Economics 172 Issues in African Economic Development Lecture 22 April 13, 2006.

Economics 172Issues in African Economic Development

Lecture 22

April 13, 2006

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Outline:

(1) Kremer and Miguel (2004)

(2) Cotton and international trade in Africa*

(3) Ethnic diversity and African development (Laitin 1992)

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• The structure of foreign aid programs is also important• There has recently been a strong push towards

“financial sustainability” in local development projects, and against continued subsidies for drugs:

– Cost recovery from beneficiaries– Health education– Local “ownership” of projects

• Contrast with standard public finance approach that advocates ongoing subsidies to overcome externalities

Kremer and Miguel (2004) on financial sustainability

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• Observational (non-experimental) estimates – Wells have no effect on worm infection– Latrine ownership reduces worm infection

• But latrine costs quite high– $130.20 per child-year of infection averted– Drug subsidies are more than 100 times more

effective in terms of reducing infections

(4) Water and sanitation

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(1) Foreign aid and development (Easterly 2001)(2) Debt and development (Leonard and Strauss 2003)(3) The design of development projects financed by aid

(Kremer and Miguel 2004)

(4) International trade and development – the case of cotton in Africa

Development in the international context

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• Many people have extremely strong views about either the positive or negative impacts of international trade on economic development

• Opponents of the current world trade regime have pointed to the case of cotton

Cotton as a lens into international trade

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• Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government

Cotton as a lens into international trade

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Map of Africa

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• Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government

– World price US$0.42, US farmers received US$0.72

Cotton as a lens into international trade

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• Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government

– World price US$0.42, US farmers received US$0.72– Three times annual USAID assistance to Africa– This leads the world market price to drop, perhaps

by 10-20%

Cotton as a lens into international trade

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• Tens of millions of Africans (in Benin, Burkina Faso, Chad, Tanzania, etc.) rely on cotton as a cash crop, but the world market is distorted by US$4 billion annual subsidies by the U.S. government

– World price US$0.42, US farmers received US$0.72– Three times annual USAID assistance to Africa– This leads the world market price to drop, perhaps

by 10-20%– Brazil has won two rounds of legal battles against

the US in the WTO

Cotton as a lens into international trade

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• Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%.

Micro-evidence on cotton prices and poverty

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• Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%.

• They estimate that national poverty would increase 7%

Micro-evidence on cotton prices and poverty

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• Minot and Daniels (2002) use household data to simulate what would happen to farmers in Benin if the cotton price fell 10-20%.

• They estimate that national poverty would increase 7%

• Meatu district in Tanzania is another cotton growing region. Farmers and the owners of the local cotton ginnery are hard hit when cotton prices fall, as they have since the mid-1990s

Micro-evidence on cotton prices and poverty

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• Sub-Saharan Africa is the world’s most ethno-linguistically diversity continent

• 14 of the world’s 15 most diverse countries are in Africa (the one exception is India)

Next topic: ethnic diversity and development

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• Sub-Saharan Africa is the world’s most ethno-linguistically diversity continent

• 14 of the world’s 15 most diverse countries are in Africa (the one exception is India)

• What language should be chosen as the national language of such diverse countries? (Laitin 1992)

Next topic: ethnic diversity and development

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Map of Africa