such a model, impact bond initiatives looking for profit mobilize private capital to invest in service activities, and an outcome founder — donors or governments — pays the original investor if the service activities produce results that meet agreed-upon targets.

The First Development Impact Bonds in Education

UBS Optimus Foundation launched The Educate Girls Development Impact Bond (DIB) in June 2015, the world’s first development impact bond in education. UBS Optimus Foundation serves as the investor who recruited Educate Girls, a non-governmental organization (NGO) based in a remote rural district of Rajasthan, as the service provider. UBS Optimus Foundation directly funds Educate Girls’ programs, which works to help enroll girls into primary education and improve the learning of boys and girls in English, Hindi and mathematics.

ID Insights, a non-profit evaluation firm, serves as the third party that confirms and evaluates service progress. The outcome funder is the Children’s Investment Fund Foundation, who pays UBS Optimus Foundation a fixed amount for each unit of improvement in the quality and enrollment of girls’ education.

Satisfactory Results

The DIB functions on a $270,000 budget, and Educate Girls’ services reach 166 schools in 140 villages in Bhilwara. The goal for the program is to help as many as 15,000 children, 9,000 of whom are girls.

By the end of the second year of the three-year program, Educate Girls has achieved 87.7 percent of the proposed total enrollment increase, and 50.3 percent of the proposed total learning progress improvement.

A Focus on Outcome

Precisely because of the program’s outcome-oriented nature, service providers on the ground receive more feedback to help the organization work more efficiently. Safeena Husain from Educate Girls told Brookings that DIB and traditional grant programs are very different: while traditional grant programs only send results to donors, DIB has designed a mechanism over mobile dashboards that allows performance data to circle back to the front line. Thus, more effective strategies could be adopted as early as possible.

As this example shows, development impact bonds best serve those programs that depend on productive human behavior for the delivery of results. In contrast to immunization programs where intended results are almost guaranteed given the availability of vaccines, education programs that require attentive human effort may benefit from the development impact bond model instead.

USAID’s Initiative in India

U.S. Agency for International Development (USAID) has also tapped into the benefits offered by this innovative financial model. USAID administrator Mark Green announced the Utkrisht Bond in 2017, which is a development impact bond for health based in rural India. The investor is again UBS Optimus Foundation, with USAID and Merck for Mothers as the outcome funders.

“What’s most exciting to me is that, if this initiative is successful, which we expect it will be, the Government of Rajasthan will scale the approach throughout the State, which will leave a lasting and sustainable legacy for the people of India,” Green wrote.

These kind of positive, impactful and long-lasting benefits demonstrate the life-changing and, indeed, benevolent outcomes that development impact bonds can bring.

– Feng Ye
Photo: Flickr

in Development, Finance, Global Poverty /by /#permalink
July 4, 2018
04 Jul 2018

Main Reasons Why Development in Saudi Arabia Matters

development in Saudi Arabia
Saudi Arabia is steadily growing to be a formidable player in the 21st century on the world stage, especially with its massive oil industry, staunch relationship with the United States, and the crucial role it plays in middle eastern geopolitics and international affairs. Yet, at the same time, development in Saudi Arabia has been hindered over the decades due to its conservatism and hidebound ideals.

Saudi Arabia On the Global Stage

Although statistics and figures on the country’s poverty rate remain elusive, it is predicted that a quarter of the population may live under the threat of poverty, which is considered to be about $17 a day, or $530 a month. Income disparities also continue to be on the rise and the unemployment rate currently stands at about 12.7 percent.

Moreover, even though government-run welfare programs and spending systems like Zakat have helped aid development in Saudi Arabia in the past, the country still prioritizes the strength of its oil industry and its own self-image above all else.

Fortunately, Saudi Arabia now experiences a new wave of revolutionary change via the new crown-prince Salman’s reign. The prince’s new policies usher in a new period gradually shifting away from the traditional pivotal ideologies of Wahhabism, pan Arabism and conservatism that Saudi Arabia once stood for. The Saudi economy has great potential and capacity due to the country’s relatively young, and working-age population.

Vision 2030

In its new era of social and economic changes, the Kingdom hopes to achieve its Vision 2030 reform plan and focus on promoting greater social and political stability, sustainability and transparency. Vision 2030 also concentrates on important factors like improving standard of living and education reform so as to make future workers more skilled and competitive for the labor market.

Moreover, Prince Salman’s policies will hopefully lead to greater social progress and development in Saudi Arabia, owing to its focus on anti-corruption measures, gender equality and the empowerment of women.

Anti-Corruption and Empowerment Efforts

There has been a widespread crackdown on problems like the income gap and corruption as the country’s new anti-graft campaign to ‘clean up the economy’ goes into full swing. The anti-corruption campaigns have already yielded more than an estimated $106 billion in financial settlements from many corporates, executives, businesses, and high profile figures from both the government and the royal family.

Furthermore, with the country’s focus on socially and economically empowering women, notable social transformations will take place in Saudi society as women are given more places in the workforce and granted permits and licenses for investment and commercial activities. Consequently, the National Transformation Program 2020 also aims to boost employment opportunities among women and the youth population.

Saudi Arabia’s Continued Progress

The ban on female drivers is steadily being lifted and women will also be given more places in the municipalities in the future. In 2017, Saudi Arabia was given a place at the U.N. Women’s Rights Commission for a four- year term.

Due to recently falling oil prices, it is vital for the country to reduce its over-reliance and dependence on the oil industry. Development in Saudi Arabia can be stimulated by future growth in the country’s non-oil sectors and further economic and industrial diversification.

Fortunately, the country’s competitiveness is improving as is its growing independence and decline in the level of imports. The government also hopes to further open up the economy and interact with global markets.

Although social and economic changes in Saudi society will take time to materialize, the liberalization of the country is imperative for building a foundation for long-term sustainable growth in a fast-paced and dynamically changing world.

– Shivani Ekkanath

Photo: Flickr

in Development, Saudi Arabia, Women's Empowerment /by /#permalink
June 5, 2018
05 Jun 2018

Economic Development In Iraq Contributes To Fight Poverty

Economic Development In Iraq Contributes To Fight Poverty
According to the World Bank, after the complete eradication of ISIS in all of its territory, economic development in Iraq will most likely be deployed and bear fruitful results.

ISIS and Iraq

More specifically, the increase of oil prices and the promising rise of investments towards reconstruction are presumably fueled by a set of government actions. These decisions are set to facilitate and accelerate the process of economic and social recovery in the wake of ISIS which, as of December 2017, is no longer a major threat for Iraq.

Since 2014, the ISIS war and prolonged decrease of oil prices heavily contributed to the contraction of a non-oil economy by 21.6 percent. Therefore, a safer economic and social environment will bring nothing but economic and social relief.

Indeed, the most treasured tool for economic development in Iraq is certainly oil extraction, which accounts for 55 percent of the GDP. The remaining part of this number is divided between the services sector (33 percent), manufacturing, construction, water and electricity production (8 percent) and agriculture (4 percent).

Iraq’s Economic Growth

Oil prices and restored security, then, have been the main factors for Iraq’s solid economic growth in 2016, which amounted to 10 percent. However, fiscal responsibility and curbing corruption should go hand-in-hand with such economic development in Iraq.

To maintain a steady trend in economic growth and the road of improvement, the Iraqi government should take a serious look at how tax revenue as a percentage of GDP is barely detectable because of quite high levels of evasion and poor enforcement. Moreover, in terms of public spending, the government has been spending an amount close to to 42.7 percent of the (GDP) over the past three years, and budget deficits have averaged 8.6 percent of GDP. Public debt, as a consequence, is equivalent to 63.7 percent of GDP.

Poverty Eradication

Actions, however, have been taken towards the greater goal of poverty eradication in Iraq. In terms of analysis and planning, the government has, in fact, determined an official poverty line based on the 2006/07 IHSES (Household socio-economic survey), which also formed the basis for Iraq’s National Strategy for Poverty Reduction 2009.

Assessment reports measuring causes of poverty paired with high frequency, advanced impute expenditure surveys are top methods used to estimate poverty.

Road to Improvement

The Iraqian economy is largely state-run and oil extraction represents some 90 percent of government revenues. Meanwhile, 3.9 percent of people in Iraq are living in extreme poverty (2012). In fact, 18.9 percent live below the national poverty line (2012), with greater rural poverty than urban poverty; 11.6 percent of people in Iraq are multidimensionally poor (2011).

In recent years, economic improvement has been proven effective due to major social internal accomplishments — liberating ISIS territory is certainly on top of the list. Government and state presence can certainly encourage investments and economic development in Iraq, as they have done sporadically in previous occasions. However, it would be quite beneficial towards goals of poverty reduction if a larger portion of the economy could be left to the private sector.

– Luca Di Fabio
Photo: Flickr

in Development, Economic Growth, Global Poverty, Iraq, Poverty Reduction /by /#permalink
June 2, 2018
02 Jun 2018

The Life-Changing Impact of Solar-Powered Appliances

solar-powered appliancesElectricity is difficult to come by in sub-Saharan Africa, India and other places in the world. In 2016, an estimated 588 million people in sub-Saharan Africa and 239 million people in India were without electricity. Slowly, more people are gaining access to electricity, specifically through solar-powered appliances and lighting.

Current Issues with Electricity

A lot of the rural cities or areas do not have electricity because they are not nearby to an electricity grid. People in Tanzania, like Lusela Murandika, power TV sets with diesel generators and other parts of their homes with charcoal, wood and other biomass.

Using resources like coal, charcoal, dung or wood as a source of electricity pollutes the breathable air that is needed to survive. According to the World Health Organization, 3.8 million people a year die from illnesses that are tied to air pollution.

Kerosene used in lamps is also a dangerous product to use. It produces soot and toxic smoke that “damages lungs and causes other serious health problems,” according to National Geographic. The use of kerosene lamps, especially ones that are homemade, are dangerous because thousands of children and adults die or are burned from them.

How Solar-Powered Appliances Are Changing Things

Technological advancements have made it easy for solar-powered appliances to become more readily available to purchase. Something as simple as a solar bottle light bulb runs around $2-3.

The solar bottle light bulb is “made out of a plastic bottle of purified water and bleach, [that] is sealed into the roof,” according to National Geographic. The water allows for light to be spread out in the room and the chlorine keeps mold from growing. The solar bottle light bulb not only works with the sunlight but it also works when the moonlight is strong as well. It allows for the people in the home to be able to do more within the household, like study, read or work inside.

Connecting people that live in rural areas to an electrical grid sometimes is not possible or it becomes too expensive to be able to afford. Electricity then becomes a luxury that people cannot afford. Sometimes, people wait years for a grid to be built near them, but having solar-powered appliances allows for them to have access to that technology much sooner.

Organizations Assisting the Distribution of Solar Power

In 2016, four U.S. foundations announced an initiative “to support efforts to bring reliable ‘off-grid’ or ‘mini-grid’ power—fueled by solar energy—to people in India who now are without it,” according to Think Progress. The foundations include Hewlett, the David and Lucille Packard Foundation, the Jeremy & Hannelore Grantham Environmental Trust and the John D. and Catherine T. MacArthur Foundation. All four foundations have initiated a $30,000,000 initiative to fund the program and the Indian government is set to match this.

Furthermore, a company by the name of Easy Solar is helping provide electricity to the residents of Sierra Leone. This company is lead by Nthabiseng Mosia, Alexandre Toure and Eric Silverman. Easy Solar began in 2015 as a response to energy accessibility in Sierra Leone. In an interview from Business Report with Nthabiseng Mosia, she stated, “It’s often widely publicized that two-thirds of sub-Saharan Africans lack access to electricity. But in Sierra Leone, 90 percent of people (and 99 percent in rural areas) don’t have any electricity.”

With Easy Solar, appliances are set up so that consumers are on a rent-to-own basis, providing weekly payments. Some of the devices that the business offers are lights and mobile chargers as well as solar lanterns that have the capability of charging phones and offer more than 24 hours of light. The company’s appliances are not just limited to households but are also for businesses as well.

There are many organizations on the ground that are helping individuals obtain the necessary materials to be able to survive that will not cost them their lives. Solar-powered appliances are one solution that is helping eradicate poverty.

– Valeria Flores
Photo: Flickr

in Development, Electricity, Energy and Electricity, Global Poverty, Solar Energy /by /#permalink
June 1, 2018
01 Jun 2018

International Economic Development: US and World Bank Capital Increase

US Backs World Bank Capital Increase
The World Bank has secured a $13 billion paid-in capital increase by committing to reforms in its lending programs. The increase, opposed until recently by the Trump administration, will help the bank continue its mission of alleviating poverty and supporting international economic development.

The World Bank

The World Bank is a multilateral institution that supports developing countries through loans and grants for investment in education, healthcare, infrastructure and a variety of other initiatives that accelerate and sustain economic growth. Given its status as a nonprofit organization, the bank is willing to fund projects in poorer and riskier countries that privately funded and profit-focused organizations may not be willing to.

The World Bank must have a secure capital base in order to lend this money. This funding is supplied by its 189 member countries, with the United States (17.25 percent of total subscribed capital), Japan (7.42 percent), and China (4.78 percent) providing the most capital and thus being among its largest shareholders.

In 2015, The World Bank set a goal for a capital increase for the International Bank for Reconstruction and Development (IBRD) and International Finance Corporation (IFC), two of its lending arms, by the end of 2017.

International Economic Development and the U.S.

Initially, this goal faced a major obstacle: the United States government. A contributor of approximately 16 percent of the bank’s capital, the United States is The World Bank’s largest shareholder and the only member to have veto power over changes in the bank’s structure, giving it the capability to block the increase.

In 2017, the Trump administration expressed skepticism over the capital increase, with Treasury Secretary Steven Mnuchin expressing concerns that too much lending is being directed to upper middle-income countries that have plentiful sources of credit. Mnuchin contended that the bank should target lower income countries, supporting international economic development in locations more in need of a source of loans and grants.

In April, following a World Bank agreement to commit to certain reforms, the United States pivoted from its previous objection and supported the increase, resulting in an injection of $13 billion of paid-in capital from the bank’s shareholders and channeling more resources to developing countries.

Global Financing

Lending is now expected to average around $100 billion annually until 2030, compared to $59 billion last year — a stark increase that will ensure funding for the bank’s ongoing initiatives. To cite a recent example of the bank’s capital being put to work, The World Bank approved an $180 million guarantee to Kenya in April to encourage private sector financing in the country’s largest electricity company and increase energy security.

The aforementioned reforms accompanying the capital increase will result in a greater share of initiatives directed to lower-income markets. Countries classified in the lower- to mid-range of the IBRD income classifications currently receive approximately 60 percent of IBRD commitments, and the reform package will seek to elevate that to 70 percent.

Hurdles and Hope

These reforms mean that the bank’s increased capital will be in service of supporting international economic development for countries on the lower end of the income spectrum.

The ultimate success of the capital injection and its associated reforms will be determined in the years to come, but by overcoming the Trump administration’s initial reservations and obtaining funding, the World Bank, backed by the U.S. and other shareholders, has secured its role as a leading institution for economic development for the foreseeable future.

– Mark Fitzpatrick
Photo: Google

in Development, World Bank /by /#permalink
May 23, 2018
23 May 2018

How Infrastructure Investments Alleviate Poverty

How Infrastructure Investments Alleviate PovertyOn Friday, Sept. 25, 2015 the U.N. General Assembly embarked on a milestone in development history. Its new Sustainable Development Goals (SDGs) set an ambitious agenda to work toward ending extreme poverty and boosting prosperity by 2030. The SDGs’ platform consists of a collection of 17 global goals each aimed at addressing economic and social issues in developing countries. One such goal was infrastructure, as it has been proven in many different countries that infrastructure investments alleviate poverty.

How Infrastructure Investments Alleviate Poverty

The Industry, Innovation and Infrastructure goal aims to “build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation.” Infrastructure is the backbone of any country as it generates jobs, boost economic growth and improves the quality of life for the poor.

Take, for example, a hospital in the Democratic Republic of Congo that needs electricity to ensure the safe and healthy delivery of a newborn. A young, rural Cambodian girl needs to have a safe road to walk to school and Bangladesh needs clean water for the essential livelihoods of its citizens. These are just a few of the myriad of ways that infrastructure investments alleviate poverty.

The Costs of Infrastructure Resistance

However, when governments push back on certain infrastructure plans, it comes at an enormous social and economic cost. Roughly 663 million people lack access to clean water, 2.4 billion people do not have adequate sanitation, one-third of the world’s population is not served by an all-weather road and over 1.1 billion people, or almost 16 percent of the world’s population, still have no access to electricity.

The Industry, Innovation and Infrastructure goal has seen a tremendous impact in diminishing these issues and others in emerging countries. Mobile services have spread rapidly and have allowed people to join the global information age. In 2016, 85 percent of people in the least developed countries were covered by a cellular signal. Transportation services also drive economic development and generate wealth and employment. In 2015, the global economic impact of air transport was an estimated $2.7 trillion, or about 3.5 percent of the global gross domestic product.

Infrastructure to Overcome Debt Cycles

One recessive point in global infrastructure came in the wake of the 2008 Great Recession. The West began exporting debt to emerging markets while also purchasing debt from emerging markets. Western fund managers sold forms of credit to developing markets and the total debt rose to $49 trillion in 2014.

Unfortunately, many fail to realize that selling endless cycles of debt will make it incredibly difficult for emerging countries to service their own dollar-dominated debt at home. They will be unable to pay back these loans and growth ultimately stagnates. Fortunately, multilateral development banks are uniquely placed to assist countries in closing these long-term financing gaps. They can help identify failing market areas and create incentives in for the private sector.

Infrastructure investments alleviate poverty in developing countries through the application of projects such as bridges, roads, communication, sewage and electricity. These projects enable both public and private investors to gain on capital appreciation. While servicing the vital infrastructure needs of billions of people, these countries will, along with their booming populations, generate significant prospects for long-term growth and profit for generations to come.

– Aaron Stein
Photo: Flickr

in Development, Global Poverty, Infrastructure, Sustainable Development Goals /by /#permalink
May 22, 2018
22 May 2018

How Partnership Drives Development in Agra, Malawi and Tanzania

Partnership Drives Development
Empowering and creating partnerships with local actors is a longstanding tenet of effective development projects. When those in need rely too heavily on outside influences, regardless of their intentions, they risk losing control of the resources and decision-making best left to those closest to the problem. Partnership with local actors gives development projects the best chance of being effective and sustainable. Here are three examples of how partnership drives development.

Agra

In 2009, the community of Agra, India — home to the iconic Taj Mahal — suffered from a water sanitation crisis. Waste collection and disposal became nonexistent and a large majority of residents practiced open defecation. As waste flowed into the Yamuna river of which locals relied for irrigation and drinking, residents risked exposure to polio, typhoid, dysentery and cholera.

In partnership with the Center for Urban and Regional Excellence, a USAID-supported non-governmental organization (NGO), Agra’s governing municipality constructed a wastewater treatment plant to protect the water source used by the 2,000 community members living in Agra.

The plant employs natural processes requiring minimal power and maintenance; however, the true indicator of the project’s success came in 2017, when Agra’s municipality took over all operations from outside actors and ensured clean drinking water for the people of Agra for years to come.

Malawi

In another example of how partnership drives development, the Human Resources for Health in 2030 (HRH2030) program is partnering with the government of Malawi to recruit and hire 300 medical workers to combat the HIV epidemic. In Malawi, more than 900,000 people currently live with HIV. To add to the problem, the country suffers from a severe shortage of healthcare professionals needed to address this issue.

While the program only started in November 2017, facility managers from the HIV-freighted Lilongwe and Zomba districts have already noted the positive impact of the increase in workers. Furthermore, the local government has signed an agreement to take on financial responsibility for the new workers by 2020, committing to self-reliance and sustainability.

Tanzania

In addition to increasing access to a network of health professionals, the community of Tabora, Tanzania highlights the effectiveness of another way of combating HIV — male circumcision. Studies suggest that male circumcision reduces transmission in heterosexual men by near 60 percent, and is a powerful preventative tool, especially in combination with other approaches.

In an example of how partnership drives development, The USAID-funded Strengthening High-Impact Interventions for an AIDS-free Generation (AIDSFree) project is partnering with the Tabora regional health administration to increase access to voluntary medical male circumcision (VMMC). A standard bearer of the cause, traditional healer Albert Cosmas acts as a VMMC ambassador, encouraging other men to have the procedure and thereby helping reduce the HIV footprint in Tabora.

When development agencies make top-down decisions without partnership with local actors, they risk harming the communities they aim to serve. Indeed, “acting in collaborative partnership” is explicitly included in the United Nations 2030 Agenda for Sustainable Development. These three stories illustrate the powerful impact of a bottom-up approach that empowers local actors with the capacity to carry progress into the future.

– Whiting Tennis
Photo: Flickr

in Development, Global Poverty, HIV/AIDS, Malawi, Tanzania, USAID /by /#permalink
May 8, 2018
08 May 2018

Economic Development in Ghana Can Help Fight Extreme Poverty

Economic Development In Ghana Can Help Fight Extreme PoverAccording to the World Bank, Ghana has not been a low-income country since 2011; in fact, it has been upgraded to a middle-income one. For reference, the World Bank study defines low-income countries as those with average gross national incomes (GNIs) of less than $1,005 per person per year.

Conversely, middle-income countries are those with per capita GNIs of between $1,006 and $3,975 per year, while upper-middle-income countries are those with per capita GNIs between $3,976 and $12,275. Fortunately, the number of countries listed as low-income has declined to 35 from 63 in 2000.

Economic Development in Ghana

Economic development in Ghana is the key factor for its upgrading to a middle-income country. Ghana’s economy is the second biggest in West Africa and strong exports of cocoa, gold and oil constitute the main pillars of Ghana’s economy.

The combination of successful sectors like gold and cocoa exports and the launch of crude oil production in 2011 boosted Ghana’s GDP growth to 15 percent in 2011 and 7.9 percent in 2012. Revenue from the oil and gas sector amounted to $846 million in 2013. In 2011 and 2012, revenues reached $444 million and $541 million respectively. The vast majority of this success stems from a project called Jubilee oil field.

Economic development in Ghana is also furthered by a stable political system. Ghana has a long history of political stability and trust in democracy with a long string of free elections and turnover in terms of governing political parties.

Problems in Ghana’s Economy

Although the country is experiencing rapid growth, Ghana is also burdened by a large fiscal deficit and a large balance of payments deficit. The fiscal deficit jumped to 11.5 percent of GDP in 2012 as a consequence of the government’s increased spending on public sector wages and subsidies, while public debt level rose to 56 percent of GDP in 2012, up from 33 percent of GDP in 2008.

Economic development in Ghana, however, has certainly helped to increase the per capita incomes. The percentage of people living in poverty has, in fact, declined to less than 30 percent.

Poverty in Ghana

But Ghana’s relative poverty is still an issue. About 52 percent of Ghanaians live on less than $2 a day and another 27 percent live on between $2 and $4. The emerging middle class, on the other hand, which represents one in five Ghanaians, has a per capita daily consumption of between $4 and $20. The steady rise of a middle class in Ghana represents good news, especially considering the social and political stability that makes Ghana an exception in the African continent.

An accurate combination of safe monetary policy, higher oil production and controlled expenditures are likely to boost government revenues, which, with declining inflation and interest rates, will boost economic activity and facilitate the reduction of extreme poverty in Ghana.

– Luca Di Fabio
Photo: Google

in Development, Economic Growth, Ghana, Global Poverty /by /#permalink
April 27, 2018
27 Apr 2018

The Mechanisms and Determinants of Development

Determinants of Development
The enduring issue of why some countries are rich while others remain poor has long been the subject of great interest among scholars. New research on the determinants of development, though, appears to better identify the driving force behind development by taking an incisive look at the three traditional economic explanations for these cross-country disparities – economic policy, political institutions and geography.

Based on the findings, the researchers conclude that the primary determinant of developmental success may be the strength of institutions.

Economic Policy, Political Institutions and Geography

The research first laid out the traditional arguments for the importance of policy, institutions and geography as determinants of development.

All three are pretty straightforward: economic policy, such as a nation’s savings rate and the strength of its currency, clearly dictate, to some extent, the economic vitality of a country; geographic factors can also matter, for instance, a landlocked country like Chad – without access to the ocean or major rivers – is at a natural disadvantage because trade becomes a logistical nuisance; institutions — like the rule of law to maintain public safety, ensure property rights, and mitigate corruption — still were found to have a greater impact.

However, the researchers’ revelation was not just that policy and geography took a back seat in importance to the role of institutions in development, but that they were, independently, hardly influential at all. Research sampling 72 countries found that while poor policies may hurt growth rates temporarily, they did not have the sort of impact on long-term income levels that many had previously suspected.

Promotion of Stable Institutions

The relationship between geography and development was a bit more complicated. Although nations with poor geography and stable institutions still do well, the authors acknowledge the role geography often plays in promoting stable institutions historically.

Specifically, nations colonized by Europe in unfavorable regions (in regard to disease and other conditions) were typically turned into rentier states and dealt poorer institutions. Conversely, regions which could be settled were afforded European-mainland style institutions: democracy, property rights and the rule of law.

Determinants of Development

So, Europe’s unique colonial history shows that geography did affect the type of institutions implemented in various countries, and it is these institutions that explain differences in development.

In a sense, the revelation that among the determinants of development, growth is primarily a function of institutions should be somewhat heartening, as institutions can be reformed. Therefore, instead of nations across Sub-Saharan Africa and parts of Central America being condemned to second-class status economically, focus can shift to the ways their poor institutions can be altered to better catalyze development.

Although researchers failed to explain the means of doing so directly, recognizing that building robust institutions is the best path toward progress is an important insight.

– Brendan Wade

Photo: Flickr

in Development, Economy, Global Poverty /by /#permalink
April 22, 2018
22 Apr 2018

Economic Development In Iran Could Help Reduce Poverty

Economic development in Iran
Economic development in Iran seems to be on the horizon. The World Bank released a report called “Iran’s Economic Outlook” in which it states that 2018-19 will see an overall economic improvement in the nation as the increase in investments and the reelection of President Hassan Rouhani in May 2017 provides political stability.

Moreover, the GDP growth rate is estimated at 3.6 percent, and the International Monetary Fund projects the Iranian GDP to expand by 3.8 percent in 2018, for a future economic growth of 4.1 percent in 2022. According to many analysts, such unprecedented economic development in Iran is most likely due to the removal of international sanctions over the country’s nuclear energy program in 2016.

Iran’s Economy is On the Rise

Both the World Bank and the International Monetary Fund (IMF) have revealed that Iran has seen a staggering 12.5 percent increase of its GDP in 2016. The increase in oil output was a major factor toward such economic development in Iran, after restrictions on crude sales were removed.

Such economic improvement gives hope for a comprehensive reduction of poverty in Iran. In fact, the Institute for Management and Planning Studies has released a study in which it shows more than 900 figures of what the poverty line in Iran looks like.

Data of Economic Development

This data was collected from over 40 reports released by the Statistical Center of Iran, the Central Bank of Iran and other independent research centers. Furthermore, according to study co-authors and economists Majid Einian and Davoud Severi, 12.31 percent of all Iranians are poor and a total 10.61 percent of urban and 17.03 percent of rural households live in poverty.

According to the Financial Tribune, however, the Ministry of Cooperatives and Labor and Social Welfare draws the poverty line at $159 a month for a household of 3 to 5 members. Interestingly, the economists who led the study chose $61.3 for an individual living in urban areas and $38.6 for each person living in rural areas as the standard to define what living in poverty means.

As the World Bank has reported, Iran managed to reduce poverty to 8 percent between 2009 and 2013. However, the divide between rural and urban is still quite impressive. On average, in fact, poverty in rural areas is three times higher than in urban areas.

Action to Reduce Poverty in Iran

Between 2009 and 2014, the Iranian government took action towards the reduction of poverty by assisting its citizens with universal cash transfer. This action contributed to a economic growth of 1.3 percent of the bottom 40 percent of the population.

As far as other sectors of the economy are concerned, the World Bank foresees a growth of the agriculture at a rate of 4.1 percent in both 2018 and 2019 and of the industrial sector at 4.7 percent and 4.8 percent for 2018 and 2019 respectively, and the services sector is expected to grow at 3 percent and 3.4 percent. With these statistics in sight, the future of Iran’s economic development is promising.

– Luca Di Fabio

Photo: Pixabay

in Development, Economic Growth, Global Poverty, Iran /by /#permalink