Dilemmas of

Development
Enduring question
Does participation in the world economy help or hinder the
economic development of poorer countries?

Learning Objectives
By the end of this chapter, you will be able to:

Chapter Contents Recognize the defining characteristics of a developing country and appreciate the
recent economic growth experiences of different groups of developing countries.
• What and Where are Developing Countries? -, Consider the challenges developing countries face in achieving economic goals that
• International Relations and Challenges to Developing Countries result from past and current linkages to the global economy.
• Is International Trade a Path to Development? -> Analyze opportunities and problems that the globalization of trade presents to
• Is International Finance a Path to Development? developing countries.
• Development Strategies and Emerging Powers - the BRICS
Evaluate opportunities and problems that the globalization of finance presents to
• Revisiting the Enduring Question and Looking Ahead developing countries.
• Study Questions
Compare the economic development strategies of countries that may emerge or
• Further Reading re-emerge as great powers, such as China, India, Brazil, Russia, and South Africa.
Ill Wealth and Power: An Introduction to International Political Economy 11 Dilemmas of Development
-
South Korea today is wealthy: it has a bustling, modern economy, and its citizens divided by its total population. Developing countries have lower levels of average
are among the best educated and healthiest in the world. This progress is especially gross domestic product (GDP) per capita than wealthy nations and may or may not
striking since, in 1980, the total output of goods and services that Argentina produced be on a growth trajectory that produces convergence with more developed countries.
per person, at about $2,700, was approximately 60 percent greater than that of South One important analysis (Collier 2007) suggests that countries around the world with
Korea, at about $1,700. Starting from behind Argentina, and many other developing residents totaling around four billion people have seen improvement in their standard
countries, South Korea surged ahead. By 2016, South Korea and Argentina had reversed of living, but about one billion people live in countries that have made little or no
their relative economic standing: while South Korea that year produced goods and economic progress. These individuals live, for the most part, in sub-Saharan Africa, but
services worth about $27,500 per person, Argentina's output was about $12,500 per also in such countries as Afghanistan in Central Asia, Laos and Cambodia in Southeast
person. Although surpassed by South Korea, Argentina over these 36 years at least Asia, and Haiti and Bolivia in the western hemisphere. These very poor countries face
experienced an economy with reasonable growth. The Central African Republic, in high barriers to growth, including corrupt governments, poor transportation links to
contrast, made little progress during this period on the economic front: in 1980 its the outside world, and high dependence on exports of natural resources.
income per person was about $350; in 2016 that figure was about $380 per person.
Why do developing countries differ so much in attaining higher standards of What Is Economic Development?
living for their people? This question is clearly important: whether countries develop
GDP per capita is often employed by economists, governments, and international
economically determines in large measure their populations' quality of life, whether
institutions such as the World Bank and the IMF as a rough measure of the quality
they enjoy a full life or suffer an early death, and whether they have growing hope
of life that individuals can attain through their consumption of goods and services,
or persistent despair. It is also important from a practical viewpoint: as we will see
including basic items like food, education, and medical care. However, we should be
in later chapters, countries that fail at development are often prone to internal war
very clear: GDP per person is an imperfect measure of the economic wellbeing for each
which brings terrible consequences both for the people living in those countries as
person in a country. Because it reports only the average level of income that individuals
well as for neighbors and the larger international community.
have attained, GDP per capita may mask large inequalities in the distribution of income
Much of the explanation of why countries experience different levels of economic
country. Moreover, as the UN Development Program (UNDP) emphasizes, human
within a country, and, therefore, life opportunities of different residents within that
growth concerns what happens within them. However; every national economy is
development is a process of enlarging people's choices and giving them a means to
Human development
also embedded, to a greater or lesser degree, in the global economy. Then the question A process of enlarging
becomes: does participation in the world economy help or hinder the economic people's choices and
lead lives that they value. The UNDP thus has created the Human Development Index giving them a means
development of poorer countries? This external side of the development question to lead lives that they
(HDI), which consists of average life expectancy, literacy and educational attainment, value. Measurements
is the focus of this chapter. We will see below that there are many answers to this
and per capita income. The UNDP presents a report each year on changes in HDI of human development
question, and debates about the international economy and development form a core include such factors as
around the world, and while the index has yet to attain widespread acceptance or use, life expectancy, income,
element of the field of international political economy.
it deserves examination by students of international development. and education.
We will in the first section describe what we mean when we use terms such as
economic development and developing country, and show that different groups
of countries have had radically different degrees of success in attaining economic Photo 11.1 Human Development: Education
A key element of human development is wider access to education, as illuminated by
development. In the second section, we examine the challenges that developing this photo of a school in Antigua.
countries face that arise from their historical as well as their contemporary linkages
with the global economy. We then investigate whether commercial and financial
linkages between developing countries and the world might present important
opportunities for these countries to move ahead economically. Finally, we will look
at a group of large and increasingly important developing countries, the so-called
BRICS states of Brazil, Russia, India, China, and South Africa.

WHAT AND WHERE ARE THE DEVELOPING COUNTRIES?

Developing country A developing country is one whose residents have not yet, on average, attained the
As noted in Chapter 1,
these are poor countries
living standards typically enjoyed by residents of wealthy nations, such as the United
with small economies States, Canada, Japan, and the countries of Western Europe. At present, developing
whose residents have countries are mainly located in Latin America, Northern and sub-Saharan Africa,
not, on average, attained
the living standards the Middle East (except for Israel), and East, South, and Southeast Asia. China is an
typically enjoyed by interesting case. It was until recently a developing country, but it is now bursting
residents of wealthy
countries. with growth and possesses the world's second largest national economy. However, its
population is so large that its average living standard is not yet on a par with countries
we typically consider developed. As you will recall from Chapter 9, a country's annual
total GDP is the final monetary value of the goods and services that are produced in
that country in each year, and a country's GDP per capita is a country's total GDP Source: Macmillan Education\Rob Judges.

394 395
 Ill Wealth and Power: An Introduction to International Political Economy 11 Dilemmas of Development

GDP per capita and the HDI index are highly correlated with one another, so the average life expectancy at birth. Some of the differences around the world on both
former seems to capture much of what is measured by the latter, but there are exceptions dimensions are shocking. In 2015, for example, Norway's GDP per capita was about
which are what make the HDI index so useful. For example, in 2011, Qatar, a small oil­ $74,500, and Norwegian babies born that year had an average life expectancy of 82
rich country in the Gulf, had the world's largest per capita GDP at $107,700, more than years; in 2016, GDP per capita in the Central African Republic, as noted above, was
double that of the United States. But the Human Development Index ranked Qatar only about $380, and babies born in that country had an average life expectancy of
37th when life expectancy and literacy and other educational features were considered. only 51 years.
More generally, when comparing the pair of maps (Map 11.1), we can see there is Given the connection between GDP per capita and a basic measure of human
a close relationship across countries between their GDP per capita in 2015 and their wellbeing such as life expectancy, most developing countries seek progressively
higher levels of GDP per capita. By consequence, economic development is usually Economic development
taken to mean the attainment by a poorer country of an increase in its rate of growth The attainment by a
Map 11.1 A World of Different Life Opportunities poorer country of an
This pair of maps shows that countries with higher levels of income tend to also have higher life of GDP per capita. increase in its rate of
expectancies. This suggests that, in general, countries that have achieved a higher level of economic growth of GDP per
capita.
development in terms of per capita income enable residents to live longer. Growth Experiences of Different Groups of Developing Countries
a) GDP Per Capita around the World, 2015
Despite most developing countries aiming to increase their rate of growth of GDP
2015-GDP per capita
(current US$) per capita, different regions of the world, as we can observe in Figure 11.1, have had
• 303.7: 1,313.9 very different experiences. The greatest difference can be observed if we compare the
• 1,313.9 3,828.1 remarkably high and consistent pattern of average growth in the developing countries
11 3,828.1:8,052.9 of East Asia and the Pacific with those in sub-Saharan Africa, which have had much
D 8,052.9 :19,220 more mixed success, and indeed experienced negative average annual growth rates
D 19,220: 101,909.8 during the 1980s and 1990s. The countries in sub-Saharan Africa, it should be noted,
had a promising first decade of this century in terms of growth in per capita GDP, and
growth has in fact accelerated during the current decade. Development scholars were
concerned during the first years of the 2000s that sub-Saharan African success may
have been due to short-term circumstances (Collier 2007 : 9-10) such as increases in
'I
prices for the natural resources they exported. However, the fact that sub-Saharan
I
African countries have grown even during the difficult years surrounding the Great
I' I Recession of 2008- 09 allows for cautious optimism that growth in that region may
have firm foundations.

Figure 11.1 Average Annual Rates of Growth in Per Capita GDP, by Region and Decade,
1980-2016
This figure shows how different groups of developing countries have attained different rates of
growth in per capita income between 1980 and 2016 or, in the case of the newly free countries
b) Life Expectancy around the World, 2015 that emerged from the Cold War, from the 1990s up to 2016.
2015 - life expectancy
at birth, total (years)
• 48.9:64 Europe & Latin America East Asia & Middle East & South Asia Sub-Saharan
Central Asia & Caribbean Pacific North Africa Africa
• 64:71.2
Ii ro
St-------- ---��- --------------1
+'
" 71.2:75 ·o_
ro
o::
D 75:79.5 u 6 f-- ----------1
D 79.5:84.3 0
l'.J
1980-89 I
I
.!:: 4 1-----1---------.-J·
(1) 2000-09
Ol
C
ro D 2010-16
..c 21----a.i
u
"cf!.
� 0 f--�-,-ma.i.._.i___
ro

� -2

-4�------ - -- - --------- - ---___J

Time Period

Source: World Bank, World Databank, World Development Indicators, available at http://databank.worldbank.org/data/
reports.aspx?source=world-development-indicators.
Source: World Bank, Databank, World Development Indicators, available at http://databank.worldbank.org/data/home.aspx.

396 397
Ill Wealth and Power: An Introduction to International Political Economy 11 Dilemmas of Development

An important story of recent success can be observed in South Asia. Since the the United States in Latin America, Asia, and Africa might be formally independent,
turn of this century that region has experienced accelerating growth in GDP per but their economies were still oriented to serving the dominant states at the cost of
capita: it reached an average rate of growth of 4.7 percent during 2000-09, and an achieving their own economic wellbeing. These scholars, often informed by some
even more impressive 6.9 percent on average between 2010 and 2016. Given these of the Marxist ideas we discussed in Chapter 3, constituted the dependency school Dependency
trends, it is possible that South Asian countries may be moving to a long-term high­ of underdevelopment (Frank 1966; Dos Santos 1970; Cardoso and Faletto 1979). In A school of thought that
argues that international
growth trajectory that could converge with the massively successful experience of the response to our enduring question of whether international economic linkages help economic linkages
East Asian countries. Indeed, during the years between 2010 and 2016, India's average or hinder development, the dependency school offered the fullest and most consistent hinder development in
developing countries.
annual growth rate in GDP per capita (about 6.4 percent per year) came quite close answer in the negative.
to that of China's (about 7.1 percent per year). India, in other words, is on the move Dependency scholars argued that developing countries' elites were controlled by
economically. the governments and large corporations in the advanced countries. The local elites
Different groups of developing countries have fared differently in terms of directed their national economies toward the needs of the rich nations, serving as a
growth in recent decades. How might international relations have affected economic source of raw materials and a market for goods from the rich countries that would be
development in these countries, and shaped their prospects for development in the sold to the elite. The result was that a small segment of the population in developing
future? To address this question we next analyze the effects of history and current countries prospered, but the country failed to develop indigenous manufacturing
global trends on economic development. and a vibrant working and middle class. World Systems Theory, as put forward
most notably by Wallerstein (1974, 1979), argued in a somewhat parallel direction to
that of dependency theory that the advanced industrial countries at the 'core' of the
world economy dictated how developing countries in the 'periphery' would evolve,
19\ Individual ®I) International
and might put constraints on their developmental trajectory. China's attainment
during the past quarter-century of a core position in the world economy, and India's
Per capita GDP is an important overall measure of a Just as there is great inequality among states in progress towards a comparable status, raises questions about the permanence of
country's prosperity, but individual citizens also are international security affairs, there is great inequality core-periphery relations as stipulated by World Systems Theory.
greatly affected by ' quality of life' measures such as among states in the world economy. Dependency theory commanded progressively less attention from students of
literacy and life expectancy. development and international relations by around the late 1980s. Perhaps the central
reason the approach became less salient and persuasive is that several developing
countries, including South Korea, Taiwan, Chile, Mexico, and Brazil, moved toward
INTERNATIONAL RELATIONS AND CHALLENGES TO economic liberalization and integration with the global economy, and all began to
DEVELOPING COUNTRIES achieve economic growth, in some cases dramatically so, even though they were
Why are countries like Germany, Japan, and now South Korea relatively wealthy and former colonies or were otherwise tightly linked to rich countries through trade and
prosperous, while countries like Venezuela, Uganda, and Bangladesh are relatively investment. As we will see below, the most prominent dependency writer, Fernando
poor and are still in the process of achieving development? Economists have not settled Henrique Cardoso, reversed course and came to favor global economic integration as
on a single theory of development, but they have learned there are many factors that a pathway to development.
account for variation in the economic fates of poorer nations, including geography; Still, there are good reasons to believe that the impact of colonialism on
reliable, extensive access to foreign markets; and the availability of growth-producing development has been mixed at best. In some instances, colonial powers created
Good governance national endowments of land, labor, capital, and natural resources. Good governance economic infrastructure - roads, railways, ports, and telecommunications systems -
A country with good is also very important for growth. A country with good governance at home typically that laid the foundation for future growth. In many other instances, colonial powers
governance at home
typically possesses possesses transparent and consistent political and legal systems, combats official did little to promote long-term growth. They dictated that their colonies trade
transparent and corruption, and protects property. These factors encourage individuals to save, make exclusively or preferentially with the mother country, instead of having broad access
consistent political and to the markets and products of many other countries. Colonial powers also used
legal systems, combats investments, and pursue technological innovations that promote economic growth.
official corruption, Scholars of international relations have asked whether international connections - coercion to extract economic value. Portugal, for example, used forced or conscripted
and protects property. labor in its African colonies of Angola and Mozambique, often compelling women
develop. In this section, we look at what scholars have learned about two challenges
These factors encourage trade, investment, and foreign aid - help or hinder poorer countries as they seek to
individuals to save, and children to work without pay to build and pave roads (Anderson 1962). Farmers
make investments, and in Mozambique who traditionally grew subsistence crops for their local communities
will see what kinds of helpful opportunities international participation may provide
pursue technological that past and present external conditions may present to poorer nations. Then, we
innovations that were forced to cultivate and pick cotton, a cash crop, that is, a crop raised by farmers
promote economic that is sold in a market for cash rather than consumed by the farmer's household for
growth. developing countries as they try to attain faster growth.
subsistence, for which Portuguese companies held monopoly rights and reaped the
profits.
Failure to Develop: A Legacy of Colonialism? The development prospects of some former colonies were stunted by the repressive
Many scholars in the 1960s and 1970s suggested that the lack of growth plaguing and exploitative practices of their colonial masters. Yet, some former colonies - think
many developing countries was due to their colonial heritage. They suggested that for example of the United States, Canada, and South Korea - grew and prospered
former colonies or countries that were highly dominated by European countries or over time. Moreover, some countries that have faced development challenges are not

398 399
 Ill Weal th and Power: An I nt roduction to I n ternational Political Economy 11 Dilemmas of Development
--
former colonies (for example, Iran), while others, such as Latin American states that
achieved independence in the 1820s and 1830s, broke free of colonial ties long ago. 1 1 .1 MAKING CON NECTIONS
As we noted earlier, what happens within countries over time is, alongside external Then and Now
relations, an important factor in accounting for the development of that country or

Finally, there is evidence that a colonial legacy of a certain type unambiguously

its lack thereof.
State Leaders Describe the Importance of National Economic
imparted harmful dynamics to numerous developing countries (Acemoglu et al. Self-Sufficiency
2002; Acemoglu and Robinson 2012). In North America and Australia, where many Then: Treasury Secn:tnry Alexa '1der Hami tor or Proll'oting AmNic. n
of the indigenous inhabitants were killed by disease, large numbers of Europeans
settled and created laws and political institutions that protected private property and At the outset of its history, the United States had an overwhelmingly agricultural
set the stage for long-term economic growth. In Latin America, the Caribbean, and economy, and important American leaders such as Thomas Jefferson believed
sub-Saharan Africa, where smaller numbers of colonialists settled, the Westerners that America would safeguard its republican institutions most effectively if
who did arrive employed highly exploitative legal arrangements to maximize their it remained rooted in agriculture. However, in a major report to Congress in
December 1 791 , Secretary of the Treasury Alexander Ha milton argued that the
own short-term profits. The result was a legacy of laws, courts, and regulatory bodies
new nation should possess an agriculture base but also encourage manufacturing.
that afforded an inhospitabl e environment for long-term growth. Hence, in response
He suggested:
to our enduring question, there is good reason to say that colonialism kept many
countries from achieving long-term growth even after they became independent. From these circumstances collectively two important inferences are to be
drawn: One, that there is always a higher probability of a favora ble balance
of trade, in regard to countries in which manufactures, founded on the basis
Difficulties in Development: The Division of Labor of a thriving agriculture, flourish, than in regard to those which are confined
In the years immediately after World War II, many developing countries exported wholly, or almost wholly, to agriculture; the other (which is also a consequence
of the first) that countries of the former description are likely to possess more
agricultural products and raw materials to advanced countries and, in return, imported
pecuniary wealth or money than those of the latter . . . Not only the wealth,
manufactured goods they needed, such as automobiles, aircraft, or pharmaceuticals. but the independence and security of a country appear to be materially
This arrangement would seem to be in everyone's best interest, if we think back to connected with the prosperity of manufactures. Every nation, with a view
the trade theory presented in Chapter 9. However, as Box 1 1 . 1 shows, and reflecting to those great objects , ought to endeavor to possess within itself all the
realist concerns that we discussed in Chapters 3 and 9, leaders and policy makers of essentials of national supply.
new countries, from Secretary of the Treasury Alexander Hamilton in the United Source: U.S. National Archives. U ndated. Founders Onli n e: Al exand e r
States in the 1790s to Prime Minister Jawaharlal Nehru of India in the early 1960s, Hamilton's Final Version o f t h e Report o n the Subject o f Manufactures,
I I have balked at dependency on other countries for manufactured goods, especially if
5 December 1 7 9 1 . Available at https://founders.archives.gov/documents/
Hamilton/01-1 0-02-0001 -0007.
these goods have an impact on national security.
Reliance on agriculture and raw materials may be a path to development, to the
Now: Prime M ini�ter Jawatiarlal ehru o n Bu, u 1 1,� ,vm.:i :. ,
extent that countries use the economic gains created by those activities to generate
investments in new areas of manufacturing and services. However, from the 1950s In June 1962, Prime Minister Nehru announced to the Indian Parlia ment that
to the present, economists and political scientists have raised concerns about the India would purchase several Soviet M IG-21 fighter jets rather than seek to buy
relatively more advanced fighters from the United States or the United Kingdom.
vulnerability of developing countries that rely too heavily on agriculture and raw
Nehru acknowledged that the M IG-2 1 s India would buy and later build were less
materials. advanced technologically than the F-1 04s that Pakistan had recently purchased
For example, wealthy industrial countries - including the United States, Japan, from the United States. However, Nehru told the members of parliament that
the member countries of the European Union, and other European countries such as he had selected the M IG-21 option because the Soviets had agreed they would
Switzerland - extensively protect their farmers from foreign agricultural competition. license and assist in Indian domestic manufacture of that model of jet fighters.
Developing countries specializing in agriculture therefore cannot count on full access For Nehru , even though the M IG-21 was not the most advanced fighter aircraft
to those ma.rkets. In addition, technological innovations - for example, the use of available, the licensing agreement with the Soviets, which would eventually see
the production of several such aircraft built in India , was critically important: It
robotics and computers in the manufacturing of automobiles - improve worker
was more practical to have the capacity to manufacture second-rate equipment
productivity, that is, they enable increases in the amount of output any worker can in one's own country than to be tied into an arrangement to buy first-rate
produce in a fixed period. These technological innovations have been more pervasive equipment from outside. While separated in time by almost two centuries, both
Resource curse in manufacturing than in agriculture or raw materials. These productivity gains America's Alexander Ha milton and India's Jawaharlal Nehru argued that national
The possibility that the
possession by developing promote higher GDP per capita, increasing the economic gap between producers of self-sufficiency in manufacturing is an important and valid economic policy goal
countries of natural manufactures and producers of raw materials. for a new country.
resources, in particular
petroleum, is more Some raw materials, such as oil. are in high demand and can bring significant Source: G raham (1964): 826.
likely to hinder rather profits to their producers. But developing countries blessed with energy reserves must
than to advance the
development prospects be wary of the 'resource curse' - the possibility that the possession by developing
of those countries. countries of natural resources, in particular petroleum, is more likely to hinder

400 401
 !Iii Wealth and Power: An Introduction to International Political Economy H D.ilemrrnas of ID-.evelopmem:

rather than to advance the development prospects of those countries. Developing

countries with large endowments of natural resources, including those for which, Photo 11.2 Evidence of the Resource Curse i n Nigeria
Oil from illegal refineries is ferried to the ma rket in Bayelsa, N igeria in 2013.
like petroleum, there is strong external demand, tend to grow more slowly than Over the past decade, m i l itants cla i m i ng to be fighting for a fa i rer distribution
do countries without such resources. Think, for example, of the difference in the of oil revenue attacked oil facil ities, carried o ut widespread kidnappings, and
growth experiences of Nigeria, a major oil exporter, and Singapore, which imports clashed with pol ice in this i m poverished Niger Delta region.
petroleum: while the former's GDP per capita tripled from about $900 in 1980 to
about $2,700 in 2015, that of Singapore during the same period grew by a factor of
more than ten, from $4,900 to almost $54,000. There are likely to be multiple causes
of this observed link between natural resources and sub-par economic performance
by developing countries. Most notably, a developing country that exports oil will
experience a 'wealth shock,' that is, managers and workers in the oil sector will
find that there is a high demand for their services and a corresponding increase in
their incomes. That increase in income of participants in the oil sector translates
into higher wages throughout the economy; this translates into a decrease in the
international competitiveness of domestic producers in manufacturing industries. In
addition, external demand for the natural resources of the countries will translate
into heightened demand for and price of the country's currency, and this will further
depress the competitiveness of non-oil domestic industries. The slackening demand
for the output of those domestic industries dampens the overall growth of the country
(Sachs and Warner 2001: 833-5). Sou rce: PIUS UTOMI EKPEI/AFP/Getty Images.
As we discuss in Box 1 1.2, there is also growing scholarship by political scientists
that suggests another deleterious consequence of the 'resource curse' for many The Research Insight
developing countries is that many of them experience disproportionately poor
In a wide-ranging review of the domestic political-economy l iterature on this
• i'
governance, high levels of domestic unrest and civil wars, and even a heightened
,,II
subject, including his own important work (2001 , 2004, 201 2), M ichael Ross shows
propensity to launch military conflicts against other countries. that the ability of despots to use oil revenues to buy off supporters, purchase
I In summary, a colonial past and a lack of national manufacturing in the present, weapons and other i nstru ments of state repression, and attract foreign support
especially if the country possesses natural resources to the extent it experiences fortifies authoritarian reg i mes and makes them resistant to democracy (Ross
: j' the natural resource curse, may combine to inhibit economic growth in the global 2015: 243-8). He also shows that the possession of oil exacerbates govern ment
economy for developing countries. But to what extent can international trade and the corruption and thus h i nders the creation of growth-enabling legal and regulatory
resulting globalization serve as a tool for economic development? i nstitutions (2015: 248-50). Finally, he explains that oil and other natural
resources such as diamonds ca n become both highly prized stakes and revenue­
generators that can be used to recru it both rebels and government forces, and
by consequence can be spu rs to civil wars (250-2).

1
Simila rly, Jeff Colga n (2010, 2012) observes that what he terms 'petrostates,'
1 1 .2 RESEARCH INSIGHT (cou ntries whose annual oi l-export reven ues constitute 10 percent or more of
that country's annual G DP}, have been more than twice as l i kely si nce 1 970 as
Natural Resources and Political Dysfunctionality non-petrostates to i n itiate m i l ita rized i nterstate disputes (MIDs, as we d iscussed
at Home and Abroad in Chapter 6). Colgan shows that not all petrostates a re equally bellicose
toward other countries. Rather, weaving together insights from security studies
The Problem and i nternational political economy, Colgan a rgues that the combination of
Economists have recently i dentified what is called the 'resource curse' - the national oil resources and a government led by a revo lutiona ry regi m e (that
possibility that the possession by developing cou ntries of natural resou rces such is, a government that has come to power by way of an overthrow, a lm ost
as petroleum is m ore l i kely to h inder rather than advance their development always violent, of an incum bent regime) may cause the resulting revolutionary
prospects. Oil production may bring great wealth. H owever, when we look petrostate to be especially prone to launching M I Ds. Why this combination?
around the world, it seems that the possession of oil has other deleterious Colgan suggests that, i n the first place, oil revenues a llow the revolutionary
consequences for many developing countries. Consider, for example, the leader to buy support and the means of repression, thus reducing the chances
extraord i nary civil unrest in recent years in Venezuela and the domestic violence of being deposed i f a foreign m i l itary operation is unsuccessfu l. In addition,
in N igeria perpetrated by the jihadist m i litant group, Boko Haram. Some o il-rich and i n accord with a rgu m ents about i nterstate conflict in itiation we exa m i ned
developing cou ntries a lso seem to have a habit of starting mil itary disputes with in Chapter 6, revolutionary leaders may have a n especially high tolerance for
neighbors, as evidenced by I raq's aggressio n against first I ran in 1 988 and then the risk associated with such operations, and the revolutionary process by
Kuwait in 1 990. Does the possession of oil n ot j ust impair economic development which they came to power may have eviscerated domestic i nstitutions and
d i rectly, by way for example of a wea lth-shock, but indirectly, by instigating processes that otherwise would have inh i bited the launching of M I Ds against
g rowth-retarding domestic strife and i nternational aggression? other cou ntries.

402 403
Ill Wealth a nd Power: An Introduction to International Political Economy 11 Dilemmas of Deve lopment

as cash grants and low-cost loans) to pre-selected local manufacturers. These

national champions were firms the government believed could do the best job of National champion
producing the substituted industrial goods. U ltimately, the expectation was that In a state pursuing
a strategy of IS i, the
these national champions could compete at home without protection, and even government nomi nates
National laws and institutions, inherited from a Reliance on agriculture and raw material production become leaders in foreign markets. firms it believes could do
can spark economic growth but may also trap the best job of producing
colonial past, can sometimes promote, yet often ISI registered some success in the initial postwar decades. India, for example, the substituted
inhibit, economic growth. countries in an international division of labor industrial goods.
experienced rapid economic growth pursuing ISI, with industrial output doubling
in which it becomes difficult to develop more
The resource curse can propel a country's political diversified economies. during the 1950s and growing by 9 percent annually between 1960 and 1965 (Krueger
system and economy in the direction of distorted 1975). India decreased its imports of manufactured goods and created domestic
economic and foreign policies and even its capacity, particularly in the types of machinery and equipment needed to produce
international conflict behavior.
final goods. Similarly, Brazil, Mexico, and Argentina enjoyed rapid growth during
the 1950s and 1960s and established indigenous capacity in automobiles, steel, and
IS I NTERNATIONAL TRADE A PATH TO DEVELOPMENT? machinery production.
The weaknesses of ISI became apparent by the 1970s. National champions
Since World War II, poorer countries have pursued different strategies to overcome the and other domestic firms were safely behind high tariff walls. They did not face
challenges we have previously described and to create opportunities for development. international competition and had little incentive to charge low prices at home or
From roughly the 1950s into the 1970s, many developing countries, including such make internationally competitive products. The results were current-account deficits
major countries as China, India, Mexico, Brazil, and Turkey, sought to restrict or at and domestic price inflation. Inflation and resulting periodic economic slowdowns
least control their trading linkages with developed countries. By the late 1970s and sometimes led to political upheaval and military coups, such as in Brazil, Chile, and
into the 1990s, when it became clear that those market-controlling strategies had Argentina during the 1960s. By the 1970s, larger developing countries abandoned the
failed to deliver sustained growth, these and o�her developing countries increasingly 'go it alone' spirit of ISI and tried to attract foreign direct investment from advanced
turned to more outward-looking strategies. economies, while smaller developing states engaged the world economy through
export strategies, both of which we discuss below.
arket-Gontrolling Trade Strategies
Developing countries have pursued three basic market-controlling strategies to International Commodity Cartels
improve their economic position: infant-industry oriented policies to promote Rather than seeking to diversify away from raw material production, some developing
national industries, international commodity cartels, and international commodity countries instead have banded together and tried to gain greater economic benefits
agreements. from selling their natural resources. These countries have formed state-sponsored
international commodity cartels, which are groupings of developing-country international
lmportsS11bst1ituilling Industrialization governments that try to control the supply of a raw material or agricultural product commodity cartels
Groupings of
In the two decades after World War II, many developing countries, notably on world markets to drive up prices and maximize their revenues. In recent decades, developing-country
Brazil, India, Mexico, and Turkey, acted in line with the infant-industry logic we there have been. international commodity cartels in bauxite, rubber, diamonds, and, governments that try
to control the supply
port-substituting discussed in Chapter 9 and pursued import-substituting industrialization (ISI). most notably, oil. For a variety of reasons, such as the entry of new suppliers or the of a raw material or
indnrtrialization (ISi) The intellectual inspiration behind ISI came from an Argentine economist, Raul availability of substitutes, these cartels do not appear to have been very successful in agricultural product on
A national development world markets in order
strategy that seeks to Prebisch, who directed the UN's first Economic Commission for Latin America. maximizing cartel-member revenues. to drive up prices and
avoid international The roots of ISI also take us once more to the Great Depression of the 1930s, A partial exception is the Organization of the Petroleum Exporting Countries maxim ize revenues.
economic linkages in
favor of focusing on when international markets for raw materials and agricultural products collapsed, (OPEC), which was founded in 1960, has 1 2 members (including Saudi Arabia, Iran,
domestic production. and thereby forced developing countries that relied on those markets to search for Iraq, Kuwait, Nigeria, and Venezuela), and is headquartered in Vienna, Austria.
alternative ways to generate growth. Anti-colonial sentiment also contributed to Representatives of OPEC nations meet periodically to set an overall oil production
ISI's appeal. Prebisch and others were critical of the international division of labor level for the cartel and allocate production quotas for individual members.
that seemed to lock developing states into selling primary goods and buying finished OPEC has had some success in limiting oil supplies on global markets; less supply
goods from their former colonial masters. typically does lead to higher prices. Yet, OPEC's success has been constrained by the
The strategy of ISI was premised on answering our enduring question partially fact that cartel members often cheat and produce more than their quotas. Moreover,
in the negative: under then-existing conditions most developing countries could such oil-producing countries as Russia, Canada, and Mexico are not members of
not benefit greatly from international economic integration if that integration the cartel, and when prices go up these producers have an incentive to increase
unfolded strictly under the terms of the logic of traditional trade theory. production. Finally, the United States, making use of new oil-extraction technologies
A different approach was needed. In adopting ISI, governmental leaders wanted captured by the term '£racking,' is becoming a major oil producer both for the its
their consumers to substitute imports of manufactured goods, such as automobiles, home market and global energy markets.
with comparable domestically produced goods. Governments pursued ISI with Still, OPEC countries, and especially Saudi Arabia, will be important to the future
high tariffs on imports of goods targeted for substitution, and subsidies (such of the oil industry. As can be observed in Figure 11.2, in 2016 OPEC countries produced

404 405
 Ill Wea lth a nd Powe r: A n I ntroducti on to I nternationa l Po l iti ca l Eco n omy 11 D i l e m m as of Deve l op me nt

Fig u re 1 1 .2 Global Oil Production and Proven Reserves, 201 6 through a strategy of export-led growth (ELG). This strategy basically answers our Export-led growth
These two figures underscore the importance o f OPEC, and particularly OPEC enduring question in the affirmative: it is premised on the view that the international (ELG)
member Saudi Arabia, i n world production of oil and especially in terms of proven A strategy that argues
reserves of oil .
economy presents important opportunities for development. The strategy typically developing countries
includes two basic components. First, national producers of goods for the local market should rely on price­
competitive exports
are no longer offered preferential access to government credit or foreign exchange. to stimulate national
Second, firms producing for export markets are now granted preferential access to economic development.
credit and foreign currency.
ELG was adopted by Japan after World War II, along with domestic protectionism,
and was the basis of the 'economic miracle' that catapulted it from the ruins of war to
the world's second largest national economy by the early 1980s. By the 1960s, the four
Asian Tigers that had been early in choosing or switching to ELG - Taiwan, South Asian Tigers
Korea, Singapore, and Hong Kong - were achieving fast rates of growth in GDP per Originally Taiwan,
South Korea, Singapore,
capita, and served as models for other East Asian countries that turned to ELG in the and Hong Kong, who
1970s, such as Thailand, Malaysia, and mainland China. achieved rapid growth
rates using a strategy of
Soon, even countries with large internal markets moved from ISI toward an export-led growth. Now
a) Production o f Crude Oil and b) Proven Oil Reserves, 201 6 export-orient�d strategy of development. Turkey, Brazil, and Mexico made this many rapidly growing
Other Liquids, 201 6 Asian countries are
shift during the 1980s, and India did so in the early 1990s. Many academics and considered 'tigers.'
Source: For production, see U.S. Energy Information Agency, available at https://www.eia.gov/; for proven
reserves, see OPEC, "OPEC Share of World Crude Oil Reserves, 2016" available at http://www.opec.org/ policy makers shifted from skepticism to optimism about the possibilities of such
opec_web/en/data_graphs/330.htm. integration. Indeed, as Box 11.3 shows, the most distinguished dependency writer,
Fernando Henrique Cardoso of Brazil, shifted his perspective on the benefits of
about 37 percent of the world's oil and other energy-related liquids, and that year economic integration, and took on a markedly strong pro-market and pro-integration
OPEC countries possessed about 82 percent of the world's proven reserves of crude oil. orientation when he became Finance Minister and then President of Brazil. Using
terms we discussed in Chapter 10, Cardoso shifted from a Marxist perspective
I nternationa l Commod ity Agreements (underdevelopment was a function of the capitalist world economy) and economic
nationalist perspective (the solution was greater national self-sufficiency) to a more
Cartels such as OPEC consist of agreements among suppliers of a good or commodity
Il I that seek to limit production to maximize prices and revenues. An alternative
liberal perspective (development comes from embracing, not resisting, the liberal
! world economy).
approach used by some developing countries has been to press consumer countries
By the 1990s, many developing countries were not just turning to exports as the
Intemational (mainly advanced nations) to establish an international commodity agreement,
commodity agreement path to growth. They were also implementing packages of other policies reflecting
or ICA, which would include both supplier and consumer countries, and would seek
An agreement, generally what, as we noted in Chapter 9, came to be known as the Washington Consensus.
sought by developing agreements on the supply and prices for a particular commodity. In these cases, the
countries' exporters, on In the present era, in the wake of the global economic crisis and the continuing rise
developing countries have not sought agreements that lead to maximum prices for
the supply and price of of China, a potential new model of development has come into view, sometimes
that commodity. The their commodity exports, but a reduction in price fluctuations for their exports.
goal is not to maximize called the Beijing Consensus. This term is meant to suggest that, for some poorer Beijing Consensus
The objective for developing countries is to attain reasonably go.od prices and some The idea that, for
prices but rather to countries, the necessary answer to our enduring question is more nuanced than
sense of certainty about what their countries will be earning from their exports. some poor countries,
establish an acceptable,
might be expected from a move from ISI or full autarky to unbridled ELG based development can
consistent price that the Five ICAs were established from the 1950s to the 1970s for sugar, coffee, tin, cocoa, be best attained by
developing country can on the Washington Consensus. Rather, according to the Beijing Consensus, global
and rubber. government controls,
rely on. economic integration presents important opportunities for development, but in a trade integration, capital
However, these agreements often did not include all suppliers of the commodity inflows and outflows,
world of economic turbulence developing countries should use government controls
in question (as in the case of cocoa). New suppliers could also enter an industry (the the movement of labor,
to manage the pace of trade integration, capital inflows and outflows, the movement and the external value of
countries that now make up the European Union in regard to sugar) and existing the currency.
of labor within the country, and the external value of the national currency. Moreover,
members could exit an agreement (Thailand, Sri Lanka, and Malaysia in connection
while the United States and other wealthy countries have argued that democratic
with the rubber agreement). As a result of these factors, all five ICAs were abandoned
political institutions are most likely to provide the best long-term environment for
between the early 1980s and late 1990s (Gilbert 2004).
growth in poorer countries, the Beijing Consensus holds that authoritarianism may
enable growth to occur most rapidly in a developing nation. Only time will tell if the
Market-Accepting Trade Strategies
Beijing Consensus will gain traction and give state capitalism and authoritarianism
Countries that pursued ISI believed, in line with the basic thrust of dependency theory, new legitimacy in the years ahead.
that participating in world markets created the risk of stunted economic development. Recall that Chapter 10 focused on the relationship· between states and markets,
However, countries that turned to ISI often experienced high government debts and and on the trade-offs governments face between economic efficiency and political
very low rates of national growth. As an alternative, a few developing countries with autonomy. Now we see another dimension of the state-market relationship. Countries
smaller domestic markets in the late 1950s and into the 1960s sought renewed growth seeking economic development at times have relied more heavily on government

406 407
Ill Wealth and Power: An Introduction to International Political Economy 11 Dilemmas of Devel opment

intervention (the era of ISI) and at times on market forces (the era of the Washington
1 1 .3 DI FFERING PERSPECTIVES Consensus). If the Beijing Consensus spreads, the pendulum may swing back to a
renewed emphasis on the importance of the state in economic development.
Fernando Henrique Cardoso on the Benefits of
I nternational Economic I ntegration .· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·· · · · · · ·· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · .·
� Sim ulations: What wou ld you do? Visit the compan ion website to step into the shoes of a n
Cardoso Writing as Academic Critic, 1 971/1 979: � � Economic Development Secreta ry in South Asia . Wou ld you fo l l ow the Beijing Consensus? See

............................. .......................................................... ........................

Of cou rse, imperialist penetration is a resu lt of external social forces what happens as you pursue different cou rses of action.
(m ultinational enterprises, foreign technol ogy, i nternational fi nancial systems,
em bassies, foreign states and armies, etc.). What we affi rm simply means that
the system of domi nation reappears as an ' i nternal' force, through the social
Strategies to Reshape the Rules of I nternational Trade
practices of local groups and classes which try to enforce foreign i nte rests,
not precisely because they a re fo reign, but because they may coincide with Many developing countries have accepted and benefited from economic integration
va lues and interests that these g roups pretend a re thei r own. It has been and globalization, but this does not mean they have simply removed barriers to trade
assumed that the peripheral countries would have to repeat the evolution
and allowed global market forces to dictate their trading patterns. Since the end of
of the economies of the central cou ntries in order to achieve deve lopment.
World War II developing countries have sought, with limited success, to shape the
B ut it is clear that from its beg inning the capital ist process implied an
u nequal relation between the central and the peripheral econom ies. Many rules of the global economy more in their favor. In the 1960s, as we saw in Chapter 2,
'underdeveloped' economies - as is the case of the Latin American - were developing countries used their power in numbers in the UN to form the Group of 77
i ncorporated i nto the capital ist system as colonies and later as national states, and lobby collectively for development-friendly reforms in trade and finance. Their
and they have stayed in the capital ist system throughout their history. They appeals, for the most part, were ignored by the stronger developed countries. Perhaps
remain, however, peripheral economies with pa rticu lar historica l paths when the most promising negotiating attempt took place in the 1970s, as many countries
compared with central capita list economies. in the developing world sought to ally with OPEC and use its prominence to demand
Source: Cardoso and Faletto (1 979).
a New International Economic Order (NIEO). The NIEO demanded preferential
Cardoso as Presidential Candidate and then President of Brazil, trade arrangements, larger aid grants to less developed countries, and controls on
1 994, 2002: multinational enterprises (MNEs) opera_ting within their borders. OPEC countries
The i nternational system is a field of opportu n ities, of resou rces, that must be eventually made their own deals with the United States and Europe, leaving the larger
sought natural ly. We a re a g reat cou ntry, with a clear vocation for an active group of developing countries with little leverage to generate change in international
and responsible participation in world affai rs. The process of l i beral ization trade rules. The NIEO quietly faded away.
of the economy and opening toward the outside world will conti nue, not an In recent years, influential developing nations, such as Brazil and India, have sought
objective i n and of itself, but as a strategic e lement in the modern ization of to forge a coalition of developing countries to press for better deals in the World
our economy
Trade Organization (WTO). For example, these two countries, together with China
Source: 'Let's Work, Brazil,' the main campaign statement of the then Finance
Mi nister Cardoso as he ran successfully for the first of two terms as President of and South Africa, brought together a coalition of developing countries that helped
Brazil, quoted in Brown (1994). block completion of the Doha Round of WTO multilateral trade negotiations, which
Question: M r. Cardoso, you a re a sociologist and have studied, ana lyzed and as noted in Chapter 9 had been launched in 2001 in Doha, Qatar. If multilateral trade
written about the Brazi lian society. As President and sociologist what is your liberalization via the WTO is to have a future, it will require greater accommodation
a dvice to foreign investors when they come to i nvest i n Brazil? of the demands of these influential developing countries.
Response: My a dvice is probably superfluous, because the strength of the Fair trade negotiations may offer potential growth, but what role does international
Brazi lian economy speaks for itself. But I will say th is: those who bet on B razi l's finance play in economic development? The next section will explore types of
future sta nd to gain a lot, because the country has all it ta kes to continue i n international financial flows and their impact on economic development.
t h e path o f social a n d economic development. F o r too long h a s Brazi l suffered
in stagnation and backwardness. This chapter is now closed. With democracy,
economic stabil ity and g reater social justice, there is nothing that can stop

(@) Internationa l
Brazil in its progress. Our economic envi ron ment is business-friend ly. Our
people [are] hard-working, creative and eager to learn more. The cou ntry is
not affected by any sort of ethnic riva l ries or civil strife. We have world-class
u n iversities and world-class scientists. Investors who come to B razil will be Developing countries adopt different ind ividual Most collective negotiating efforts by developing
pa rtners in our deve lopment and they will get the very significant retu rns of and collective strategies i n their efforts to get a countries to change the rules of international trade have
operati ng i n a m a rket of over 160 mil lion people, or even more if you consider better deal from their interaction with the world not been successfu l, reflecting the lack of developing­
the integration with our neighbors i n Mercosu l . economy, and in some cases this means their country power in internationa l pol itics and economics.
withdrawa l from that stage.
Source: interview b y World I nvestment News (WI N N E) with President Cardoso, Today the situation is changing, as developing countries,
World I nvestment News (2002). led by China, Brazi l, and India, have become more
infl uential.

408 409
Ill Wealth and Power: A n I ntrod uction to I nternational Politica l Economy 11 Di l emmas of Development

IS I NTERNATIONAL FINANCE A PATH TO DEVELOPMENT? foreign direct investment (FDI) occurs when an enterprise in one country moves
capital to another country with the intention of establishing an ongoing business
Developing countries often rely on foreign capital, but there is sharp controversy as to presence. The investing firm is usually a multinational enterprise. So, for example,
whether such capital is helpful to them. Below we define international financial flows, when the technology firm IBM establishes a wholly owned subsidiary in Mexico,
examine the different types, and explore the opportunities and problems they pose this constitutes a US FDI in Mexico. Another major type of private capital flow
for developing countries. consists of international bank loans, whereby a bank in one country extends a
loan to residents (which might be private individuals, firms, or a government) in
International Financial Flows: Meaning, Types, and Magnitudes another country. For example, if Deutsche Bank makes a loan to a private Mexican
International financial By an international financial flow, we mean the movement of capital - sometimes cement firm, that represents a bank-loan capital flow from Germany to Mexico. A
flows in the form of actual cash, but usually as a result of electronic transfers - from third type of private financial flow to developing countries consists of international
The movement of
capital from private private or governmental individuals or organizations inside one country to private portfolio investments. If, for example, a Canadian-based mutual fund buys shares
or governmental or governmental individuals or organizations inside another country. There are in the hypothetical Mexican cement firm noted above, but not enough to have
individuals or any management say in what that cement firm does, then this is an instance in
organizations inside two basic forms of financial flows to developing countries: private and official.
one country to private Private financial flows are flows that originate with nongovernmental entities, which there has been Canadian portfolio investment in Mexico. Finally, there are
or govern mental international bonds. For example, if a Mexican cement firm issues bonds in euros
individuals or such as individuals, private charities, or private firms such as banks or multinational
organizations inside enterprises. Official financial flows are flows that originate with governmental that are purchased by French pension funds, then this represents a bond-based
another country. These capital flow from France to Mexico.
flows consist of both entities. These entities may be individual governments or intergovernmental
private and official organizations formed by governments, such as the World Bank, the International Figure 11.4 illustrates changes in the relative importance of these four kinds of
financial flows. private capital flows to developing countries. As it indicates, foreign direct investment
Monetary Fund, the European Union, the Asian Development Bank, and the Inter­
Private financial flows American Development Bank. has become by far the biggest single type of private financial flow into developing
International financial
flows that originate As Figure 11.3 indicates, total financial flows to developing countries have countries. For example, FDI flows to developing countries in 2016 totaled about $570
with nongovernmental increased steadily since the 1980s, exceeding $1.0 trillion in 2016. Moreover, while billion, representing about 70 percent of total private capital flows to developing
entities, such as
individuals, private in 1980 and 1990 official sources of financial flows to developing countries equaled countries that year.
Official development
charities, or private or exceeded those from private sources, by the 2000s the vast majority of financial There are two basic kinds of official financial flows to developing countries. assistance (ODA)
firms such as banks The provision by a
or multinational flows to developing countries came from private sources (with the exception of sub­ First, there is bilateral official development assistanc e (ODA), the provision by a
donor government to
enterprises. Saharan Africa, as we discuss further below). For example, private sources provided donor government to a developing country of grants or loans with highly favorable a developing country
Official financial flows about 80 percent of the total external financial resources that went to developing repayment terms (for example, 50 years to repay, at 1 percent interest). Second, of grants or loans
International financial with highly favorable
countries in 2016. multilateral institutions such as the IMF and the World Bank, as well as regional repayment terms (for
flows that originate with
governmental entities. As with international investments in general, as we discussed in Chapter 9, financial institutions such as the Asian Development Bank, and the European Bank example, 50 years to
for Reconstruction and Development (EBRD), make loans to developing countries repay, at 1 percent
there are four basic kinds of private capital flows to developing countries. First, interest).

Figure 1 1 .3 Total Private and Official Financial Flows to Developing Countries, Figure 1 1 .4 Compositio n of Private Financial Flows to Developing Countries
1980-2016 1980-2016 .
This figure underscores how private financial flows to developing countries have This figure underscores two key points: first, private flows of capital to developing countries have
grown compared to financial flows from official sources . grown substantially; and second, foreign direct investment has become by far the largest type of
private f1nanc1al flow to developin g countries .
1 000

�ro 800
900 700
600
0 700 Foreign D irect Investment
0 600
D Total Private
� 500 D Portfo l io I nvestments
Vl • Total Officia l
:::i 500 400 i---- --- --- ----- ---li"1--- ---llSl------l liil Bonds
Vl
0 400 :::i
300 -- ------ ----- - -li\t- ---
D Commercial Banks/
-f,Ji____J

·- 200
U)
Other Credit ors
C
0 300
U)
C
200
OJ .Q 1 00
1 00
OJ
0 0
1 980 1 990 2000 201 0 201 6 1 980 1 990 2000 20 1 0 201 6
-1 00
Year Year
Source: World Bank, DataBank, World Development I n dicators, available at http://data bank.worldbank.org/ Source: World Bank, World Databank, Deve lopment I n dicators, ava ilable at http://databank.worldbank.org/ ddp/home
data/reports.aspx?source = world-development-indicators. do?Step= 12&id=4&CN0=2.

41 0 41 1
 Ill Wea lth and Power: An I ntrodu ction to I nternational Po litical Economy 11 Dilemmas of Deve lopment

Figure 11. 5 Official Financial Flows to Developing Countries, by Type, 1980-2016 Bank Loans, Portfolio Investments, and Risk of Financial Crises
Bilateral ODA has been and remains the most important type of off1c1al financial flows to Many developing countries have learned that private capital flows from abroad,
developing countries, although loans from multilateral official creditors like the World Bank
are important. especially international bank loans and portfolio investments, can be quite volatile.
Foreign investors seem to follow a pattern of becoming enthralled with prospects in

�ro
1 80 developing countries, and then, at any warning sign of balance-of-payment or currency
1 60 difficulties, fear overtakes greed and investors head for the exits. For example, a cycle
D Loans by Multilateral Agencies
0
1 40
11 Bilateral ODA
of strong financial inflows followed by extremely rapid exits of capital contributed to a
0 1 20 painful economic crisis during 1994-95 in Mexico. An even more dramatic financial
\/l
:::) 1 00 crisis hit the developing world during 1997-98. At that time, a collapse in the stock
0 80 market and currency in Thailand soon led foreign investors to pull their money out of
60 the Philippines, Indonesia, and Malaysia, and even from seemingly strong countries
iii
.Q
40 like Taiwan and South Korea (Haggard 2000). Investors, afraid of having exposure to
20 any developing or emerging market, soon pulled funds out of Russia and Brazil. The
0
1 990 2000 20 1 0 201 5 20 1 6 Russian government effectively defaulted on the country's debts, and Brazil radically
1 980
increased the interest rates it paid to its creditors, to make the country attractive once
Year
more to foreign investors.
Source: World Bank, World Data bank, Development I n d icators, available at http://databank.worldbank.org/ddp/
home.do?Step= 1 2&id=4&CN0=2.

Multinational Enterprises: Opportunities and Concerns

Mainstream economic theory suggests that MNEs that undertake foreign direct
with near-market interest rates and repayment periods, to help those countries meet investment in a host country, either developed or developing, contribute to the
short-term cash needs or pursue big projects like dams and ports. These are termed latter's stock of capital, technology, and managerial expertise, and thereby augment
financial flows from official creditors. With this background in mind, we can see in the growth of the industries in which the foreign investments occur and the overall
Figure 11.5 that, as of 2016, annual total official flows to developing countries have economic growth of the country. Engaging with MNEs helps, rather than hinders,
been in the range of about $190 billion, with about economic development. On the other hand, as we discussed in Chapter 9, critics of
83 percent of that consisting of ODA. globalization have suggested that multinational enterprises that move to developing
Figure 11 .6 Private and Official Financial Flows to Official flows remain important for sub-Saharan countries exploit workers, especially women and children, and avoid the stronger
Countries in Sub-Saharan Africa, 2016 Africa. As Figure 11.6 indicates, financial flows of legal and governmental regulatory standards that protect workers and the natural
Financial flows to sub-Saharan Africa in 2016 environment in the advanced industrial countries (Graham 2000; Evans 2000;
totaled about $100 billion. Funds from official all types to developing countries in sub-Saharan
sources (bilateral ODA plus loans from multilateral Africa totaled about $100 billion in 2016. Of that Neumayer and De Soysa 2006).
institutions like the World Bank) represented about total, about one-half consisted of ODA and loans One way multinational enterprises
52% of that total. Foreign direct investment also from multilateral institutions. Sub-Saharan Africa, have responded to these charges has been Photo 1 1 . 3 Child Labor in Developing Countries
constituted an important source of external flows to establish codes of conduct (Locke, A concern about the operations of multinational enterprises
into the region. then, while making substantial economic progress,
in developing countries is that some foreign firms might rely
still requires official economic assistance to meet its Amengual, and Mangla 2009). For many on local contractors that employ child labor.
financial needs and attract resources from private years, for example, Pakistani suppliers of
investors and creditors. soccer balls for such firms as Nike, Adidas,
and Puma used child labor. When this
practice was made public in a June 1996
Foreign Direct Opportunities and Challenges for story in Life magazine, nongovernmental
Investment
39% Developing Countries organizations (NGOs) vigorously protested
Bilateral ODA
44% Official and private financial flows from abroad have Nike and other multinational sports firms.
allowed developing countries to gain access to foreign As a result, the firms entered negotiations
industry, technology, and managerial expertise. with the United Nations International

I
Multinational enterprises, for example, bring more Children's Emergency Fund (UNICEF),
Portfolio the International Labor Organization
Investm ents
advanced technology and their connections to

\ I
1% the global economy when they set up shop in a (ILO), and several NGOs. In early 1997,
4% developing country. As we discuss below, China has the international firms and their Pakistani
Loans, Multilateral
Private Loans utilized foreign investment to attain its remarkable suppliers agreed to a code of conduct, the
Institutions 8%
4% growth over the past three decades. Yet, although the Atlanta Agreement, named for the city
Source: World Bank, World DataBank, World Development potential benefits are significant, foreign capital can in which it was signed, that committed
I ndicators, available at http://databank.worldbank.org/data/
reports.aspx?source=world-development-indicators. also create challenges for developing countries. the international firms, as well as their Source: iStock.com/Tapshanov.

41 2 41 3
11 11 We:al1rh and Power. Am rrrrtro du<e.t ion to l ntermationall Political! Ecomomy
11 Dilemmas of Development

Pakistani contractors, to stop using child labor. The trade association that represented
the multinational sports firms later reported (Gorgemans 2008) that at least 6,000 1 1 .4 MAKING CON N ECTIONS
children were taken out of soccer-ball workshops in the Pakistani city of Sialkot,
Theory and Practice
where most of the largest suppliers were located.
The debate about FDI, multinational enterprises, and economic development
has abated in recent years, in part because it appears that there is no single correct Foreign Aid and Economic Development in Africa
answer to the question of whether MNEs promote economic development. In Asia,
for example, foreign investment in manufacturing sectors has had a strongly positive Foreign assistance from official sources is supposed to catalyze economic
impact on economic development (Wang 2009). More generally, FDI is especially developme nt in poorer countries through a n umber of pathways. Most i mportant,
.
likely to foster growth in both developed and developing host countries, but its effects such f1 nanc1al assistance is supposed to make up for shortfalls in domestic capital
to date have been more positive in the former than in the latter (Li and Liu 2005). fo rmation. Moreover, 1f foreign official donors provide funds for important
infrastructure projects, such as sh ipping port facilities, roads, or airports, private
One key reason for this difference appears to be the capacity of the different types of
investors from abroad will be more likely to invest in the country, since it will have
host countries to absorb the technology associated with MNE investments. Among stronger fou ndations for economic activity. Finally, foreign official assistance
developed countries MNE investments seem to spur technological innovation, and usually comes wit� foreign expertise and advice on how to implement economic
while this sometimes happens in developing countries the positive impact brought development projects, providing greater chances of efficient utilization of the
about by the technology transfer associated with MNE investments tends not to be resources.
as large or certain.
nact,c
��
Apparent Negative Relationship between Aid and G rowth in
Offikial Ard lrrows: Hel'p or 1Hi11d'rance to !Developing Countries?
The economis! Will iam Easterly constructed the figure below. It reports both the
For many years there have been serious controversies regarding the benefits or _
receipt of fore1gn a1d (as a percent of GDP) received by African countries, and the
dangers of official aid to developing countries. Indeed, it is regarding foreign aid .
gro�th m per capita GDP of those countries, from the early 1 970s to the late 1 990s.
that we observe the most divergent answers to the enduring question about whether While aid increased as a percentage of GDP in the region during this period,

critics suggest that the practice of tied aid reduces the beneficial impact of bilateral
international linkages are a good or bad idea for developing countries. For example, gro�th 1n GDP per capita went down. Many causes may have acted individually
Tied aid1 and jO mtly to eviscerate the effectiveness of the aid: civil wars in n umerous African
A practice in which countries may have hampered aid programs, the programs themselves may have
donor governments
aid. In tied aid, donor governments often require that the funds they give to a
been poorly designed or implemented by donor governments, and corruption
require that the funds recipient country must be used to purchase goods and services provided by firms
they give to a recipient on the part of rec ipient governments may have prevented the aid from going to
from the donor country. The tying of aid suppresses international competition .
country must be used households and firms that would have made efficient use of the aid resources.
to purchase goods and among firms who supply goods and services for the project being funded, which in
services provided by turn reduces the efficiency of the aid for the developing country. According to the
firms from the donor Figure 1 1 .7 Fore1g n Assista nce and Econom ic Growth 1n Africa,
. 1 970-99*
country. World Bank (1998), the loss in efficiency may reduce the effective value of the aid by While foreign off1c1al assistan ce is suppos ed to serve as a motor of econom ic
about 25 percent. de�elopme nt of p oorer countri es, this positive impact of aid
did not occur in
Africa over a period of three decade s.
In recent years, there has also been a serious debate about whether foreign aid
promotes growth in developing countries. In theory, as illustrated in Box 11.4, 1 8 -r---------:::---?<::;;;.::::::-------------:,--..;c-----,-- 2 0
.
foreign aid is supposed to act as a stepping stone to economic progress for developing - Aid as percent of GDP
16 - GDP growth per capita
countries. In Africa, no such positive association seems to be evident from the 1970s ll... 1 . 5 ro
to the end of the 1990s. 0 14
(.'.J
:!=
ro
Q.
Economist William Easterly (2002b, 2006, 2007) has argued that the foreign aid '+-
0 u
.., 1 2 1 .0 ai
strategies of wealthy donor countries (and the multilateral institutions they control, C
u
Q.

the World Bank and the IMF) have done little systematic good in the developing ai 1 0 ..c

world. In addition to the data summarized in Box 11.4, Easterly emphasizes that if we o.5 e
� 8 Ol
look back over the past five decades, the rich industrial countries have provided $2.3 ll...
trillion in aid to developing countries. At the end of that period, three billion people <( 0
6 0 . 0 <.'.J
were still living on $2 or less per day, 840 million were suffering from hunger, and 10
million children were dying each year from preventable diseases.
Easterly offers several reasons why aid has not promoted growth in the developing
world. First, economists and aid bureaucrats simply do not understand the dynamics
of economic growth sufficiently well to design large-scale aid programs that * The data for each year represents the average per capita GDP growth rate and the average rate of aid
[as a percenatge of GDP] over the previous 10 years.
consistently promote growth throughout the developing world. Moreover, providing
Source: William Easterly, 'The Cartel of Good Intentions,' Foreign Policy 131 (July-August 2002a)
aid to often highly corrupt developing-country governments greatly reduces the p. 4S. Used by perm,ss,on.
effectiveness of aid. We have, for example, the case of Zaire under the notoriously

41 4
41 5
Ill Wealth and Powelf: An Introduction to International Political Economy 11 Dilemmas of Development

corrupt government headed by Mobutu Sese Seko: between the late 1970s and 1990,
the IMF provided the Mobutu government no fewer than 1 1 loans, none of which 1 1 .5 MAKING CON N ECTIONS
materially helped Zaire make progress in attaining economic development. Aspiration versus Reality
Easterly does not say that international aid should be altogether ended. Instead,
he argues that donor governments should give up on the idea that there is a single
Developed Countries' Pledges and Performance on Official
'grand strategy' to institute development in all poor countries. Donor governments
should instead design more tailored aid programs that ensure feedback is generated Development Assistance 1 970 and 2002
on whether the aid is working, require accountability for national and international Aspiration: Original I nternational Pledge on Official Development
•
officials if the projects they put into place fail to produce results, find ways to bypass A

corrupt developing-country governments, and provide more targeted assistance to I n recognition of the special importance of the role which can be fulfilled only by
individual entrepreneurs or social activists in recipient countries. official development assistance, a major part of financial resource transfers to
In contrast, economist Jeffrey Sachs (2005a) has suggested that a new grand design the developing countries should be provided in the form of official development
for foreign aid by the rich countries could make a major contribution to ending assistance. Each economically advanced country will progressively increase its
official development assistance to the developing countries and will exert its
poverty in the developing world. Sachs acknowledges that if a developing country has
best efforts to reach a minimum net amount of 0. 7 percent of its gross national
a deeply corrupt (what he terms a 'predatory' ) government, economic development is product at market prices by the middle of the Decade.
unlikely to occur. However, even a well-governed developing country is unlikely to Source: U n ited Nations General Assemb ly, Resolution 2626,
achieve economic growth, Sachs argues, without outside assistance if that country is October 24, 1 970, available at http://www. u n .org/docume nts/ga/
Poverty trap caught in a poverty trap: when it is so poor that most of its national resources must res/25/a res25.htm, emphasis added.
When a country is so
poor that most of its
be used to satisfy the immediate day-to-day needs of the population, with insufficient It 0
national resources must resources left for savings or investment, such as better irrigation systems for farmers We urge developed countries that have not done so to make concrete efforts
be used to satisfy the
or better railways and roads for commerce, to propel the country toward higher towards the target of 0.7 per cent of gross national product (GN P) as ODA to
immediate day-to-day
needs of the population, incomes tomorrow. According to Sachs, many of the especially poor countries in sub­ developing countries.
with insufficient Saharan Africa are in precisely this situation. Sou rce: U n ited Nations (2002): 1 4 .
resources left for savings
or investment. The solution is to find an alternative source of investment resources. Sachs Figure 11.8 Official Development Assistance as Percent of Gross National
suggests that a massive injection of outside aid could serve that function for I ncome, Advanced-Country Donors, Five-Yea r Average, 2012-16
countries in sub-Saharan Africa that commit themselves to good governance. Well­ I n 1 970 and in 2002, the major donor countries pledged to provide official
designed aid programs, Sachs suggests, that involve close coordination among the development assistance (ODA) equal to 0.7 percent of their respective
national incomes. H owever, even in recent years only six donors have met or
donors and international aid institutions like the World Bank could effectively end exceeded that target.
poverty if donor countries doubled their ODA flows. In this respect one might add Slovakia
that official aid directed in the form of micro-finance, which is the provision of Poland
Czech Republic i--,
small loans to individual farmers and businesspeople, and in particular women, Greece i----
Korea
might have a positive effect on economic prospects in the developing world (Cull Slovenia
United States
and Morduch 2017). Spain
Italy
The major donor countries and international development agencies have in fact Japan
'
I
made greater efforts to coordinate their objectives when it comes to development Portugal
Iceland
assistance. In September 2000, most of the world's leaders agreed at the United C: New Zealand I
I
::, Canada
Nations in New York to what they termed the Millennium Declaration. The 0

5
I
U Australia
I
0 Donor Average
Millennium Millennium Development Goals (MDGs) included pledges by 2015 to cut extreme Austria
I

Development Goals poverty by one-half, achieve universal primary education and gender equality at all
0 Ireland
I
I
(MDGs) France
I
A series of goals related levels of education, reduce the mortality rate of children under five and new mothers Belgium
I I
Germany
to health, education, and by two-thirds, and decrease the incidence of AIDs/HIV, malaria, tuberculosis, and Switzerland
I

poverty, agreed upon by Finland

I I

world leaders at the UN other diseases. United Kingdom I

I
I
I I
Netherlands
in September 2000. In 2005, through a research effort he conducted for the UN Development Program, Denmark
I I I

Sachs (2005b) put forward a concrete and ambitious strategy for donor and recipient
I I I I
Luxembourg
I I I I
Norway
governments to achieve the MDGs, including the recommendation that official Sweden I I I I I

development assistance from the rich countries be doubled from a national average 0.00 0.20 0.40 0.60 0.80 1.00 1.20
ODA as % of Gross National Income
of about 0.24 percent to 0.54 percent of GDP. That would still be less than the target
Source: Data from Organization for Economic Cooperation and Development, 'Official
of 0.7 percent that rich countries had pledged to achieve as far back as 1970 and Development Assistance as a Percentage of Gross National Income (GNI),' in OECD International
as recently as 2002. It is possible that the new aid has helped, since many African Development Statistics Volume 2017, available at http://www.oecd-ilibra ry.org/development/
oecd-international-development-statistics_24142689.
countries have had more favorable development experiences, as we highlight below.
However, the problem, as explored in Box 1 1.5, is the continuing failure of many

I
41 6 41 7
 Ill Wealth and Power: A n I ntroduction to I n ternational Pol i tical Economy 11 Dilemmas of Development

donor countries to increase ODA as a percentage of their respective national incomes Second, it is possible that the IMF contributes to the risk that countries will behave in
to reach the 0.7 percent committed level. ways that bring about financial panics. The IMF, by acting as a lender of last resort,
Despite shortfalls in ODA from the developed countries, the UN Millennium may produce moral hazard (Meltzer 2000) on the part of both developing-country Moral hazard
Project achieved substantial success by its end-year of 2015. For example, compared governments and private lenders. Moral hazard occurs when an individual or some When an individual
or some other actor
to what would have occurred had trends in reducing mortality rates during the other actor believes they can take very great risks because, if things go badly, someone believes they can take
1990s remained in effect during 2000-15, between 21 and 29 million more people else will pay for the consequences of the risky behavior. It is possible that developing­ very great risks because,
if things go badly,
were saved by its efforts. Approximately 470 million more people escaped from country governments and foreign lenders believe that if they engage in what turns someone else will pay
extreme poverty during 2000-13 than would have occurred if poverty-reduction out to be overly risky economic behavior (overspending by the governments and for the consequences
of the risky behavior.
rates between 1990 and 2002 remained in effect. The majority of lives saved due to overlending to those governments by outside banks and other financial actors), the Some accuse the IMF
the accelerated reduction in mortality rates during 2000-15 were in sub-Saharan IMF will bail them out. Those governments and lenders might, by consequence, be of encouraging moral
hazard .
Africa, and the biggest decrease in extreme poverty occurred in India (McArthur more likely to make choices that lead to financial crises and the need for IMF bailouts.
and Rasmussen 2017). In sum, when we seek to answer the enduring question about international linkages
At a UN Summit in September 2015, world leaders agreed to build on the success and development, official aid and IMF lending produce extremely divergent views.
of the UN Millennium Project and to pursue a new set of 17 development goals for the As we noted above, developing countries have had very different growth
Sustainable period, 2016-30 (United Nations 2017). These benchmarks, called the Sustainable experiences. The next section highlights different paths to economic development
Development Goals Development Goals (SDGs), constitute what the leaders termed a new Agenda for
(SDGs) that have been taken by a small number of emerging states that are particularly
World leaders in Sustainable Development. The goals that the governments established, together with important both for the growth they have achieved and their potential for affecting in
2015 agre.ed to a new the identification of possible strategies in support of meeting the goals (for example,
Agenda for Sustainable turn the growth of the world economy.
Development, with including women more comprehensively in all aspects of the development process),
goals regarding poverty, include the eradication of poverty and hunger throughout the world by 2030. The
gender equality,
and environmental goals also aim to promote more inclusive economic growth, including through the
protection. achievement of gender equality and the promotion of above-average income growth of

J
I
the world's poorer families. Finally, the new goals include commitments by all nations
to achieve development while also protecting the natural environment. Important Developing countries that accept i nternational There is disagreement over the extent to which
discussions and debates about ODA and other mechanisms by which developed investment might grow more rapidly than they foreign aid and direct and portfolio investment
and developing countries can productively work together to promote sustained, just otherwise would, but in so doing they take on risks have beneficial impacts on development.
development in poorer countries will likely center on whether these new goals are as domestic and international investment conditions
change.
reached in the years ahead.

I M F Lending to Developing Countries DEVELOPMENT STRATEGI ES AND EMERGING

Many developing countries lack sufficient foreign exchange resources to cover POWERS - THE BRICS
Stabilization program debt obligations and even critical imports, such as oil, food, and medicine. As we The discussion so far highlights that there are different pathways to the achievement
A contract between the
IMF and a loan-recipient discussed in Chapter 9, in those instances such countries often turn to the IMF for of development. Some countries have clearly done better than others. This final
country stipulating what short-term loans. To receive those loans, a country must, in almost all circumstances, section considers a group of developing countries that are singled out for special
macroeconomic policy
changes the country will reach agreements with the Fund regarding the terms and timing for repayment. attention because each has potential to emerge as a major economic power.
undertake to ensure that One element of an agreement is almost always a stabilization program, which is a In 2001, an analyst working for the financial giant Goldman Sachs coined the
its short-term foreign
exchange shortfall does contract between the IMF and the recipient country stipulating what macroeconomic term BRIC to refer to a small cluster of emerging states - Brazil, Russia, India, and
not become permanent. policy changes the country will undertake - usually increasing interest rates, cutting China (BRIC) - with the collective potential, within several decades, to overtake the
Structural adjustment government spending, and raising taxes - to ensure that its short-term foreign combined economic weight of the industrial world. In 2001 this BRIC group already
program (SAP) exchange shortfall does not become permanent. Such a stabilization program is often contained 40 percent of the world's population, accounted for 15 percent of global
Agreement between
the IMF and the paired with a structural adjustment program (SAP), which is an agreement between GDP, and held 40 percent of global currency reserves. BRIC countries also shared high
recipient government the IMF and the recipient government on how it will change its microeconomic future economic potential: China was growing faster than any other country, India was
on how it will change
its microeconomic policies, that is, what efforts it will undertake to introduce stronger market forces by not far behind, Brazil was re-emerging as the dominant economy of South America, BRICS
policies, that is, liberalizing the country's economy, and by strengthening its regulatory frameworks and Russia was recovering from its economic collapse at the end of the Cold War. The Brazil, Russia, I ndia,
what efforts it will China, and South Africa.
undertake to introduce in finance and other sectors. name stuck, and by the mid-2000s representatives of BRIC countries began meeting These five rapidly
stronger market forces The IMF's policies have produced two main lines of criticism. First, IMF lending as a group. In 2010, South Africa requested that it be included in the group, and it was developing countries
by liberalizing the have the collective
country's economy, and may stunt the growth opportunities of developing countries that agree to take on formally invited to do so in December of that year, and so we now use the term BRICS potential, within several
by strengthening its IMF loans and their attendant harsh conditions. This is because cuts in government in recognition of South Africa's membership in this informal arrangement. decades, to overtake the
regulatory frameworks combined economic
in finance and other spending, often at the heart of stabilization programs, may lead to a contraction in The four original members and later the five-member BRICS association have weight of the industrial
sectors . overall national demand and thus output of goods and services within the country. made some efforts at crafting joint positions on international economic issues world.

41 8 41 9
I l l Wealth and Power: A n Introduction to International Political Economy 11 Dilemmas of Development

and have taken initial steps to create a new international institution. In June 2009,
what were then the four BRIC countries held their first summit in the Russian city 1 1 .6 DIFFERING THEORETICAL APPROACHES
of Yekaterinburg. The four agreed on the need for a more stable and diversified
international monetary system (translation: less reliance on the US dollar) and The Future of the BRICS
reform of international financial institutions to reflect changes in the world economy
(translation: more influence for BRIC countries, and less for the United States and Background
Europe, in the World Bank and IMF). In 2014, BRICS members created a New Brazil, Russia, I ndia, China, and South Africa a re working to create a new i nform a l
Development Bank (NDB) and pledged to fund it with a reserve currency pool of politica l-economic g rouping i n t h e world economy, t h e B R I C S . Their goal is to
$100 billion. The NDB is headquartered in Shanghai, China, and signed its first loan craft and press common positions on international economic m atters, and as
agreement in December 2016. such to wield more i nfluence as m embers of a group of important economies
than they m ight as individual cou ntries, aided by creation of a new deve lopment
It remains to be seen if the BRICS grouping will become a lasting, influential
bank. What are the prospects for the BRICS as a political-economic g rouping?
political force in world economic matters. Scholars working from the realist, liberal, Scholars working in the rea l ist, liberal, and constructivist traditions might share
and constructivist perspectives would probably all be cautious in their assessments doubts about the future of the BRICS, but they differ in the kinds of questions
of the prospects for the BRICS as a political grouping. We highlight in Box 1 1 . 6 how they would ask about the grouping i n reaching their views as to its l ikely future
those theoretical perspectives would differ in trying to estimate the likely durability health a nd vital ity.
and salience of the BRICS group in the future.
Realism
Regardless of the prospects of the BRICS as a collective, as individual countries
A rea list would ask whether the B R ICS cou ntries a re subject to threats i n
China, India, Brazil, Russia, and South Africa will likely be major actors in the world
common - political, m i lita ry, and economic - an d i f they are, then this would augur
economy in the years ahead. Below, we briefly describe their development strategies well for the grouping. A rea l ist would a lso ask if the BRICS cou ntries have serious
and impending challenges. conflicts of i nterest between or among group m embers, for if they do this wou l d
y i e l d pessimism about t h e p rospects for robust cooperation and devel opment.
China For exa mple, India and Ch ina have been locked i n a long-standing disagreement
a bout the exact demarcation of their common border, a d isagreement that
China is by far the largest and most successful of the BRICS. During its first 30 years caused a war between them in 1 962. This split at the heart of the BR ICS, a rea l ist
under communist rule (1945-75), China possessed a Soviet-type economy with most would suggest, might im pose limits on the future of the grouping. All the BRICS
resource allocation decisions made by central planning authorities rather than market countries might oppose U S pre-emi n ence in i nternational relations, but while
US-China and U S-Russia relations have deteriorated i n recent years, US-India
re lations have improved, and this too might again constra in BRICS political and
i nstitutional cooperation.
Photo 1 1 .4 Export Pro duction in Chinese Special Economic Zone, 2004
China made very good use of special economic zones in its early years of export­ Liberalism
oriented ind ustrialization, includi ng, as can be seen in this photo from 2004, to
prod uce Ch ristmas prod ucts for the US ma rket. A liberal would a rgue that, if they were all democracies, the prospects for the
B R ICS countries to expa nd and deepen their cooperation wou l d be reasonably
good. As it is, the BRICS g rouping is composed of countries with highly diverse
domestic political regimes: Brazil, I ndia, and South Africa are democracies, and
China and Russia have authoritarian regimes. A l ibera l is l i kely to look at the
d ifferences among the BRICS i n terms of domestic regimes and conclude that
that variation is l i kely to hamper deve lopment of the group.

Constructivism
A constructivist would suggest that the prospects for the B RICS grouping
depends upon the degree to which the political leaders, business el ites, and
other active members of the societies of the different BRICS countries share
common ideas about such matters as the proper role of government in the
n ational economy, the value of working with other countries i n internation a l
arrangements, a n d , i n line with rea l ist views, whether they were confronting
common threats and opportu n ities i n the international domai n .

forces. A new communist leadership took over i n the mid-1970s and, i n 1978, initiated State-owned
economic reforms that have resulted in China's gradual transition to a market-based enterprises (S0Es)
Companies owned
economy. These measures included allowing farmers to lease land from the state, the directly by the
Source: AFP/AFP/Getty Images. steady privatization of state-owned enterprises (SOEs), and an export-led growth government of a state.

420 421
Ill Wealth and Power: An I ntroduction to I nternational Political Economy 11 Dilem m as of Development

strategy that established special economic zones for Chinese and foreign companies from the 10 percent range to roughly 6 to 7 percent (see Figure 11.10). China faces
to produce goods for final markets in the West. a series of difficult economic and political challenges that could derail its rise to the
China's economic strategy has been remarkably successful. Its export revenues top. Most importantly, as the world economy has slowed down, so too have China's
jumped from about $10 billion in 1978 to about $500 billion in 2003, and to $1.2 exports. China thus is attempting to shift its growth strategy from an ELG model
trillion by 2009. Between 1985 and 2010, the economy grew at an astounding rate to one based on domestic investment and consumption. As it makes this gradual
of almost 10 percent per year. By 2005, China's total GDP grew to $2 trillion using transition, it will also face, by 2030, an aging population and a smaller workforce.
Purchasing power current exchange rate and $5 trillion in purchasing power parity (PPP) terms For China's · communist leaders, economic performance and regime legitimacy
parity (PPP)
A measure economists
(PPP is a measure used to compare the value of a similar basket of goods across are inextricably linked. So far, China has managed to sustain what the Soviet Union
use to compare the value countries with different living standards and exchange rates). Economists predicted could not - a thriving, quasi-capitalist economy governed by an authoritarian
of a similar basket of in 201 2 that China would have a markedly larger economy in terms of PPP than the one-party state. The legitimacy of the communist regime is no longer based on
goods across countries
with different living United States by 2030 (see Figure 11.9). At the end of 2016, both the IMF and World revolutionary fervor or the inherent political appeal of communist ideology. Instead,
standards and exchange Bank calculated that China's economy was bigger than that of the United States in it is based on economic performance, or the ability of the regime to ensure that the
rates.
PPP terms. economy delivers goods, services, and jobs to its growing population. Significantly
We could therefore be witnessing a transition in global economic hegemony like slower growth would inevitably lead parts of the population to question the political
the one that took place between Great Britain and the United States during the monopoly of the Communist Party. The greater the questioning, the more tempted
first half of the twentieth century. We might see financial power shift from New the regime would be to exercise repression, which would lead the population to
York to Shanghai and Beijing. China might become decisive in determining world question regime legitimacy even further. It is perhaps not surprising that as China's
trade rules and take on the leadership of the IMF and World Bank. Chinese leaders growth has slowed, President Xi Jinping has sought to crack down on corruption
have already extended their diplomacy across Asia, Latin America, and Africa, using and in the process has increased the control of the Communist Party over China's
their formidable financial and commercial resources to extract political benefits economy and society.
and necessary raw materials on favorable terms. With an additional 20 years of The communist regime must also deal with the social and economic inequalities
sustained growth, China would be able to challenge American political dominance that result from successful economic growth. Growing gaps have appeared between
around the world. rich and poor, urban and rural populations, and residents on the economically vibrant Iron rice bowl
A guarantee from
But will China continue to grow at a rapid pace? We should not assume that coastline and those in less well-off inland parts of the country. Large gaps in income the government of
its future will simply look like its recent past. In fact, China's growth has slowed and life opportunities generate resentment among those at the bottom, who, during Communist China of
job security and access
significantly, and between 201 2 and 2016 average annual per capita GDP dropped the communist era, could at least count on the ' iron rice bowl,' a guarantee from to basic necessities for
the state of job security and access to necessities. But there is even discontent among Chinese citizens.

Figure 11.9 Shares of World GDP 201 1 and Projection for 2030
In the foreseeable future China might have the world's largest economy. By the end
of the next decade it might be the site of 28% of global economic activity, while in Figure 11.10 Chinese Annual G D P Growth, 2008-1 8
201 1 it was the location of about 1 7% of world economic output. By comparison, the China has experienced stunning growth in GDP per capita in recent years, reaching
United States, which in 201 1 generated about one-fourth of world output, might be 10% per year in the first decade of the current century. However, more recently China
the source of 1 8% of such activity in 2030. has experienced a relative abatement (a lbeit still very high by global standards) in its
growth in income per person.
India India
6% 1 1% U n ited States 12
1 8%
cu 10
Japan
'ii
China 4% cu

28% 8
Japan
7% Euro area
CL

Other 1 2%
CL
6
·"
non-OECD <..')
1 2%
..r: 4
Other OECD
1 8% <..') 2
1 2%
2011 2030
0
Source: Figure 10 republished with permission of the OECD, from Johansson, A., et al. (2012) 'Looking to 1 997-2001 2002-2006 2007-201 1 201 2-201 6
2060: Long-Term Global Growth Prospects: A Going for Growth Report,' OECD Economic Policy Papers,
No. 3, OECD Publishing, .23.doi: 1 0.1 787/SkBzxpjsggfO-en. Permission conveyed through Copyright Time Period
Clearance Center, Inc. See also, Johansson, A., et a/. (2013) 'Long-Term Growth Scenarios,' OECD Economics
Department Working Papers, No. 1 000, OECD Publishing. http://dx.doi.org/10.1787/5k4ddxpr2fmr-en. Source: Data from the National Bueau of Statistics of China.

422 423
Ill Wea lth and Power: A n I ntrod uction to I nternational Pol itica l Economy 11 Di lem mas of Development

the rising middle class who, as they become well off, have increasing expectations for Photo 1 1 .5 B RICS Leaders
Indian and Chinese officials mark the launch of the BRICS' New Development Bank
a higher quality of life and demand a greater say in the political decisions affecting (N DB) i n 201 7 during the N DB's second annual meeting i n New Delhi, I ndia.

ln sum, China's prospects forfuture rapid growth are far less predictable than any
their lives.

linear projection of past trends would indicate. China may continue to enjoy sustained
growth and may even catch and overtake the United States. But it is also plausible that
China will grow more slowly and, at the extreme, face a series of economic, social, and
political dislocations.

India
India has long been an exceptionally large, but exceptionally poor, developing country.
Why has it gained so much attention in the past decade, to the point of being included
in the BRICS? One reason is economic; the other is geopolitical.
During much of the Cold War, the Indian economy was shackled by government
intervention and regulation. Modest liberalizing reforms undertaken in the 1980s
helped the country attain an annual growth rate of about 5 percent. A currency crisis
in 1991 led to more far-reaching reforms: tariff cuts, business tax reductions, and the
deregulation of industry. India grew at 6 percent annually between 1992 and 2002, a
period that included a major economic disruption in its region, the Asian financial
crisis of 1997-98. Between 2002 and 2008, India grew even more rapidly, at 8.8 percent
annually, and it maintained 6.4 percent growth annually between 2010 and 2016. As Source: VCG/VCG via Getty I mages.
we noted at the beginning of the chapter, India is on the move economically and has
achieved recent growth rates close to those of China. With one billion people - about below the poverty line. According to the World Bank, India made significant progress
half under the age of 25 - and a rapidly growing economy, India caught and has by 2016, but still 22 percent, or 270 million people, lived in poverty. Roughly 30 percent
sustained the attention of the global community. It has experienced especially rapid of Indian children suffer from malnutrition, and literacy rates are only at about 70
growth in the service sector, particularly computing and information technology. Its percent (compared to roughly 95 percent in China). Despite its ability to produce
computer services leaders - Wipro and Infosys - have become well known. The same world-class information technology services and globally competitive cinema, India's
may be said of its leading auto manufacturer, Tata Motors; in 2009, Tata introduced basic infrastructure remains underdeveloped. Hundreds of millions of people live
what it claimed to be the world's least expensive car, measuring 10 feet by 5 feet and without electrical power and, in many parts of the country, sanitary conditions are
selling at a base price of $2,200. poor, exacerbating disease, malnutrition, and infant mortality.
India has gained geopolitical attention as well. It has taken on a self-appointed India's economic progress requires a continuation of economic reforms, along
role as leader of developing states seeking a better deal in the world economy in with sustained attention to its deficient infrastructure. Its democratic government is
negotiations with the more established industrial states. India helped to derail the aware of the problems but is not always able to address them effectively. Recall from
Doha Round because it felt the United States and Europe did not make sufficient early in this chapter the importance of good governance as a facilitator of economic
concessions. As we will discuss in Chapter 13, India is a key player in global climate development. Corruption plagues the Indian Parliament; as of 2010, some 25 percent
change negotiations because it is the world's third largest emitter of greenhouse of sitting members were facing criminal charges. The ruling coalition government
gases. Here, too, it has proved reluctant to cooperate, claiming countries already has at times contained more than one dozen parties, making it difficult to sustain
economically developed, at a high cost to the global environment, are now urging itself in power, much less take decisive action to address pressing social and economic
developing countries to restrict their own growth in the interest of environmental problems.
protection. F_inally, India has gained more positive geopolitical attention from the
United States because it is a potentially valuable partner in the possible containment Brazil
of China. As discussed in Chapter 8, in 2005 the United States pressed forward a US­
India nuclear deal, which resulted in the United States and the 45-member Nuclear Brazil was hit hard by the Great Depression of the 1930s. As Western markets for
Suppliers Group recognizing India as a nuclear weapons state, despite its defiance of its coffee and other raw materials collapsed, Brazil's policy makers learned that the
the international non-proliferation regime. The nuclear deal enhanced India's status country should not excessively rely on the global economy. As a result, they adopted
and helped distinguish it as a great power rather than just one side of the India­ an ISI strategy. The government regulated trade and used tariff barriers and other
Pakistan regional conflict. incentives to encourage local Brazilian firms, sometimes in collaboration with
Its recent success and prominence as a BRICS country should not blind us to foreign multinational enterprises, to produce goods for the large Brazilian market.
the formidable development challenges that India continues to face. As of 2005 a ISI produced some growth over the years but, by the 1980s, Brazil was afflicted with
remarkable 40 percent of the Indian population - over 450 million people - lived high inflation, large external debts, and inefficient industry. By the early 1990s,

424 425
I l l Wealth a n d Power: A n I ntroduction to I nternational Political Economy 11 Dilemmas of Development

Brazil joined many other developing countries in shifting development strategy in 2016 for mishandling Brazil's national finances. There is still much work to be done,
a more liberal direction, emphasizing freer trade and privatization of many state­ but Brazil remains a plausible candidate to join the ranks of the major powers in the
owned firms. decades ahead.
As many developing countries have embraced the world economy since the 1990s,
why single out Brazil for special attention? The simple reason is that, like India and Russia
China, Brazil is no ordinary emerging economy; it has the potential to be a great
power, economically and geopolitically. Brazil's land mass is similar in size to the Under communist rule as the core of the Soviet Union (1917-90), Russia undertook
United States. Its population is about 210 million, or two-thirds that of the United a 70-year experiment in central planning of the economy. The state controlled
States. Its GDP of roughly $2.1 trillion in 2016 placed it among the top ten countries in virtually every aspect of economic interaction; it set prices for goods and services and
the world. Unlike many developing countries, Brazil already possesses a sophisticated determined what would be produced, how it would be produced, and in what quantities.
and diversified economy. It is a major agricultural producer and exporter of coffee, The system produced some successes in aggregate economic terms. Stalin's revolution
soybeans, cotton, tropical fruits, and biofuels such as ethanol. It is emerging as a from above during the 1930s marshaled economic resources to achieve, at the expense
global player in oil and gas. Within the past decade, the state-owned firm Petrobras of the peasantry, rapid industrialization and militarization. After World War II, the
has made huge new oil discoveries in Brazilian territorial waters, and industry experts Soviet-style economic system was put forward as an alternative to liberal capitalism.
estimate that Brazi I 's reserves have now tripled to about 40 billion barrels, among the During the 1950s, it compared relatively well, when the Soviet Union recovered from
top ten globally and equivalent to the reserve positions of long-time OPEC members war and achieved high levels of growth by devoting more land, labor, and capital to the
Nigeria and Venezuela. With over 2,500 miles of coastline, further discoveries are production process. By the 1960s, however, it became apparent that the Soviet system
likely. It is ironic that Brazil spent decades developing its manufacturing sector, and was 'all thumbs and no fingers' - it was good at mass-producing basic commodities,
now finds raw materials and food to be just as much an engine of its current and but much less effective at producing a wide range of goods and services of appeal to
future growth. Its large size and economic diversity increase its chances of avoiding ordinary consumers. The Soviet economy was a bit like the army; it could produce
the resource curse and other problems that plague developing economies. enough 'standard-issue' shoes or shirts for everyone but could not compete with the
Brazil's central government has become stronger and more stable. Brazil returned variety and quality of goods produced in market economies around the world.
to democracy in 1985 after two decades of military rule. Its extensive multiparty The Soviet Union was a global leader in the production of oil, natural gas, nickel,
system ensures that governing coalitions have numerous participants. Yet, only two of and other primary commodities, and the boom in commodity prices during the
the parties, the leftist Worker's Party and the center-left Social Democratic Party, have 1970s made the Soviet economy look stronger than it was. W hen commodity prices
been able to produce viable presidential candidates, and they have alternated in power fell during the early 1980s, the Soviet economic weakness was exposed, and, as we
over the past 20 years. W hen in power, each party has managed to form governments discussed in Chapter 2, Mikhail Gorbachev took power with a bold plan to reform
capable of getting things done, even with seemingly unwieldy coalitions. Brazilian the Soviet economy while maintaining centralized political control. His experiment
politics has become more stable and predictable in absolute terms; compared to other ultimately failed, as the Soviet economy was thrown into chaos; the subsequent
countries in the region, such as Venezuela, where populist leaders have sought to demands for political liberalization led to the demise of the Soviet empire, the Soviet
manipulate democratic rules to remain in power indefinitely. Union itself, and the Cold War. During the 1990s, Western governments hoped that
The Brazilian state has become more competent in some of the good governance Russia could be reformed into a liberal democracy and market economy. But economic
tasks those in the developed world often take for granted - the collection of taxes reform meant that a small segment of powerful elites and their associates became
and implementation of government programs. Between 2003 and 2013 President Luiz very rich, while most ordinary people faced economic insecurity. The safety net of
Inacio Lula da Silva of the Worker's Party targeted resources to the large numbers of communism was ripped away but a fully functioning market economy was not put
Brazilian poor, emphasizing health care, education, and housing. He maintained the into place. By 2000, Vladimir Putin took advantage of this situation by centralizing
pragmatic and growth-oriented economic policies that enhanced Brazil's ability to power in Moscow and promising the Russian people a return to the tradition of
compete internationally. stability and order provided by a strong central government.
Brazil continues to face major challenges. Its average annual growth rate has In the interim period of the 1990s, the Russian economy faced severe hardship:
been slower than China's (hovering in the 2 percent range between 2008 and 2016), GDP contracted at the beginning of the decade by 10 to 15 percent annually.
while the government's share of its economy is larger (20 percent versus 14 percent). Investment slipped, and unemployment and poverty levels rose significantly. Russia
Large gaps in income and wealth across the population remain. Brazil's emerging was hit hard by an international financial crisis during 1997-98: the ruble collapsed
dependence on raw material and agricultural exports make it vulnerable to global in value and the government defaulted on billions of dollars of its international and
economic slowdowns. Its Amazon region has become something of a 'wild west,' domestic debts.
with loggers, miners, and farmers grabbing what they can at the expense of the local Why, then, has Russia been singled out as a BRICS country? The simple reason is
and global (Brazil is a leading emitter of greenhouse gases) environment. Brazilian that Russia's economy staged a strong recovery after 1998. Between 2000 and 2008,
business and political elites have been caught up in recent corruption scandals; the annual growth averaged almost 7 percent. The government eliminated or repaid its
very popular former President, mentioned above, known as Lula, was convicted and debt and, by 2009, had piled up more than $400 billion in foreign currency reserves,
sentenced to 12 years in prison for accepting gifts in exchange for contracts offered to more than any other country other than China and Japan. The benefits spread broadly
construction firms, and Lula's successor, President Dilma Rousseff, was impeached in as jobs were created, poverty levels dropped significantly, and personal incomes

426 427
Ill Wea lth a n d Power: A n I ntroduction to I nternational Pol itical Economy 11 Dilemm as of Develo pment

and consumer spending rose. The crisis of 1998 forced the government to rein in have only exacerbated the economic challenges Russia already faces. By 2018, those
spending, and the cheaper ruble stimulated Russia's exports. sanctions were strengthened in response to Russia's meddling in Western elections
The key to Russia's success has been energy. Oil and gas prices shot up after 2003, and support for the Syrian regime that has used chemical weapons repeatedly in its
with oil approaching and even breaking through the $100 per barrel mark. It is the brutal civil war.
world's second largest oil producer and exporter (after Saudi Arabia), and the world's
largest natural gas producer and exporter.
South Africa
Under Putin, Russia's economic revival has been accompanied by a more assertive
foreign policy, particularly around the former Soviet Union. Russia has used the Because of a multi-decade struggle led by Nelson Mandela and the African National
threatened or actual cut-off of energy supplies to influence politics in Ukraine, Congress, South Africa achieved during the early 1990s a stunning transformation
Belarus, and Georgia. In 2008, Russia invaded Georgia to bolster the independence of from a deeply racist and authoritarian regime - one that was based on apartheid, or
the Russia-friendly regions of Abkhazia and South Ossetia. The fact that the rest of separation of the races and subjugation of blac;:ks by whites - to one that is democratic
the world seemed incapable of deterring or stopping Russia from attacking its smaller and multiracial. South Africa's initial post-apartheid economic performance was
neighbor (on the eve of the attack, US President Bush and Russian Prime Minister reasonably strong. Especially notable was the progress made by South Africa in
Putin were seen together attending the opening ceremonies of the Beijing Olympics) reducing poverty: the national poverty dropped from about 34 percent in 1996 to
made Russia look even more formidable. As discussed in Chapter 2, in 2014 Russia about 17 percent in 201 1, as the new black majority government spread economic
annexed the Ukrainian territory of Crimea. benefits more broadly across the population. However, in recent years, domestic
Russia's revival, coupled with China's economic success, led some observers to political turmoil and apparent widespread governmental corruption have combined
celebrate the authoritarian capitalist model as an alternative to the liberal capitalist to take a serious toll on South African economic development: at 16 percent, the
model of the West. In Russia's version of authoritarian capitalism, Putin's government national poverty rate in 2016 remained almost unchanged from what it had been five
stifled democracy and freedom of the press and expanded the power of the central years earlier; GDP per capita contracted during the years 2014, 2015, and 2016; and
government in the name of stability, law, and order. By 2008, the government the national unemployment rate in 2016 reached an 11-year high at 28 percent, with
had taken over all major television networks and controlled all major newspapers youth unemployment at close to 50 percent. In April 2017, an important credit ratings
except one Moscow weekly. In exchange, the Russian people received a share of the agency, Standard and Poor, downgraded to ' junk status' South African debt that is
economic benefits generated by oil and gas sales. The fact that Putin's approval rating denominated in foreign currencies (World Bank 2017).
as President approached 80 percent in 2007 seemed to suggest that the authoritarian Going forward, South Africa faces both opportunities and challenges. It is a
model was not only effective, but popular. When Putin was replaced as President country that has substantial mineral resources including the world's largest reserves
in 2008 by Dmitry Medvedev, he stayed on as Prime Minister and then again as of manganese and platinum group metals and among the world's largest of gold and
President in 201 2. diamonds. It has a skilled workforce characterized by a high degree of gender equity.
Russia's authoritarian capitalist model and economic revival face major challenges According to the World Economic Forum, South Africa has the 17th (out of 1 36

I
and hide significant social and economic problems (Mcfaul and Stoner-Weiss 2008). countries) narrowest gender gap in the world, measured in terms of participation in
Russia's population has been shrinking for at least 20 years, in part due to serious the economy, education, political opportunities, and health (World Economic Forum
health afflictions. Heart disease, the leading cause of death, occurs at three times the 2013). Its democratic institutions are robust. Its political system as of 2017 was coded
rate of that in the United States. Alcoholism is rampant among young and middle­ by the prominent NGO Freedom House as free, the highest category employed by
aged men. Russia has the highest HIV infection rate of any country outside Africa. that organization in assessing political and civic rights in countries around the world,
'Law and order' is a supposed benefit of rule under Putin but during his tenure the although Freedom House characterized the South African press as operating in only
murder rate has increased, and Russia experienced the two worst terrorist attacks partly free circumstances (Freedom House 2017b).
in its history, at a Moscow theater in 2002 and in an elementary school in Beslan in At the same time, the country faces serious residual problems from the apartheid
2004. Russia ranks very high in international rankings for corruption and has one of period: South Africa is still characterized by a high degree of income inequality,
the least friendly business environments in the industrial world. The protection of and according to the World Bank it has one of the most unequal distributions of
property rights is weak, Russian authorities regularly harass foreign businesspeople, land ownership in the world. National health problems and inequalities, including
and the government has used its political clout to redistribute Russia's vast energy and a high incidence of HIV/AIDS infections, constitute a serious barrier to economic
other resources into the hands of a small elite. development. Recent government corruption, including allegations leveled against
Russia's development model may be over-reliant on oil and gas. Energy profits, in former President Jacob Zuma, who was forced to step down in February 2018, is
fact, have facilitated authoritarianism by giving Russia's central leaders the resources acting as a serious drag on economic growth. South Africa is clearly an important
to reward friends, crack down on enemies, and placate the general population. state in Africa, enjoys global influence and respect due to its transition to multiracial
But such circumstances may not last because Russia, like several Middle Eastern democracy, and could be poised to enjoy sustained economic development. However,
oil countries, is susceptible to the resource curse; it has got richer, but it has not the degree to which it prospers economically and retains global diplomatic importance
developed. The danger for Russia, considering its other problems, is that the next will depend upon its capacity to resolve deep-seated social and political problems.
energy downturn will lead to economic and social crisis. Finally, Russia's confrontation Just as many developing countries must address the legacy and lingering effects of
with Ukraine in 2014 led Western countries to impose economic sanctions which colonialism, South Africa must confront the legacy of apartheid.

428 429
I l l Wealth a n d Power: A n Introduction to International Political Economy 11 Dilemmas of Develo p ment

STU DY QUEST IONS

1. Recall the three key perspecti ves - libera l ism, M a rxism, and economic nationa
lism -
discussed in Chapter 1 0. What do you consider the most important insight
from
each regarding the dilemmas of developm ent?
The rise of the B RICS, especially China, 2. What a r� the most im portant causes of fa iled efforts by many countries to achieve
BRICS countries have pursued different
demonstrates the connection between economic econom ic developm ent? Are they more likely to be domestic or internatio nal?
development strategies, reinforcing the idea that Are
power and geopolitical influence in the international they more likely to be political, economic, or geograph ic?
there is no single pathway to national economic
system. 3. Eva luate the costs a n d benefits of i nternation al trade, foreign direct investmen
t,
prosperity. _ _
and off1c1al developm ent aid as engines of developm ent.
The cha llenge of good governance plagues each 4. Imagine you are the foreign min ister of Brazil. What strategies would you adopt
BRICS cou ntry to a greater or lesser degree. toward other BRICS cou ntries, the U nited States, and your immediate neighbors
to
e n ha n ce you r country's developm ent prospects ?
5. How might developin g countries be affected if the price of oil tripled over the next
decade?
REVISITI NG THE ENDURI NG ou 10N AND LOOKING AHEAD 6. Is the term BRICS a useful ana lytical construct? Why or why not?
;r
Economic development is one of the great challenges of our time. In this chapter,
we have asked whether economic globalization helps or hinders p oorer countries as FU RTHER READING
they seek to attain such development. Globalization seems to be helping many once Acemoglu, Daron and James Robinson (2012) Why Nations Fail: The Origins of Power, Prosperity,
poor countries, such as South Korea and China, achieve a stunning level of economic and Poverty (New York: Crown Business). This widely read book provides a good argument
development. Most developing countries are likely in the future to pursue at least about how geography and domestic political institutions, as well as the legacies of colonialism,
have affected the prospects for growth of development of countries around the world.
limited integration with the global economy, through trade, foreign investment by Easterly, William (2006) The White Man's Burden: Why the West's Efforts to Aid the Rest Have
multinational enterprises, and the receipt of financial assistance either from donor Done so Much Ill and So Little Good (New York: Penguin Press). This is perhaps the most
countries like the United States or by international institutions like the World Bank. thoughtful and persuasive book on the possible pitfalls and even counter-productive effects
of foreign aid from developed to developing countries. It should be contrasted with Sachs'
Yet, in doing so, developing countries are likely to be concerned as to whether they End of Poverty, noted below.
are attaining the maximum possible gains from integration, and this concern is likely Rodrik, Dani (2007) One Economics, Many Recipes: Globalization, Institutions, and Economic
to translate into bargaining with the wealthier and more powerful countries in the Growth (Princeton: Princeton University Press). Rodrik offers a balanced analysis of the role
_
of 1nternat1 ?nal economic integration in the process of economic development. H e argues
global economy. _
that countries that have benefited from economic integration did so by first building strong
Developing countries will become increasingly important for international domestic inst1tut1ons and industries, and he is skeptical of the Washington Consensus.
economics. The BRICS may become a significant force in world politics. Individual Ross, Michael (2012) The Oil Curse: How Petro leum Wealth Shapes the Development of Nations
_
(Princeton: Princeton University Press). Ross shows how the possession of oil can place serious
BRICS countries, and especially China but also Brazil to a considerable degree and
obstacles before d eveloping countries as they seek to attain good governance and economic
possibly India in the foreseeable future, are central actors in world trade, finance, and development.
economic diplomacy. South Korea has already become an important member of the Sachs, J effrey (2005a) The End of Poverty: Economic Possibilities for Our Time (New York: Penguin
Press). Sachs puts forward a case for the efficacy and moral necessity of foreign aid from
community of advanced industrial countries.
developed to developing countries. It should be read in conjunction with Easterly's The White
Still, it remains an open question whether all developing countries, especially the Man's Burden, noted above.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · .·
.: · · · · · · · · · · · · · · ·www.macm
very poorest, can escape from poverty traps and propel themselves onto a trajectory
of sustained growth. There is still no strong consensus among academics or policy
makers on whether trade, investment, and foreign aid can help in promoting or • � Visit illanihe.com/Grieco-ln trolR-2e '
to access extra
fortifying change in the poorest countries. Good governance and domestic civil peace �� resou rces for this chapter, including:
are needed to bring about sustained growth and poverty reduction in those countries. • Chapter sum maries to help you review the material
The questions of whether, and under what conditions, external engagement promotes • Mu ltiple choice q uizzes to test you r understand
ing
internal economic improvement in poorer countries will remain at the center of • Flashcards to test your knowledge of the key terms
in this chapter
global politics in the decades ahead. • An interactive simu lation that invites you to go through
the decision-ma king
In many · developing countries, economic progress is being challenged or process of a world leader at a crucial political j uncture
undermined by serious civil conflicts, often driven or accompanied by ethnic • Pivotal decisions in wh ich you weigh up the pros
a n d cons of complicated
political divisions. In addition, high levels of lawlessness in many developing decisions with grave consequ ences

.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . :
countries contribute to the emergence of powerful drug lords, whose violence and • Outside resou rces, including l i n ks to contempora ry
a rticles a n d videos, that
corruption undermine possibilities for improved governance in these countries. The add to what you have learned i n this chapter
circumstances sometimes become so dire that they threaten the stability and security
for the people living in them, neighbors, and even outside states, to such a degree that
the international community has forcibly intervened to avert humanitarian disasters
and create a minimum of order. In the next chapter, we turn to these countries, their
tragedies, and the outside interventions that sometimes occur in reaction to those
tragedies.

430 431