Key Drivers of Development

Code: Dev-741
Week-7, 8 & 9

Karam Elahi (Ph.D)

 Contents

1. Foreign Aid
2. Immigration
3. Trade
4. Finance
5. Ideas
 Aid
• Ideas, goods, investments, and people have crossed great
distances for millennia.
• But only recently governments began to provide financial
and technical assistance to foreign countries.
• The purpose of this assistance has varied and has included:
o Geopolitical purposes
o Stimulating economic development
o Ameliorating poverty and suffering
o Promoting political outcomes
o Ensuring civil stability and
o Promoting equitable governance
• Contrary to popular perception, low-income countries
generally receive less than 50% of total aid.
 Aid

• Aid, or official development assistance (ODA) as it is

technically known, covers a wide range of both financial and
nonfinancial components.
• Cash transfers to developing countries can be vital, but
currently they account for less than half of the aid that goes
to those countries.
• Nonfinancial forms of assistance include grants of machinery
or equipment as well as less tangible contributions such as
providing technical analysis, advice, and capacity-building.
 Why Foreign Aid?
• Foreign Economic Assistance & Technical Assistance
• Money, goods and services; capacity building
• Loans vs grants
• Economic development objectives
• Infrastructure development
• SDGs: Poverty alleviation; Social sector development; Improvements
in agriculture and services sectors etc
• Market expansion
• Bring new investors
• Increases capacity to import capital goods/technology
• Foreign exchange requirements
• Foreign receipts and foreign exchange reserves
• Promote political ties
5
 Aid

• Histories of modern aid and colonialism are intertwined.

• Since Colonialism was driven by a desire to stimulate and then
exploit economic activity abroad, providing investment capital,
technology, and technical assistance to colonies was integral
to it.
• Resultantly, investment came in constructing road and railway
network, establishing civil service, constructing Dams and
Canals etc.
• It was not until the early 20th century that colonial powers
considered providing assistance to support general aspects of
economic development that were not exclusively tied to
extraction and exploitation.
 Aid
• A key feature of these early forms of development assistance
was its “tied” nature, in which aid was restricted to importing
from the donor country.
• This was true of the Colonial Development Act in the United
Kingdom and the “Good Neighbor Policy” of the United States
toward Latin America.
• The practice of tied assistance dominated bilateral aid flows
during much of the Cold War and, although there has been
considerable progress in untying aid, it remains a feature of a
number of aid programs today.
• To the extent that aid is tied, receiving countries have
struggled to extract the full potential benefit, as the assistance
provided does not necessarily fit with local choices and
priorities.
 Aid
• The advent of modern foreign aid may be traced back to the
Marshall Plan for bilateral assistance between the United
States and Europe in the wake of World War II, as well as to
the Bretton Woods Conference and the creation of durable
multilateral institutions to facilitate increased international
assistance and cooperation, such as the UN, WB, IMF & WTO.
• From the mid 1950s to the fall of the Berlin Wall in 1990, aid
was increasingly used as a means to support friendly states.
• “Foreign economic aid is widely recognized as a weapon in the
ideological war in which the United States is now engaged. Its
assigned role is to help win over to our side those
uncommitted nations that are also underdeveloped and poor”
(Milton Friedman, 1958)
• Post Cold War era has been noted for Aid focused on Poverty
Reduction
 Aid
• In recent years, the goals of development have come to
embrace the elimination of poverty in all its dimensions—
income poverty, illiteracy, poor health, insecurity of income,
powerlessness, governance, institutional reform, environment
and participation.
• In comparison with domestic investment and government
expenditures, aid flows are typically small and should not be
viewed as a permanent source of finance
• When all aid is lumped together, some analyses have found
no clear relationship between aid and growth or poverty
reduction
 Aid
Complexities & Constraints
• Complexities of Aid Delivery System
• Massive Aid Industry
• Complex Aid Delivery System
• Multilevel Aid Policy Process
• Constraints involved in managing Aid Policy Process
• Public Policy & Economic Growth
• Public Sector Capacity & Donors’ Technical Assistance
• Multiplicity of Aid Suppliers, Recipients, & Activities

10
 Aid Industry
• 153 international donors provided official
development assistance to 146 recipient countries
globally, in 2017 (OECD, 2020)
• 263 multilateral aid agencies gave funds to promote
development while 56 countries provided bilateral
foreign assistance through several agencies (Fengler
& Kharas, 2010)
• Some 500,000 people are directly involved in the
international aid delivery system (Moyo, 2010)

11
 Aid Industry (Pakistan)

38 Divisions of 35 Federal Ministries

161 Provincial Departments,
autonomous bodies and institutes 34 Bilateral Donors

33 Multilateral Donors
Bureaucracy
(21 UN agencies)
Consultants

Think Tanks Source: Khan, F.J. (2020)* 2144 Projects

Contractors

Political Groups 100,000 to 150,000 active NGOs,

CSOs, INGOs, R&D Institutes
Academia
Mass Media 12
Cumbersome Aid Process

Dr Faheem Jehangir Khan

13
Source: Khan, F.J. (2015)
 Public Sector Capacity & Technical
Assistance
• Considerable shortages of technical skills in the public
sector in Pakistan
• Severe shortage of research & project management skills
• Considerable shortage of planning expertise, negotiation &
administrative skills
• Shortages in budgeting skills and IT expertise.
• Shortage of specialists and professionals
• Underutilization of existing trained and experienced
staff in the public sector

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 Multiplicity of Aid
(Suppliers, Recipients & Activities)

• Presence of multiple donors and aid proliferation

imposes burdens on recipient governments
• Undermines capacity to manage the aid policy process and
subsequently leads to dilution of aid efforts on the ground.
• Multiplicity of donors and aid channels increases:
• Transaction costs
• Results in duplication of project activities
• Weak donor-donor & donor-government coordination
• Visibility factor

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 Multiplicity of Aid (Contd.)
• There are too many development partners in total
and too many in each country, with overlapping
mandates, complex funding arrangements, and
conflicting requirements for accounting and reporting.
• Problem of Multiplicity of Aid:
• Sharp increase in the number of new aid projects
• Drastic decrease in average project size
• Substantial increase in administrative costs
• Multiple Foreign missions & delegations, consume valuable time
and energy of government officers

16
 487 donor missions to
Multiplicity of Aid (Contd.) Pakistan resulting in TWO
donor missions each working
Donors’ visits to Pakistan in 2015 day on average!

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 Multiplicity of Aid (Contd.)
• Visibility Factor refers to actors’ sensitivity to their
appearance in the development process which could
improve their reputation or profile… not so much in
producing results!

• Donors compete with each other for visibility and

quick success, and in doing so donors treat the
limited public sector capacity of the recipient
countries as a common-pool resource.

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Immigration

19
 Immigration
• International migration flows can offer an effective way for
poor people to escape poverty while promoting economic
growth & enhancing technological progress

• Throughout the 18th, 19th, & early 20th centuries, mass

migrations from Europe to the Americas & Australasia
enabled tens of millions of people to escape poverty and
persecution & created what today rank as the world’s most
prosperous societies.
20
 Immigration
• In recent decades, migrant diasporas, such as India’s
“techies,” have made manifest contributions to the state of
technology while also promoting global integration, economic
growth, and poverty alleviation in their home countries.

• If the tremendous potential of migration as a force for

reducing poverty is to be realized, however, greater attention
must be paid to the impact of migration on sending
communities and on the migrants themselves.
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 Immigration
• Few legitimate avenues exist by which the world’s poorest
can migrate to high-income countries.
• The relatively meager supply of such opportunities relative to
the desire of many citizens of less-developed countries to
move to richer lands have given rise to a thriving black
market in illegal migration.
• The costs, both human and financial, imposed by this black
market are large.
• Many thousands of illegal migrants have perished while
attempting to evade border patrols and make it across the
unforgiving deserts and treacherous stretches of water that
form the natural borders of the United States and the
European Union.
• Others have been left defrauded and stranded 22 in
 Immigration
• Researchers estimate that even a modest increase in migrant
flows could boost global output by US$150 billion a year—
around one-and-a-half times the predicted gains from the full
liberalization of trade in goods and services.
• The challenge is to use that potential to develop a global
migration system that is able to improve the economic
prospects of the greatest number of poor people worldwide,
while also serving the interests of sources and destination
countries and protecting the migrants themselves
• Migration is an old phenomenon but with colonialism and
industrial revolution, it got new momentum

23
 Immigration
• By the dawn of the 20th century, close to 1.4 million migrants
were crossing the Atlantic annually, the majority from the
poorer regions of Southern and Eastern Europe. In total,
between 1850 and 1914 some 55 million Europeans migrated,
mostly to the United States.
• With slavery rightfully precluded, colonial authorities
increasingly turned to migrants from China , India, and Japan.
• In the aftermath of World War II, millions of refugees crossed
the European continent
• In France, Germany, the Netherlands, and the United Kingdom,
rapid economic growth in the late 1940s and 1950s had
generated a shortage of low-wage labor. Initially, this demand
was met by migrants from southern European countries 24
 Immigration
• The oil exporting countries in the Middle East later replicated
and expanded upon the guest-worker model

• The most defining change in modern immigration, however,

came in the mid-1960s when Australia, Canada, and the
United States overhauled their immigration policies.

• These reforms not only allowed for a much greater volume of

flows, but also opened the door to migration from
nontraditional sources in Africa, Asia, and Latin America.
25
 Immigration
• Governments have generally enacted immigration policy to
serve their national economic self-interests.
• For the great mass of countries, this has meant near zero
immigration. Others, though, have sought to “cherry-pick”
economically attractive immigrants
• Typology of Migrants
i. Permanent Settlers
ii. Economic Migrants
iii. Family Migrants
iv. High & Low Skilled Expatriates
v. Asylum Seekers
vi. Refugees
26
 Impact – Source Countries
• “Emigration of highly skilled workers may adversely affect small countries
by preventing them reaching a critical mass of human resources, which would
be necessary to foster long-term economic development.” (OECD, 2005)
• Emigration also deprives governments of tax revenues, depleting the quality
of public services and preventing society from earning a return on money
invested in the education of migrants.
• Remittances, building of trade/investment networks, on the other hand, has a
positive impact
• Whether migration positively or adversely affects those who do not migrate
will depend upon which of the above factors are dominant.
 Impact – Source Countries
• Brain drain—Highly skilled workers leaving their home country has one the
most significant costs to source countries.
• Analysis indicates that migration rates tend to be higher for highly educated
individuals.
• Three-quarters of migrants entering the United States from Africa and India
are highly educated.
Wealth transfer from brain drain – fiscal loses
• There are millions of immigrants with university degrees residing in
developed countries, providing valuable goods and services, and paying taxes
to the host countries, thus source countries stand deprived of these benefits
 Impact – Source Countries
Impact of brain drain on training
• The increase in demand for education generated by the brain drain may
actually increase the number of skilled workers in the population.
• The impact of brain drain on a source country depend heavily on the skills of
emigrants and their demand in local & foreign markets.
• If emigrants have skills that are unemployed by local market, then the
remittances sent home by such emigrants
• Education system be tailored to local & international market demands
 Impact – Source Countries
Brain drain and Foreign Direct Investment
• When low-income communities permanently lose professionals such as
teachers, engineers, accountants, and doctors, the effect can be severe.
• Yet the emigration of skilled workers is not always so problematic. When a
country’s skill base is numerically large and relatively underutilized,
emigration can play an instrumental role in alerting outside investors to the
economic opportunities represented by the skill base in the source country.
[The Case of Indian Diaspora]
• The Indian example demonstrates that when the conditions are right, skilled
migrants are able to generate symbiotic networks of investment, trade,
technology transfer, and skill acquisition that increase the productivity and
demand for skills in the home country while extending the global technology
frontier and lowering the cost of products used by billions of people
worldwide.
 Impact – Source Countries
Remittances
• The most common benefit of emigration to source countries is the flow of
remittances sent by migrant workers to friends and family back home.
• Remittances have been found to powerfully affect levels of poverty and
consumption among recipients. They also tend to be stable or countercyclical
to other capital flows, so they can help to stabilize local economies during
times of recession or other crises
• Mexican migrants working in the United States have helped to establish
around 1,500 Home-Town Associations that support activities to enhance
infrastructure and enterprise in the source communities.
 Benefit and Costs – Destination Countries
• History shows that the world’s most productive economies often require and benefit
from the presence of migrant workers. Today, in spite of restrictions and
controversies, the world’s richest countries continue to import labor from abroad.
• In Singapore, Southeast Asia’s richest state, migrants make up around 1/4 th of the
workforce.
• In Europe, those countries with the highest number of migrant workers—
Switzerland and Luxembourg—are also the wealthiest.
• The Arab Emirate of Dubai, which is among the world’s fastest expanding areas of
economic activity, has nine times as many migrant workers as it has native workers.
• By lowering the costs of production and bringing in needed skills, migrants can
offer large positive benefits to host countries.
• Critics of immigration point out its impact on social fabric, national culture,
environment, and social welfare programs etc.
 Benefit and costs – Destination Countries
Fiscal impact
• Immigrants, particularly those who are low skilled or undocumented, consume far
more in public services than they contribute in tax revenue
• However, research suggests that immigrants contribute more in taxes and pension
than they consume in benefits or other public services
• High Income Countries have more retirees & less working age citizenry while the
reverse is true for the low income countries, with relative productivity & post-
retiring costs.
• By borrowing workers from low- and middle-income countries and using the tax
receipts to support social security programs, high-income countries can slow the
mushrooming liability of promised benefits to pensioners.
 Benefit and costs – Destination Countries
• The contention that migrants take the jobs of native workers is probably the
most ubiquitous and controversial argument advanced against immigration
• Migrants bring with them distinct skills or business contacts & thus generate
changes in technology, productivity, and trade patterns that can affect an
economy in unforeseen ways
Employment of Low-Skilled Migrants
• Migrants help destination economies and native workers in sectors like child
care, cooking, other household services, cleaning services, and menial farm
jobs, all of which native workers have been unwilling to perform.
• Without the presence of migrant workers to fill these jobs, society as a whole
would be worse off.
TRADE
 Trade and Globalization
• International trade is potentially a powerful force for poverty reduction.
• Trade can contribute to poverty alleviation by:
Expanding Markets
Creating Jobs
Promoting Competition
Raising Productivity, and
Providing new Ideas and Technologies
• Each of these has the potential for increasing the real incomes of poor people.
• The expansion of trade is one of the most pronounced and significant features
of the globalization process
 Trade and Fragmentation of Production
• A key driving force behind the recent rapid growth in trade in both goods and
services is technical change that allows the fragmentation of production
• Two parallel trends are involved: vertical specialization and outsourcing
• Vertical specialization refers to companies’ purchasing of intermediate goods
on the market rather than producing them internally.
• For a car produced by an American manufacturer, 30 % of its value can be
attributed to its assembly in Korea, 17.5 % to components from Japan, 7.5 %
to design from Germany, 4 % to parts from Taiwan and Singapore, 2.5 % to
advertising and marketing services from Britain, and 1.5 % to data processing
in Ireland
• In the end, just 37 % of the production value of this ‘American’ car comes
from the United States. The rest is part of international trade.
• Outsourcing occurs when part of the production process that used to be done
domestically is shifted to another country
• Outsourcing has been an important feature of the consumer electronics and
textile and apparel industries.
• These industries produce certain designs or components, for example in the
US (circuit boards) with skilled labor, then ship the components to countries
with low labor costs. Finally, they re-ship the assembled components
(televisions) back to US, for final processing.
• Factors that have caused the rise of vertical specialization & outsourcing
• Changing technology
• Reduced transportation & communication cost
• Government policy
• Role of multinational firms – global connections/reach help coordinate production &
distribution across many countries
 Growth of Trade
• Global trade agreements have also contributed significantly to reduction of
trade barriers (& growth of trade)
• After WW II, the United States and other leading countries negotiated the
General Agreement on Tariffs and Trade (GATT), establishing a code of
commercial conduct for its signatories
• Article I of GATT sets out the rule of non-discrimination among signatories,
codified in the most-favored nation (MFN) clause
• The number of RTAs has increased from 50 in the early 1990s
to more than 360 in 2023
• There are also other arrangements such as the EU GSP Plus &
the US GSP
• There have been deeper shifts in the structure of global trade
and a transformation of the political readings of the role of
international trade.
• Many of these changes concern the governance system that
emerged with the conclusion of the Uruguay Round in 1994
and the creation of the World Trade Organization (WTO).
• The 1980s & 1990s were decades of trade liberalization, but
the period thereafter is marked not so much by reducing trade
tariffs and barriers to investment but by changes to domestic
regulatory standards & systems.
• The asymmetry of gains from the international trading system
has led to a backlash against the rules of global governance &
the very idea of free trade.
• This backlash is prompting policymakers to reassess their
strategic prioritization of the role of trade.
• A new lexicography of trade reflects ongoing shifts in global
trade, with a series of buzzwords, such as “fragmentation”,
“deglobalization”, “slowbalization”, “reshoring”, “nearshoring”,
“friendshoring”, “de-risking”, “decoupling”, “open strategic
autonomy” and “new industrial policy”.
• There is a visible emergent new paradigm of trade that
approaches the challenge of global economic interdependence
from a more strategic standpoint to achieve reducing inequality,
building resilience, & accelerating the energy transition
• A significant reshaping of world trade is taking place, including
the restructuring of global supply chains.
• Navigating this transformation poses major challenges to most
developing economies at a time when their prospects for
economic growth are deteriorating, the investment climate is
worsening, and financial stresses are mounting
• There is now need for policies that:
o Facilitate Technology transfer
o Balance out the market power of large MNEs,
o Enable developing countries to add more value domestically
to their exports, including through greater processing of raw
materials.
• Analysis of several key indicators relating to income distribution
and power asymmetry confirms that development cannot be
reduced to increased trade flows
• Studies also suggest that achieving SDGs requires a set of
proactive policy strategies and institutions that reflect economic,
social & environmental priorities of the developing countries
• The limits of the labor-intensive trade-led growth model and the
unequal benefits from trade integration became a growing concern
before the pandemic (World Bank, 2020).
• During the past two years, this concern further transformed into a set
of moves that point to a new political economy of trade governance.
• In the emergent “new consensus”, globalization in general, and trade
liberalization specifically, are secondary to the goals of:
o Building resilient supply chains,
o Supporting a just energy transition,
o Delivering decent jobs, tackling corruption and corporate tax avoidance, and
o Developing a secure digital infrastructure (Luce, 2023).
• That increased trade flows have not always been accompanied by
considerable progress in terms of development outcomes is a
longstanding concern since its creation in 1964 (UNCTAD, 2023),
hence reservations of the developing world against the current
trading system & its rules
• The expansion of trade in the era of hyper-globalization has
been closely tied to the spread of global value chains (GVCs)
controlled by lead firms, primarily headquartered in advanced
economies

• In parallel, more developing countries have participated in the

international division of labor by providing specific links in
these chains, drawing on their abundance of unskilled labor.

• The promise was that such fledgling manufacturing activities,

through a mixture of upgrading and spillover effects, would
• The success of this model has been neither uniform nor certain
(World Bank, 2020).

• This raises questions about the strong bets made in many

developing economies on the spillovers expected from
processing trade.

• Unless developing countries manage to capture part of the

surplus created by these GVCs and reinvest it in productive
capacities and infrastructure, immediate gains in output and
FINANCE
 Introduction - Finance
• Global finance in the form of capital flows involves the exchange of assets or
financial instruments among countries, either by private or public agents
• Global financial flows are an important resource for developing countries.
• These capital flows augment domestic savings and can contribute to
investment, growth, financial sector development, technology transfer, and
poverty alleviation.
• From a macroeconomic standpoint, capital flows are activities that influence
the capital account of countries’ balance of payments involving the exchange
of assets
 Finance
• There are a number of legitimate ways to classify capital flows and various
subcomponents of capital account.

• Foreign Direct Investment

• Equity Portfolio Investment
• Bond Finance
• Commercial Bank Lending
• FDI is a direct investment into production or business in a country by an
individual or company of another country, either by buying a company in the
target country or by expanding operations of an existing business
• FDI is the acquisition of shares by a firm in a foreign-based enterprise that
exceeds a threshold of 10 %, implying managerial participation in the foreign
enterprise.
• Equity portfolio investment is similar to FDI in that it involves the
ownership of shares in foreign countries.
• It differs from FDI in that the share holdings are too small to imply
managerial participation over the foreign enterprise
• Bond Finance or debt issuance is a second kind of portfolio activity.
• In a bond finance transaction, the government or firms in developing countries
issue bonds to foreign investors.
• Commercial bank lending is another form of debt.
• Unlike bond finance, it does not involve tradable asset.
• A single bank or a syndicate of banks can be involved in any particular loan
package.
• Until 1990s, commercial bank lending was the primary source of foreign
capital for low-income countries.
• Although FDI comprised a significant portion of total capital inflows to low-
income countries in the 1970s, it became even more significant in the 1990s,
far exceeding commercial bank lending
 Finance - Equity Portfolio Investment

• Basically, portfolio investment consists of foreign purchases of stocks (equity)

• It is similar to FDI in that it involves the ownership of shares in foreign
countries.
• It differs from FDI in that share holdings are too small to imply managerial
participation
• It is thus indirect investment, rather than direct investment.
• Because equity portfolio investment is undertaken for portfolio (a set of
different assets) the behavior of investors can be quite different than with FDI.
• To generalize, equity portfolio investment tends to be motivated by a shorter
time horizon than FDI’s horizon
• From the perspective of recipient developing countries, portfolio flows in
local stock market is a source of raising capital for domestic firms
• A key issue is whether large and volatile (equity) portfolio flows into local
stock markets can be a destabilizing force for both the financial market and
overall economy
• If developed-country interest rates rise or perceived profit rates in a
developing country decline, foreign investors will withdraw their
‘investments’ as quickly as they brought them in.
• What developing countries need is true long-run economic investment
(plants, equipment, physical and social infrastructure etc.), NOT speculative
capital
• Portfolio financial flows are volatile and the fact that they respond primarily
to global interest-rate differentials, as well as to investor perceptions of
political and economic stability, make them a very tenuous foundation on
which to base medium- or long-term development strategies
 Debt: Bond Finance and Commercial Bank lending
• Both Bond Finance & Bank Lending are forms of debt.
• The main difference between these two forms of debt is that bonds are in the
form of tradable assets.
• This provides more flexibility to lenders than bank lending
 Summary
• The different forms of capital flows are best seen as complements, not
substitutes.
• The capital flows with the greatest potential contribution to poverty
alleviation are both FDI and equity investment
• Equity related finance brings with it the natural benefit of risk-sharing
• In case of FDI – inflows continue to sustain existing capital stock (less
prone to sudden reversals)
• Finally the benefits of FDI go beyond those relating to narrow financial
issues, and include:
New Ideas,
Technologies,
Improvements in Skill and Training
IDEAS
 Ideas
• Ideas are the generation and transmission of distinctive intellectual constructs
in any field that can have an impact on production systems, organizational
and management practices, governance practices, legal norms, and
technological trends
• One well known category of ideas is intellectual property, which can be
thought of as an asset defined by legal rights conferred on the product of
invention or creation.
• Ideas are not just commercial, for example, the notion of human rights,
equality, freedom, justice, rule of law.
• In the context of this class we shall be concentrating on ideas that shape
economic activity and development rather than those that have primarily
cultural or political content.
 Ideas
• An ideas is a set of instructions to produce a new good or service, to
increase quality or to reduce costs

• An idea is different from a good or service because it is non-rival: it can be

used by different producers simultaneously. Therefore, an idea is not scarce
in the same way as a good or service is

• Ideas are great engines of economic growth and development precisely

because everybody can use them simultaneously.
• Once the cost of creating a new set of instructions has been incurred, the
instructions can be used over and over again at no additional cost.
 Ideas
• Flow of an idea is as important as the idea itself – ideas become more
valuable as the number of users increases
• Ideas (and knowledge) are an increasingly important part of trade,
globalization & development.
• Most of the value of new medicines and other high technology product lies in
the amount of invention, innovation, research, design and testing involved.
• Films, music recordings, books, computer software and online services are
bought and sold because of the information and creativity they contain
• Many products that used to be traded as low-technology goods now contain a
higher proportion of invention and design in their value – for example brand-
named clothing or new varieties of plants.
 Ideas – Intellectual Property Rights*
• Flow of ideas is important – this is not to say that an idea should be used by
everyone for free.
• Creators can be given the right to prevent others from using their inventions,
designs or other creations – and to use that right to negotiate payment in
return for others using them. These are ‘intellectual property rights(IPRs)’.
• Intellectual Property Rights take a number of forms. For example books
paintings and films come under copyright; inventions can be patented; brand
names and product logos can be registered as trademarks; and so on
• The extent of protection and enforcement of these rights vary widely around
the world and, therefore, play an important role in the global flow of ideas.

*Intellectual Property refers to creations of the mind, such as inventions; literary and
artistic works; designs; and symbols, names and images used in commerce
• As Intellectual Property became more important in trade – difference in
protection and enforcement of IPRs became a source of friction in
international economic relations.
• WTOs agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPs) is an attempt to narrow the gaps in the way IPRs are protected around
the world, and to bring them under common international rules.
• World Intellectual Property Organization (WIPO) already existed before
WTO/TRIPs. However, TRIPs agreement added a significant number of new
and higher standards. For example, WIPO has no enforcement mechanism.
Under TRIPs – can use trade sanctions to legally enforce IPRs
• TRIPs agreement says patent protection must be available for inventions for
at least 20 years.
• Patent protection must be available for both products and processes in almost
all fields of technology
• The agreement describes the minimum rights that a patent owner must enjoy.
But it also allows certain exceptions.
• A patent owner could abuse his rights, for example by failing to supply the
product on the market. To deal with that possibility, the agreement says
governments can issue ‘compulsory licenses’, allowing a competitor to produce
the product or use the process under license

Patent: An exclusive right (legal device) granted to an inventor to control the use of an
invention. This right can be used either through their own business, or by charging a license
fee to other users
 Global flow of ideas
• For years US, Japan and Germany have been the global locomotives of ideas.
• The landscape is changing, however, with patent filings growing rapidly in
the BRIC economies
• Patent filings have grown quickly in China and other BRIC economies
because of supply and demand factors.
• On the supply side, the BRIC economies have invested massive amounts of
resources in research and development.
• On the demand side, the BRIC economies are becoming big consumers of
ideas, driven by the increase in their market size
 Ideas and Development
• Development may be characterized as the application of better and smarter
ways of dealing with key challenges.
• According to a leading growth economist Paul Romer:
‘Nations are poor because their citizens do not have access to the ideas that are
used in industrial nations to generate economic value.... Ideas are extremely
important economic goods, far more important than the objects emphasized in
most economic models. In a world with physical limits, it is discoveries of big
ideas, together with the discovery of millions of little ideas, that make persistent
economic growth possible’. (1993)
• The challenge, however, is the identification and assimilation of what works
(and what does not work) in the fight against poverty, with local ideas
addressing the uniqueness of local problems drawing on the full richness of
global knowledge.
• Increase in rates of growth and poverty reduction requires both an acceleration
of idea transmission and the adoption of ideas through innovations that
contribute to technical and societal change
• Ideas must be translated into capabilities
• Meier (2001) notes:
‘Although the creation of ideas is a necessary condition for development, it is
not a sufficient condition. The absorptive capacity of the developing countries is
crucial … If ideas on policy reform require political conditions … and these do
not exist, or if the absorptive capacity depends on institutional change that is
not forthcoming[ the ideas cannot be activated upon] … the preconditions must
be in place for the acceptance and implementation of ideas’