Archive for category: Economy

Information and stories about economy.

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10 Facts About the Poverty Rate in Kosovo

Poverty Rate in KosovoKosovo, also known as the Republic of Kosovo, is located in the central Balkan Peninsula. According to the CIA, Kosovo has a population of 1,882,018. Kosovo is the second-poorest country in Europe. Due to a high level of corruption and little contract enforcement, poverty is a huge problem in Kosovo. Here are 10 facts about the poverty rate in Kosovo:

  1. The unemployment rate in Kosovo was 34.8 percent in 2016, which means almost one-third of the labor force in Kosovo does not have jobs. The rate increased 0.2 percent, from 34.6 percent in 2015 to 34.8 percent in 2016. Kosovo is ranked 197th on a list of unemployment rates worldwide.
  2. Thirty percent of the population in Kosovo fall below the poverty line, which means more than 550,000 people in Kosovo live in poverty.
  3. Kosovo’s GDP was $18.49 billion in 2016, which places it at 149th in the world.
  4. Kosovo’s GDP per capita in 2016 is $9,600, which makes it the second-poorest country in Europe. Kosovo’s GDP per capita is ranked 140th in the world overall.
  5. Youth unemployment is also a problem in Kosovo. The youth unemployment rate is near 60 percent in Kosovo.
  6. Kosovo’s official currency is the euro. However, Serb majority communities are illegally using the Serbian dinar as an official currency.
  7. The inflation rate in Kosovo is 0.2 percent, which is ranked 43rd compared to all the other countries in the world.
  8. According to research data, the majority of Kosovo’s citizens live with a monthly income of fewer than 500 euros. Most of this income is spent on food and daily supplies, which leaves little for medical care and entrainment.
  9. Kosovo’s citizens lack affordable health services. The government’s budget for health care can only cover 60 percent of medications considered essential. Treating serious diseases like cancer is unaffordable for most families in Kosovo.
  10. Kosovo’s economy has shown progress as it transforms into a market-based system. However, Kosovo’s economy also depends heavily on the international community for financial and technical assistance.

Although Kosovo’s economy is facing many problems and the poverty rate in Kosovo is still relativity high, Kosovo’s economy is making progress. Reducing the unemployment rate and raising living standards are the two major things Kosovo should be focusing on to improve the economy and reduce the poverty rate.

– Mike Liu

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China’s Poverty Reduction Plan Making Strides

China's Poverty Reduction PlanThe 11th ASEAN-China Forum on Social Development and Poverty Reduction took place in Cambodia’s Siem Reap province. During the meeting, over 120 government officials, experts and scholars from China and ASEAN countries gathered together. They discussed China’s poverty alleviation plan and most successful practices.

The Country Director of the United Nations Development Program (UNDP) Cambodia, Nick Beresford, praised China for their poverty-reduction methods, which have lifted “hundreds of millions of people out of poverty.” According to the China’s State Council Leading Group Office of Poverty Alleviation and Development, more than 700 million Chinese citizens have transitioned out of poverty. In addition, the rural poor population in China has declined to 43.35 million in December 2016.

The President of the International Fund for Agricultural Development (IFAD), Gilbert Houngbo, also believes that China’s poverty reduction plan presents an excellent model for other countries to implement within own their economies. China’s economy is the second largest and accounts for 14.8 percent of the world economy, right behind the U.S. economy. With 1.38 billion people, China also has the largest population in the world.

“Even as a symbol,” President Houngbo stated, “China’s economic transition offers hope to other developing countries that want to do the same thing.”  The primary component of China’s poverty reduction plan is steady income growth for the bottom 60 percent of households in rural China. This plan has four underlying factors:

  1. Increased industrialization and urbanization throughout the country has transformed an agricultural surplus labor force into urban employment in China.
  2. Equally distributing land between the bottom “quintile households” and the top income households is another goal. The equal distribution of land enables the lower income households to proportionally benefit from the payments the state provides to support agricultural development.
  3. Universal social development programs are making contributions to increase income growth for bottom households. China has successfully implemented several social development programs designed to improve educational, medical and income growth.
  4. Targeted poverty reduction programs will develop the physical infrastructure and increase social development. They will also generate income to assist poor households.

A global market research and consulting firm called Ipsos conducted an international survey titled, “What Worries the World.” The 2017 survey documented answers from 26 different countries. They asked a random sample of 18,557 adults, aged 16 to 64, if they believed China had been making the right decisions for its citizens.

China has the highest percentage (87 percent) of people believing their country is going in a positive direction. In the survey, China was the only country to list “moral decline” as their top issue. A majority of the other 25 remaining nations listed “health care” or “unemployment” as their country’s top issue.

In a distant southern Chinese village, China’s poverty reduction plan is being tested. The Yi ethnic group has a unique language and culture from mainstream China. They reside in a geographically remote location. Many of them are illiterate and have a value system distinct from traditional money and prospects. Years of government intervention have failed to alter the Yi ethnic groups way of life.

In the village of Liangshan, more than 400,000 people are “classified as poor, meaning their yearly income is less than 340 dollars.” The Communist Party of China believes that lifting the Yi ethnic group and others out of economic hardship is critical to achieving the country’s goal of ending poverty by 2020.

While insufficient schools and language barriers present large issues, many locals believe that job creation for minority groups would be more successful than simply giving them money.

– Madison O’Connell

Photo: Flickr

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Progress Made on Reducing Poverty in Cuba

Poverty in CubaThe global financial crisis hurt first world nations as well as developing countries. As one example of this, poverty in Cuba has been affected. The country is doing better than some Latin American countries, but the government is struggling to maintain services such as free healthcare and education.

Cuba opened up its economy as a result of the global financial crisis, but it is worse off as a result. Fifteen percent of the population is living in poverty in Cuba. This most recent data is at least 10 years old, though, and more recent numbers are not available.

Because of the USSR’s collapse, Cuba was left to fend for itself. This has led to a restructuring of how goods and services are distributed. For example, instead of a universal food supply in the form of food stamps for everyone, Cuba is targeting the most vulnerable.

One problem Cuba faces is people living longer, despite the availability of junk food. It is estimated that the population of those over 65 in Cuba will double in the next 20 years. That will swell the number of people seeking healthcare as well as the costs associated as such.

About 40 percent of Cubans fall within the “middle class,” which is broadly defined, according to the Brookings Institute, but the average take-home pay for Cubans is $20 per month, or $0.66 per day, based on a 30-day month.

Despite this, 90 percent of Cubans own their own homes. Most Cubans can buy and sell property, open small businesses, have cell phones and form cooperatives both on and off farms.” President Raul Castro, who encourages the high ownership rate, is trying to “preserve socialism while introducing new market-based mechanisms,” according to Ted Piccone, a senior fellow at the Brooking Institute who specializes in International Order and Strategy and Latin American Initiatives.

Just as towns that concentrate and depend on one industry or business, with the risk of seeing that business close or fail, Cuba replaced dependence on the United States with dependence on the former USSR, only to see it fall. Castro inherited a Cuba that was dependent on sugar production, but with the deep socio-economic and racial scars of slavery. Some believe the revolution interrupted capitalistic growth, while others say it was “a precondition to resolving the contradictions obstructing development by ending Cuba’s subjugation to the needs of U.S. capitalism.”

Adding to the problem was Batista’s taking millions with him as he fled. This left Cuba without much of the money it needed to rebuild.

Despite the country’s economic problems, prices are kept low across the board, with some services still coming free, such as education and healthcare. Those who rent do not pay more than four percent of their income.  Cuba’s infant mortality rate is 4.5 per 1,000 live births, placing it among the rates in first-world countries, even ranking above the United States. The wealth indicators here are not necessarily material goods but instead are reflected in the quality of life. This quality does come at a price, though: Cuba’s infrastructure is in very poor shape.

Despite Cuba’s economic problems, its medical triumphs show how, despite the embargo by the United States, a country can survive if it looks for help elsewhere, and even become a leader. By investing in people and reaching out, poverty in Cuba and other countries like it can be reduced, and developing nations can make their mark on the world and life for its citizens better as time goes on.

– Gloria Diaz

Photo: Pixabay

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Organizations That Are Investing in Women

Investing in Women
Investing in women can cause multiple benefits for the economy, food security and healthcare. There are many organizations that have programs for women’s education and there are some that solely concentrate on getting women access to what they need. Two organizations that are dedicated to women are Womensphere and the Women’s International League for Peace and Freedom (WILPF). By supporting and helping women around the world, these organizations are creating growth in developing countries.

Womensphere was founded in 2007 by Analisa Balares, who is currently the chief executive. Balares started Womensphere with the goal of unleashing women’s potential to lead and transform the world. Womensphere does this by investing in programs that educate or help develop women and girls, mobilizing others to do the same and hosting its own conventions where women can collaborate and share their skills.

Womensphere is investing in women by hosting conventions that allow women to share their accomplishments. One of these conventions is an award ceremony for different organizations that are making a difference for female activism. One award recipient, Nicole Schwab, received the Luminary Award for her Gender Equality Project. This project is working to close the global gender gap by developing a global standard assessment for companies that is non-gender based. This allows women to be included more and have opportunities at higher positions. So far the project tested its idea on seven companies and five countries and hope to use this assessment framework for companies globally. Womensphere also funds and develops different leadership projects that advance women as public, societal, or entrepreneurial leaders.

WILPF was established in 1915 that is dedicated to bringing women around the world together to end violence for peaceful political, societal, and economic climates for all. WILPF four main programs as of this year are disarmament, human rights, women, peace and security and lastly crisis program. All of these programs unite women around the world to solve common problems that are happening in multiple areas. To achieve this WILPF creates awareness on issues like women’s rights as well as financing initiatives that advocate against violence.

The Disarmament Program started in 1915 when the organization was established. In 1999, the Crisis Program was developed to coincide with it. These projects are decreasing violence that directly affects women and children. The programs do this through monitoring, advocacy and reporting military spending. These programs also work to control and decrease various weapon systems to disallow any unnecessary violence.

Both of these organizations see the importance of empowering women and are dedicated to bringing women together. According to the Global Citizen, there are plenty of reasons why supporting women has a positive impact on society. One of these reasons is that women can change the global economy. Studies show that 90% of what women earn goes back to their families. The more women work, the more they spend on their children’s needs, food and healthcare. Education and awareness of childbirth and sex can cause lower maternal deaths of young children and decrease the number of teen pregnancies.

There are many benefits to investing in women and Womensphere and WILPF are just two organizations that are helping empower women and giving women more opportunities.

– Deanna Wetmore

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Agricultural Solutions to Poverty in Moldova

Poverty in Moldova
Over the past decade, Moldova had remarkable progress in the form of economic growth, the reduction of poverty and greater shared prosperity. However, poverty in Moldova is at one of the highest rates in Europe.

The World Bank reports that Moldova’s economy had rapid growth over the past decade, with an average growth rate of 5% per year. In addition, the poverty rate dropped from 60% to 27% between 2000 and 2004 and reached 11.4% in 2014. While impressive, these data points fail to demonstrate the instability caused by the very factors that spawned this progress.

Economic growth was largely driven by an increase in private consumption. However, this does not necessarily signal that Moldova’s economic situation improved, as this growth is primarily funded by remittances. In 2014 remittances accounted for 26 percent of Moldova’s GDP and were received by more than 25% of households. The decline in employment from 55% in 2000 to 40% in 2014 further demonstrates that while Moldovans may have more money and are actively participating in the economy, the past decade’s growth was not spurred by internal progress.

Any steps taken to create such progress face significant obstacles due to spatial and cross-group inequalities as access to assets, services and economic opportunities varies greatly across the population. The lack of progress toward expanding economic opportunities within Moldova pushed many to leave the country. The lack of employment opportunities was particularly damaging to rural areas, where the slow-growing farming industry remains the primary sector. Limited access to markets and non-farm jobs fostered a system where residents of rural areas are persistently poorer.

Declining fertility and the increasing emigration of the young population left the state with a rapidly aging population and a shrinking workforce. This means that pensions, which were a significant generator of income growth over the past decade, are no longer a viable tool for lifting households from poverty.

Rural areas are home to most of the poorest 40% of Moldova’s population. Residents of these areas have significantly less education and typically have inadequate access to healthcare. Even when health services are physically accessible, many lack insurance and either refuse to pay for care or are driven further into poverty in Moldova by high out-of-pocket costs.

Many believe that the 2014 association agreement with the European Union, which opened up trade opportunities, will stimulate Moldova’s domestic economy in preparation for greater dependency on exports. However, this fails to account for the significance of Moldova’s small scale farming sector which, by design, does not have access to the same opportunities as industrial farms.

Recommendations for leveling these inequalities and avoiding economic stagnation include strengthening the domestic labor market, addressing corruption in the business environment and improving the government’s social assistance scheme. Perhaps most important is the advice of Alex Kremer, World Bank Country Manager for Moldova, who urges that “enhancing the livelihoods of small farmers is paramount” for Moldova to foster internal economic progress.

Given the persistent spatial inequalities in living conditions and the fact that agriculture accounts for such a large portion of employment, it is important to note that the causes of poverty in Moldova remain much the same as they were a decade ago. To eradicate them once and for all, Moldova must invest in its human capital by improving living conditions across the rural-urban divide and foster quality education and healthcare services.

– Alena Zafonte

Photo: Flickr

The High Cost of Living in Denmark

Cost of Living in Denmark
Denmark is known for its high taxation and social spending as a significant portion of its budget, but it may be a lesser-known fact that the cost of living in Denmark is among the highest in the world.

As of 2017, the cost of living in Denmark was ranked sixth in terms of its consumer price index (including rent), which is currently at 65.83. The consumer price index is a calculation of the average prices of rent and consumer goods and services within the country. Though this number is high, it pales in comparison to the two other Nordic nations that are also listed as being in the top ten most expensive countries to live. Namely, Iceland, which was ranked third with a CPI index of 92.79, and Norway, ranked fourth with a CPI index of 76.70.

The reference point of these CPI calculations is the cost of living (including rent) in New York City, meaning that New York City is a baseline equal to 100. That said, this data reflects that the average cost of rent plus the average cost of living in Denmark is 34.17% less than the cost of living and rent in New York City.

The country also has a sales tax rate of 25% and Danish citizens, in almost all cases, pay more for consumer goods and services. For example, the price of a Volkswagen Golf 1.4 TSI hatchback in the U.S. is approximately $20,000. In Denmark, this price is about $45,747.33, and the cost of gas is about or $1.59 per liter, or $6.36 per gallon.

Among other comparisons to the U.S., the average price in Denmark for a pair of Levi 501 jeans is about $130, a basic dinner for two in a local pub or diner is about $64 and a 40” flat screen television costs about $603. Also, the median monthly rent for a furnished 480-square-foot studio apartment in an average neighborhood is about $917, in addition to an average of $190 in utilities per person.

Another unique aspect of the Danish economy is that although the average citizen makes about $43,000 per year, they devote between 35 to 45% of this to their income taxes, depending on whether they are married, have kids and a few other factors. For those making $67,000 or more per year, a total of 52% of their income will go to taxes, and the highest marginal tax rate for the wealthiest is currently 55.8%. However, these tax rates are comparatively lower than in the past. Data shows that in 1997, Danes paid a record high top marginal income tax of 65.9%, and the rate did not fall below 60% until 2009.

Nonetheless, as of August 2016, 60% of Danes said that they would oppose tax cuts, 15% said they were unsure and only 25% favored them. The reason for such a high level of support for high taxation is because most Danes view the taxes as an investment for a better society and an increased quality of life.

Since it is a focus of many Danish policymakers to take into consideration the quality of life and overall happiness for their citizens, they ensure that they have a highly funded welfare system. For this reason, it is not surprising that education is entirely free even at the university level and every Danish student gets $900 monthly from the government. This is not only beneficial for young people, but it also relieves parents from having to worry about how they will finance their children’s education.

Denmark also has one of the most generous parental leave policies worldwide, allowing parents up to a total of 32 weeks of funding from the state to tend to their newborns following birth, as well as free, safe and high-quality health care for all citizens.

The Danish labor market is also positively impacted by the welfare model. By practicing an extremely efficient active labor market policy that, among other things, provides job-searching assistance to the unemployed and makes efforts to keep the unemployed actively engaged in searching for a job. In addition to this, if a Danish citizen loses his job, he can receive unemployment insurance for up to four years.

Perhaps it is a combination of these things that has led Denmark to be ranked the happiest nation in the world for the third year in a row, according to the United Nation’s World Happiness report of 2016. The five countries that were ranked directly below Denmark were Switzerland, Iceland, Norway, Finland and Canada, which is notably significant as all of those countries also impose high taxation and have similar welfare programs in place.

While the cost of living in Denmark is high, and the country is certainly not a flawless, utopian society, it appears to value the well-being of its people over economic growth. Demark can, at a minimum, serve as a role model to the global community when it comes to improving the lives of its citizens.

– Hunter Mcferrin

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Poverty in Oman: Past, Present, and Future

poverty in oman

Oman is a country in the Arabian Peninsula bordering Saudi Arabia, Yemen and the United Arab Emirates, which places it in the southeastern coast of the region. The coastal regions of the country benefit from fertile soil and a beautiful landscape with impressive mountains. Despite the country’s strong agriculture and its oil, it has recently faced an economic downturn following its big investments in social welfare, causing oil prices to drop and the budget to decrease.

Economic Crisis

The aforementioned economic downturn of the country was due to a protest during the Arab Spring in 2011. The citizens demanded more employment opportunities, economic benefits, and a crackdown on the government’s corruption, which is an absolute monarchy led by the Sultan of Oman. While the government did respond to the protest by providing social welfare benefits, the result was an unmanageable budget that contributed to the poverty in Oman. The biggest concern on the economy of Oman is related to the shifting prices of oil, as the country is highly dependent on oil to generate revenue. In fact, oil can account for somewhere between 68% and 85% of the country’s entire revenue generated in a year. This is why Oman suffered a budget deficit of $13.8 billion in the year 2016, the same year global oil prices dropped.

Wages and Migrant Inequity

While the statistics don’t indicate a high rate of the country’s nationals being under the poverty line, poverty in Oman primarily affects migrant workers. Omani nationals benefit from a minimum wage at $592 a month in addition to a $263 allowance. Migrant workers in Oman do not have access to these benefits and are compensated with low wages.

Many countries in the Middle East, including Oman, employ female migrants to work in households. They are tasked with taking care of the children, cooking, and doing daily chores. Oman has at least 130,000 of these female migrant workers, and they face poor working conditions. This includes lower wages than initially promised, excessively long working hours and, according to interviews with about 59 of the workers, there are even cases of physical and sexual abuse from employers.

A Plan Forward

The state is at risk of major deficits in its budget in a case where oil prices drop, as was the case in the year 2016. To solve this, the sultan has been seeking alternative ways for generating revenue in order to reduce the risk of another economic downturn. The country has already made progress by making a development plan in 2016 to decrease its oil dependency. The plan seeks to open doors in industrialization and privatization, diversifying its sources of revenue.

According to the CIA, “The key components of the government’s diversification strategy are tourism, shipping and logistics, mining, manufacturing, and aquaculture.” Despite Omani nationals struggling to find employment opportunities due to migrant workers’ lower wages in earlier years, the country has seen an increasing number of citizens entering the job market recently. To highlight some of the progress Oman has made in previous years, its tourism industry has been opening up and contributing to the country’s GDP. 32 new hotels opened in 2018 to add over 3000 rooms to accommodate tourists, which put the country at an expected tourism growth rate of about 13% between 2018 and 2019.

COVID-19 Influence

Reports in recent months have shown a spike in Covid-19 cases among migrant workers in the Arabian Gulf countries, including Oman. Living conditions for these workers tend to be cramped and they lack access to necessary equipment and care for protection against the virus. Back in April, 16 NGOs sent letters to the gulf countries with recommendations to protect migrant workers amidst the pandemic. These recommendations include providing equal testing, medical access and continued wages for workers no longer able to work in these conditions.

While Oman has yet to respond to the letters, there has been a decline in Covid-19 daily cases over the past week. It peaked at an estimated 2164 new cases on July 13th but has been declining. In comparison, on July 15th, there were an estimated 1157 new cases.

Despite facing an economic downturn in 2016, the country has made strategic progress by diversifying its sources of revenue and decreasing its dependency on oil. These changes can greatly alleviate poverty in Oman.

– Fahad Saad
Photo: Flickr

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The Effect of Refugees on the Economy

Refugees on the EconomyThere has been considerable debate regarding the effect of refugees on the economy. Although refugees often do require assistance establishing their lives in new countries, there are countless stories of refugees who have succeeded through determination and innovation.

With a net worth of about $38 billion, Sergey Brin, the Google co-founder, is arguably the greatest refugee success story. Brin’s family fled from Russia to the United States when he was six years old to escape anti-Semitism. Google is now the most popular search engine in the world. In 2015, Google’s search and advertising tools helped generate $165 billion in economic activity; nearly 1.5 million businesses and nonprofits benefit from Google’s ad tools. It is a shining example of the positive effect of refugees on the economy.

Similar to Brin, George Soros endured strong anti-Semitism while growing up in Europe. After the Communist takeover of Hungary, Soros moved to London then eventually to the United States. He is now one of the most successful hedge fund managers, with an estimated net worth of $25 billion. He has leveraged much of that wealth to help refugees and migrants. Last year, he committed to investing $500 million in companies founded by refugees and migrants.

Andrew and Peggy Cherng have likewise channeled some of their success to help the less fortunate. Andrew emigrated from China after the Communist takeover and Peggy is originally from Burma. The couple opened their first restaurant in 1983 and have since grown a fast food empire that generates $2.5 billion in annual sales. In 1999, they established Panda Cares, a charity dedicated to serving disadvantaged children the world over.

Although these individuals may be outliers and more successful than the average refugee, studies indicate that many immigrants share a propensity for entrepreneurship. According to the Kauffman Institute, immigrants are twice as likely to start businesses as native-born Americans. These new businesses can help to provide employment opportunities for both native and foreign-born Americans. Immigrant-owned businesses employ a full ten percent of American workers and generate $775 billion in revenue. With such statistics, there is little question as to whether the effect of refugees on the economy is positive or negative.

– Rebecca Yu

Photo: Flickr

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The True Costs of Fast Fashion

Fast Fashion
The fashion industry used to be “four seasons in a year; now it may be up to 11, 15 or more.” This phenomenon is resulting in “fast fashion.” Currently valued at $1.2 trillion, with more than $250 billion spent in the U.S. alone, the fashion industry has exploded as increased wages have increased demand. With this overload in consumption, there is inevitably much waste which damages the environment and exploits poor workers.

According to the Environmental Protection Agency, 15.1 million tons of textile were created in 2013. More than three out of every four garments has been incinerated or put in landfills. Traditionally, the U.S. has tried to reduce waste by selling used clothing to countries such as Pakistan, India, and Russia. With the strong dollar and increasing availability of cheap clothing from Asia, however, demand for secondhand clothing has decreased. As a result,  large amounts of waste needed to be taken care of.

The fast fashion industry also imposes an immense burden on the environment. The industry produces “10 [percent] of global carbon emissions and remains the second largest industrial polluter, second only to oil.” Producers consume nearly 70 million barrels of oil a year in just the production of polyester fiber and dump 1.7 million tons of dyeing chemicals into the environment. The industry also goes through an estimated 1.5 to 2.4 trillion gallons of fresh water a year, polluting much of it and damaging both human health and the environment.

While recent progress has created worker empowerment, the use of cheap labor in the fashion industry has been marred by tragedy. In 2013, a garment factory in Dhaka, Bangladesh collapsed, killing more than 1,100 people. Like other countries experiencing immense poverty, Bangladesh would “see its economy collapse” without the textiles industry. Brands such as Gap, Adidas and H&M have also been criticized for using child labor, paying wages of 50 cents per hour and demanding 10-hour shifts. With other options only as good as intensive agricultural work, many uneducated women find these abusive jobs as their best options. Workers also have had very little leverage in negotiating their working terms and so have less job security.

As all these issues continue to be exposed, however, progress will continue to be made. Since the factory collapse, registered trade unions in Bangladesh have increased from three to 120 and wages nearly doubled. As consumers have grown warier, smaller brands have emerged to promote the “slow fashion movement,” where people shop for quality over quantity and buy products made of sustainable materials. Larger brands have also sought change. H&M and Patagonia launched trade-back programs where customers can send in unwanted clothing that will be recycled and sold again. Nike has also worked to eliminate child labor and improve working conditions.

Although it is always great to see businesses take the initiative in improving the fast fashion industry, the ultimate dictator of change is the customer. Customers are the deciding factor in what companies produce. If the purchasing culture changes to one where customers primarily value how companies have treated its workers and the environment, then the necessary change will follow.

– Henry Gao

Photo: Flickr

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The Missing Middle of Economies in Development

Missing Middle of Economies
Cited in the 2015 award-winning documentary “Poverty, Inc.,” the “missing middle of economies” refers to the theory that a gap of “small and medium enterprises” in developing nations prevents economic prosperity.

The Harvard Kennedy School’s Center for International Development is studying this issue to develop solutions that could lead these countries out of foreign aid dependency and into an environment that encourages local entrepreneurship and development.

World Bank Group databases suggest that small and medium enterprises (SMEs) “are responsible for 50 percent of GDP and over 60 percent of employment” in higher-income nations. Rates are “less than half of that” in developing, low-income countries, a fact that indicates major hurdles to economic autonomy and prosperity.

While small and large businesses may profit in low-income countries, the missing middle of economies produces roadblocks to development that keep countries dependent on foreign aid.

In a 2006 study published in Elsevier’s Journal of Financial Economics, researchers highlighted the challenges local entrepreneurs face with “entry costs” or “entry regulation.” They concluded that “entry regulations hamper entry,” an effect that is heightened in developing countries.

Harvard Kennedy School’s Asim Kwaja is a professor of public policy and principle investor in the Entrepreneurial Finance Lab Research Initiative, a pilot program designed to open entrepreneurial opportunities in developing African markets. Kwaja mentioned a “frustration” he has experienced throughout his career.

“There is a perceived massive cost, a political cost,” Kwaja said, for developing nations’ governments to set policy for local entrepreneurship. Tax codes and permit requirements, among other regulations, ultimately stymie development.

The Entrepreneurial Finance Lab Research Initiative investors have tested their model in seven countries, trying its ability “to stimulate entrepreneurship, access to finance and economic growth across the developing world.” Kwaja looks to change the “little perception of any returns” by encouraging policy reforms to stimulate the growth of SMEs.

On top of regulatory obstacles, local entrepreneurs face competition from low-cost (or no-cost) foreign aid suppliers like NGOs and non-profits.

Michael Matheson Miller, director-producer of “Poverty, Inc.,” holds graduate degrees in international development, philosophy and international business. He is a fellow at the Action Institute, a non-profit organization that aims to promote “a free and virtuous society.”

“Poor people are not poor primary because they lack stuff,” Miller said in a radio interview in May 2016. He asserted that the world’s poor lack the political liberties and economic opportunities they need to prosper.

“Poverty, Inc.” highlights the way unpredictable influxes of foreign aid mire economic opportunism. While most charitable giving is motivated by altruistic intentions, Miller stated that non-profits, NGOs and even foreign governments treat the poor as “objects” rather than “subjects and the protagonists of their own story of development.”

The missing middle of economies engenders a need for more strategic coordination to help developing countries gain a chance at economic prosperity.

– Tim Devine

Photo: Flickr