Working Papers 2006


ST/ESA/2006/DWP/9 Market, Social Cohesion, and Democracy

This paper offers three guiding principles for a better relationship between the economy and
democracy: democracy as the extension of citizenship; democracy as diversity; and democracy
as complementary to clear, strong macroeconomic rules. This view, it is argued, implies that
economic and social institutions must be subject to democratic political choice. In this context, it
analyses the role of both national and international institutions in improving the complementarity
of the market, social cohesion and democracy. The central role of economic and social rights
serves as the overarching framework for the analysis.
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ST/ESA/2006/DWP/11 Rural Development, Environmental Sustainability, and
Poverty Alleviation: A Critique of Current Paradigms

Donors have developed new micro-level and local paradigms to address rural development, environmental sustainability, and poverty alleviation to bypass, ignore, and substitute for badly functioning and corrupt states. Yet, states still set the macro-economic, legal, and policy parameters or rules of the game within which other entities operate, and many non-state actors are only nominally independent. Hence, technical initiatives stemming from these paradigms, aimed at growth and equity are often theoretically misconceived and tend to fail when implemented. The paper critically discusses the new paradigms, including decentralization, civil society, microentrepreneurship, and capacity building, among others, mainly using African examples.
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ST/ESA/2006/DWP/12 What is the Most Effective Monetary
Policy for Aid-Receiving Countries?

This paper analyses how monetary policy can enhance the effectiveness of volatile aid flows.
We find that monetary policy is effective in reducing trade balance volatility. We propose the
following taxonomy, excluding the case of emergency assistance. Monetary policy should
slow down consumption growth and build up international reserves when aid is abundant and
deplete them to finance imports and support consumption when aid is scarce. If foreign aid also
affects productivity growth, monetary policy should take this productivity effect into account in
responding to aid flows.
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ST/ESA/2006/DWP/13 Evaluating Targeting Efficiency of Government
Programmes: International Comparisons

This paper suggests how the targeting efficiency of government programmes may be better
assessed. Using the “pro-poor policy” (PPP) index developed by the authors, the study
investigates not only the pro-poorness of government programmes geared to the poorest segment
of the population but also basic service delivery in education, health and infrastructure. The paper
also shows that the targeting efficiency for a particular socio-economic group should be judged
on the basis of a “total-group PPP index”, to capture the impact of operating a programme for the
group. Using micro-unit data from household surveys, the paper presents a comparative analysis
for Thailand, the Russian Federation, Viet Nam and 15 African countries.
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ST/ESA/2006/DWP/14 Development and Social Goals: Balancing Aid
and Development to Prevent ‘Welfare Colonialism’

The current development policy focus on poverty reduction is erroneous. Historically, successful
development policy — from the late fifteenth century until the beginning of the twenty-first — has
achieved structural change away from dependence on raw materials and agriculture, adding
specialized manufacturing and services subject to increasing returns with a complex division of
labour. In contrast, the Millennium Development Goals are heavily biased in favour of palliative
economics: alleviating the symptoms of poverty, rather than attacking its real causes. This creates
a system of “welfare colonialism” increasing the dependence of poor countries, thereby hindering,
rather than promoting, long-term structural change.
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ST/ESA/2006/DWP/15 Constraints to Achieving
the MDGs with Scaled-Up Aid

This paper examines the macroeconomic and structural constraints to scaling up aid flows to developing
countries to meet the Millennium Development Goals in 2015, including infrastructure,
competitiveness and the real exchange rate, labour markets, fiscal constraints, governance, and
aid volatility and fragmentation. The impact of these constraints on cost-efficient sequencing and
composition of scaled-up aid flows is considered, using a dynamic computable general equilibrium
model applied to Ethiopia. The main conclusions are that: (i) accelerating growth through
productivity-enhancing infrastructure investment (and improved governance) is key to achieving
the MDGs; (ii) large increases in aid risk undermining competitiveness and future growth; and
(iii) skilled labour constraints require careful aid sequencing that limit the scope for frontloading.
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ST/ESA/2006/DWP/16 Revisiting the Revolving Door: Capital Flight from Southeast Asia

The paper revisits hypothesized direct linkages between external borrowing and capital flight. It
reviews the cases of Indonesia, Malaysia, the Philippines and Thailand to see if such linkages exist.
The results indicate that, indeed, large sums of capital flowed in and out of these four countries in a
revolving door process. Thus, the results lend support to the need for: better domestic management
of external debt, sound macroeconomic management and solid macro-organizational foundations
(with the government at the centre of policy making), active management of capital flows, and
effective domestic and international involvement and coordination in capital flows.
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ST/ESA/2006/DWP/17 Poverty and Inequality in Eastern Europe
and the CIS Transition Economies

This paper deals with the causes and consequences of inequality and poverty in the countries
east of the new frontiers of the European Union, mainly with the CIS countries. Poverty and
inequalities in the former socialist countries were partly mitigated by the social policies of the
state. The transition processes, however, have resulted in new distributions of income and wealth.
The new structural sources of poverty and inequalities have often been more extreme. Some CIS
countries have moderated poverty, which nonetheless persists in most CIS countries, in spite of
some economic improvements.
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ST/ESA/2006/DWP/18 Inequality and Household Economic
Hardship in the United States of America

Income inequality in the United States of America has increased over the past few decades.
Along with this development, employee compensation as a share of national income has tended
to decline, the profit share of national income has grown, and inequality within labour has risen.
There is no empirical support for the argument that greater inequality has resulted in faster
productivity growth, but there is some indication that rising inequality has been connected to
slower demand growth. Increased access to credit may have temporarily muted the implications
of greater income inequality.

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ST/ESA/2006/DWP/19 Real Exchange Rate, Monetary Policy and Employment

The exchange rate affects the economy through many channels and, consequently, has diverse
macroeconomic and development impacts. Five are analysed in this paper: resource allocation,
economic development, finance, external balance and inflation. The use of the exchange rate as a
developmental tool in conjunction with its other uses (often in coordination with monetary policy)
is at the focus of the discussion.
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ST/ESA/2006/DWP/20 Growth is Failing the Poor: The Unbalanced Distribution
of the Benefi ts and Costs of Global Economic Growth

During 1990-2001, only 0.6 per cent of additional global income per capita contributed to reducing
poverty below the $1-a-day line, down from 2.2 per cent during 1981-1990, and barely half
the poor’s share of global income. Coupled with the constraints on global growth associated with
climate change, and the disproportionately adverse net impact of climate change on the poor,
this casts serious doubt on the dominant view that global growth should be the primary means
of poverty reduction. Rather than growth, policies and the global economic system should focus
directly on achieving social and environmental objectives.
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ST/ESA/2006/DWP/21 GDP-Indexed Bonds: Making It Happen

There has been increasing interest in exploring financial instruments that could limit the cyclical
vulnerabilities of developing countries and reduce the likelihood of defaults and debt crises. GDP-indexed
bonds fall into this category and may also generate a wider range of benefits for issuer
countries, investors and the global financial system. The authors also examine the concerns and
obstacles relating to the introduction of this instrument, suggesting that some may be exaggerated
while others could be overcome. The paper calls for international public action to help develop
markets for GDP-linked bonds and proposes a number of actions, some of which would require
collaboration between Governments, multilateral development banks and the private sector.
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ST/ESA/2006/DWP/22 Equity in Latin America Since the 1990s

This paper deals with the social welfare consequences of the stagnation of Latin American growth
per capita during the far-reaching economic and social changes that took place during the period
1980-2003. This period of transformation saw large-scale foreign actors gradually increase
their economic and political power in Latin America, with negative consequences for domestic
economies, especially in terms of increasing income inequality and rising poverty. The only major
tendency mitigating these adverse trends was an increase in public expenditure in the social sector
during the 1990s, which offset, but did not eliminate, the increased inequality associated with the
economic transformation.Go back to list of papers

ST/ESA/2006/DWP/23 The Politics of Inclusion in the Monterrey Process

The Monterrey Conference on Financing for Development in 2002 brought leaders and senior
officials from Governments and international organizations, senior financial sector executives and
NGO advocates together for the first time on “hard” financial and trade matters. The Conference
provided a forum at which participants talked to each other in informal roundtables, as well
as made public speeches. Commitments were made to increase development assistance and to
improve global as well as national governance. This paper examines how this unique event came
about, traces the backsliding in international dialogue since then, and suggests how it could be
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ST/ESA/2006/DWP/24 The Dual Divergence: Growth Successes and
Collapses in the Developing World since 1980

This paper argues that developing countries’ growth successes and collapses tend to cluster in specific
time periods—and that only the existence of a global development cycle can explain this. The
cycle reflects the external factors that affect all, or large clusters of developing countries, and thus
constrain their growth possibilities. Nonetheless, country-specific factors—particularly patterns
of specialization—play a significant role in determining growth dynamics. From this perspective,
the paper shows a very large difference between the economic growth of developing countries
diversifying into higher technology manufacturing exports and those experiencing success in natural
resource intensive sectors.
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ST/ESA/2006/DWP/25 Openness, Inequality and Poverty in Africa

This paper explores the relationships between openness, poverty and inequality in Africa. The analysis begins with a review of social development on the continent since 1980, followed by a discussion of openness and a lengthy exploration of the patterns of trade and finance that link Africa to the rest of the world. The macroeconomic policy framework that guided African policymaking over the last three decades is the lens through which poverty and inequality are further examined. The paper highlights the major factors underpinning openness and social development, and concludes with policy.
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ST/ESA/2006/DWP/26 Global Income Inequality: What It Is And Why It Matters?

The paper presents a non-technical summary of the current state of debate on the measurement and implications of global inequality among citizens of the world. It discusses the relationship between globalization and global inequality, shows why global inequality matters and proposes a scheme for global redistribution.
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ST/ESA/2006/DWP/27 Riding the Elephants: The Evolution of World
Economic Growth and Income Distribution at the End of the Twentieth Century (1980-2000)

This paper presents estimates of world economic growth for 1970-2000, and changes in the
intercountry and interpersonal distribution of world income between 1980 and 2000. These
estimates suggest that, while the rate of growth of the world economy slowed in the 1980-2000
period, and average within-country inequality worsened, the distribution of world income among
individuals, nevertheless, improved a little. However, that result was wholly due to the exceptional
economic performances of China and India. Outside these two countries, the slowdown in world
growth was even more dramatic, the distribution of world income unequivocally worsened, and
poverty rates remained largely unchanged.Go back to list of papers

ST/ESA/2006/DWP/28 Real Income Stagnation of Countries, 1960-2001

We examine the phenomenon of real-income stagnation in a large cross-section of countries during
the last four decades. Stagnation is defined as negligible or negative growth extending over a number
of years. We find that stagnation has affected more than three fifths of countries (103 out of 168).
Stagnating countries were more likely to have been poor, in Latin America or sub-Saharan Africa,
conflict ridden and dependent on primary commodity exports. Stagnation is recurrent: countries
that were stagnators in the 1960s had a likelihood of 75 percent of having been stagnators in the
1990s.Go back to list of papers

ST/ESA/2006/DWP/29 Development Aid and Economic Growth:
A Positive Long-Run Relation

We analyze the growth impact of official development assistance to developing countries. Our
approach is different from that of previous studies in two major ways. First, we disentangle
the effects of two components of aid: a developmental, growth-enhancing component, and a
geopolitical, possibly growth-depressing component. Second, our specifications allow for the effect
of aid on economic growth to occur over long time-lags. Our results indicate that developmental aid
promotes long-run growth. The effect is large and robustly significant, and withstands an array of
robustness checks including alternative specifications, choices of the proxy for development aid, and
treatments of outliers.Go back to list of papers

ST/ESA/2006/DWP/30 Achieving the Millennium Development Goals:
What’s wrong with existing analytical models?

This study critically evaluates analytical models presently used to estimate the cost of achieving the Millennium Development Goals (MDGs) from sources including the UN Millennium Project, the UN Development Programme, the World Bank and the Zedillo Commission. Effective strategic choices for achieving the MDGs must be based on sound assessments of the costs and benefits of alternative policies. However, the existing approaches are unreliable. They derive from implausible and restrictive assumptions, depend on poor quality data, and are undermined by the presence of large uncertainties concerning the future. An alternative and less technocratic approach to planning is required.
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ST/ESA/2006/DWP/31 The Scorecard on Development:
25 Years of Diminished Progress

This paper examines data on economic growth and various social indicators and compares the past
25 years (1980-2005) with the prior two decades (1960-1980). The paper finds that the past 25
years in low- and middle-income countries have seen a sharp slowdown in the rate of economic
growth, as well as a decline in the rate of progress on major social indicators including life
expectancy and infant and child mortality. The authors conclude that economists and policy-makers
should devote more effort to determining the causes of the economic and development failure of the
last quarter-century.
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ST/ESA/2006/DWP/32 Employment and Decent Work
in the Era of ‘Flexicurity’

This paper challenges the conventional wisdom that employment growth requires denial of all forms
of security for workers, contrary to orthodox theorizing that regards minimal. Orthodox theorizing,
emphasizing the wage-labour nexus, regards minimal worker security as necessary for good economic
performance by firms and national economies. A comparative analysis of OECD countries shows
that the extended security promoted by welfare systems has not been detrimental to growth,
innovation and job creation. Developing countries cannot immediately adopt these emerging
standards of ‘flexicurity’, but the methodology of employment diagnosis might help in designing
security/flexibility configurations tailored according to their domestic economic specializations,
social values and political choices.
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ST/ESA/2006/DWP/33 Growth with Equity in East Asia?

Rapid growth and structural change have reduced poverty in East Asian economies. Income
inequality has been low in Korea and Taiwan, but has risen in recent years with economic
liberalization. In the Southeast Asian economies of Thailand, Malaysia and Indonesia, poverty
has declined, while income inequality trends have varied, rising most clearly in Thailand. With its
strengthened (private) property rights, market liberalization and sustained rapid growth, China has
also experienced increased inequality despite considerable poverty reduction. Hence, the common
claim of egalitarian growth in East Asia may have been exaggerated, especially since the 1990s.
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ST/ESA/2006/DWP/34 Developing and Transition Economies in the
Late 20th Century: Diverging Growth Rates,
Economic Structures, and Sources of Demand

This study reviews the growth and development performance of developing countries in the
latter part of the 20th century. Sustained growth among “successful” countries was accompanied
by structural change in terms of output and labour share shifts, trade diversification, sustained
productivity growth with some strong reallocation effects due to movements of labour from low
to high productivity sectors. Neither the widely accepted “twin deficits” nor the “consumption-smoothing”
behaviour views of macro adjustment seem to apply, though macroeconomic flexibility
may be very important. Finally, neither human capital accumulation nor foreign direct investment
are sufficient, by themselves, to stimulate growth.
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ST/ESA/2006/DWP/35 Globalizing Inequality: ‘Centrifugal’
and ‘Centripetal’ Forces at Work

This paper reassesses national income inequalities in this era of globalization. The main conclusion
is that two opposite forces are at work: one ‘centrifugal’ at the two extremes of the distribution—increasing
the disparity of income shares appropriated by the top and by the bottom four deciles across
countries; and the other ‘centripetal’ in the middle—increasing the uniformity of the share of income
going to deciles 5 to 9. Therefore, globalization is creating a situation where virtually all the intercountry
diversity of income distribution is the result of differences in what the rich and the poor get
in each country.
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