Economic Alternatives for Growth, Employment and Poverty Reduction 5 0 3- 0 1- 1 0 2 ct - e n n o C e v a gr al P y - sit er v ni U c oli h at C n e J u F o d t e s n e c m - li o c ct. e n n o c e v a gr al p w. w w m o al fr eri at m ht g yri p o C 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley August4,2009 14:57 MAC/AGER Page-i 9780230_220980_01_prexiv 5 0 3- This page intentionally left blank 1-0 1 0 2 ct - e n n o C e v a gr al P y - sit er v ni U c oli h at C n e J u F o d t e s n e c m - li o c ct. e n n o c e v a gr al p w. w w m o al fr eri at m ht g yri p o C 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley Economic Alternatives for Growth, Employment and Poverty Reduction 5 0 Progressive Policy Recommendations for 3- 0 1- Developing Countries 01 2 ct - e n n o Editedby C e v a gr Terry McKinley al P y - sit er v ni U c oli h at C n e J u F o d t e s n e c m - li o c ct. e n n o c e v a gr al p w. w w m o al fr eri at m ht g yri p o C 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley August4,2009 14:57 MAC/AGER Page-iii 9780230_220980_01_prexiv ©UnitedNationsDevelopmentProgramme2009 Allrightsreserved.Noreproduction,copyortransmissionofthis publicationmaybemadewithoutwrittenpermission. Noportionofthispublicationmaybereproduced,copiedortransmitted savewithwrittenpermissionorinaccordancewiththeprovisionsofthe Copyright,DesignsandPatentsAct1988,orunderthetermsofanylicence permittinglimitedcopyingissuedbytheCopyrightLicensingAgency, SaffronHouse,6-10KirbyStreet,LondonEC1N8TS. 5 Anypersonwhodoesanyunauthorizedactinrelationtothispublication 3-0 0 maybeliabletocriminalprosecutionandcivilclaimsfordamages. 1- 1 0 TashethaeuathuothrsorhsaoveftahsissewrtoerdktihneairccriogrhdtasntcoebweitidhetnhteifiCeodpyright, ct - 2 e DesignsandPatentsAct1988. nn o C Firstpublished2009by e v PALGRAVEMACMILLAN gra al PalgraveMacmillanintheUKisanimprintofMacmillanPublishersLimited, P registeredinEngland,companynumber785998,ofHoundmills,Basingstoke, y - HampshireRG216XS. ersit v PalgraveMacmillanintheUSisadivisionofStMartin’sPressLLC, ni U 175FifthAvenue,NewYork,NY10010. c oli PalgraveMacmillanistheglobalacademicimprintoftheabovecompanies ath andhascompaniesandrepresentativesthroughouttheworld. n C e Palgrave®andMacmillan®areregisteredtrademarksintheUnitedStates, u J theUnitedKingdom,Europeandothercountries. o F d t ISBN-13:978–0–230–22098–0hardback e s n Thisbookisprintedonpapersuitableforrecyclingandmadefromfully ce managedandsustainedforestsources.Logging,pulpingandmanufacturing m - li processesareexpectedtoconformtotheenvironmentalregulationsofthe o c countryoforigin. ct. e n AcataloguerecordforthisbookisavailablefromtheBritishLibrary. n o c AcatalogrecordforthisbookisavailablefromtheLibraryofCongress. ve a gr 10 9 8 7 6 5 4 3 2 1 al p 18 17 16 15 14 13 12 11 10 09 w. w PrintedandboundinGreatBritainby m w CPIAntonyRowe,ChippenhamandEastbourne o al fr eri at m ht g yri p o C 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley August4,2009 14:57 MAC/AGER Page-iv 9780230_220980_01_prexiv Contents ListofTables,FiguresandBox vii 5 Contributors xii 3-0 0 1- 1 0 2 Introduction:AlternativeEconomicPoliciesforGrowth, ct - e n EmploymentandPovertyReduction:AProgressivePolicyAgenda n o C forDevelopingCountries 1 e v a TerryMcKinley gr al P y - Chapter I AlternativeMacroeconomicPolicies ersit v ni Paper 1 TheMacroeconomicImplicationsofMDG-Based c U StrategiesinSub-SaharanAfrica 15 holi at JohnWeeksandTerryMcKinley C n e J Paper 2 Pro-GrowthAlternativesforMonetaryandFinancial Fu o PoliciesinSub-SaharanAfrica 24 d t e RobertPollin,GeraldEpsteinandJamesHeintz ns e c Paper 3 AddressingGlobalImbalances:ADevelopment-Oriented m - li o PolicyAgenda 33 c ct. AlexIzurietaandTerryMcKinley ne n o c e v Chapter II EconomicConsequencesofScalingUpODA gra al p Paper 4 TheMacroeconomicDebateonScalingUpHIV/AIDS ww. w Financing 77 m o TerryMcKinleyandDegolHailu al fr eri Paper 5 WhyIs‘TheDutchDisease’AlwaysaDisease?The at m MacroeconomicConsequencesofScalingUpODA 85 ht g TerryMcKinley yri p o C Paper 6 TheImpactofForeignAidonGovernmentSpending, RevenueandDomesticBorrowinginEthiopia 100 PedroM.G.Martins Paper 7 ManagingtheExchangeRateConsequencesofan MDG-RelatedScale-UpinHIV/AIDSFinancing 137 JohnSerieux v 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley August4,2009 14:57 MAC/AGER Page-v 9780230_220980_01_prexiv vi Contents Chapter III PublicFinanceandDebtRelief Paper 8 GearingPublicFinancetoGrowth,Employmentand PovertyReductioninMoldova 163 TerryMcKinley Paper 9 DoesDebtReliefIncreaseFiscalSpaceinZambia? TheMDGImplications 180 5 JohnWeeksandTerryMcKinley 3-0 0 1- 1 Paper10 TheReductionofFiscalSpaceinZambia—DutchDisease 0 2 andTight-MoneyConditionalities 209 ct - e JohnWeeks nn o C e v a Chapter IV PoliciesforTransformingGrowthinto gr al EmploymentGeneration y - P sit Paper11 AnEmployment-TargetedEconomicProgramfor er v SouthAfrica 227 Uni RobertPollin,GeraldEpstein,JamesHeintzand olic h LéonceNdikumana at C n Paper12 AProposedStrategyforGrowth,Employmentand Je u PovertyReductioninUzbekistan 241 o F TerryMcKinleyandJohnWeeks ed t s n e Paper13 MStrDeGng-BthaesendinDgetvheeloEpmmpelnotymStreanttegImypfoarctYeomfaenn 272 m - lic o c TerryMcKinley ct. e n n o c e Index 292 av gr al p w. w w m o al fr eri at m ht g yri p o C 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley August4,2009 14:57 MAC/AGER Page-vi 9780230_220980_01_prexiv List of Tables, Figures and Box Tables 5 0 3- 3.1 IncomeGrowthintheConsensusGrowthScenario 47 1-0 1 3.2 IncomeGrowthintheScenarioofU.S.EconomicSlowdown 55 20 3.3 IncomeGrowthintheCoordinatedGrowthScenario 62 ct - e n 4.1 TheScalingUpofExternalFinancingforHIV/AIDSin n o C SelectedAfricanCountries,2002–2004 78 e v a 4.2 TheImpactofAid(PercentofGDP),TheDifferencein gr al PercentageBeforeandDuringanAidSurge 82 y - P 5.1 ODAasaShareofNationalIncomeandInvestment 86 sit er 5.2 GrossForeign-ExchangeReservesofDevelopingCountries v ni 1996–2004($billions) 90 c U 5.3 ExternalFinancingofAllDevelopingCountries1998and holi at 2003($billions) 91 C n 5.4 CPIInflation,1991–2003(Percentchangeinlocalcurrency) 93 Je u 5.5 TaxRevenueinDevelopingCountries(PercentofGDP) 95 o F 6.1 PossibleCombinationsinResponsetoaScalingUpofAid 101 d t e s 6.2 IMFResults(PercentofGDP) 102 en c 6.3 ResultsofSelected‘CategoricalFungibility’Studies 105 m - li 6.4 ResultsofSelected‘FiscalResponse’Studies 107 o c 6.5 ResultswithDisaggregatedAidVariables 107 ect. n 6.6 ResultsfromFagernäsandRoberts(2004) 109 on c 6.7 EstimationResults 123 ve a 6.8 DirectImpactsofAid 125 algr p 6.9 TotalImpactsofAid 126 w. w 6.10 Long-RunImpactofAidonExpendituresandRevenue 129 m w 88..12 PHeirgshoensatlPIenrcsoomnaelTaanxdRCaoterpsoarnadteTMaragregtiendaClThaaxnRgeastesby 168 erial fro Country,2003(Percentages) 169 mat 8.3 ExternalPublicDebt,1992–2004(MillionUS$) 171 ht g 8.4 Debt-to-ExportRatiosofSelectedLow-IncomeTransition yri p o Economies 173 C 8.5 TotalStateDebt,ExternalandDomestic(PercentofGDP) 173 8.6 CompositionofPublicExpenditures(PercentofGDP) 176 8.7 CurrentandCapitalExpenditures(PercentofGDP) 176 8.8 PublicExpendituresbySector(PercentofGDP) 177 9.1 HIPCDebtSustainabilityAnalysis:Assumptionsand OutcomesforGDPandExports,2000Onwards 186 vii 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley August4,2009 14:57 MAC/AGER Page-vii 9780230_220980_01_prexiv viii ListofTables,FiguresandBox 9.2 IMFandWorldBankOperationsinZambia,1973–2005 188 9.3 SomeIMFandWorldBankConditionalitiesforZambia, 1991–2005 189 9.4 PublicBudget,Actual(2000–2004)andIMFProjected (2006–2010)(PercentageofGDP) 192 9.5 GovernmentExpendituresin2005andtheMDG‘GAP’ 194 9.6 ProposalfortheFinancingtoAchievetheMDGsin2015 195 5 10.1 Kwacha-DollarRateandExportsandImports,2003–2007 3-0 0 (Quarterly,US$Millions) 211 1- 1 0 1100..23 SEtsrtuimctautreesooffZthameCbioaunnPteurbflaicctuInacloEmxceh,a2n0g0e5-–R2a0te08Effect, 215 ect - 2 n ImportTaxRevenue,ODAandDebtService,Gain(+)and on C Losses(−),2003.1–2007.3 217 ve a 11.1 TotalEmploymentandUnemploymentRatein2014under algr P AlternativeScenariosforEconomicGrowthandLabor y - Intensity 232 sit er 12.1 ComparativeEconomicPerformanceofUzbekistan,GDP niv U GrowthperAnnum,1991–2006 244 c oli 12.2 PovertyHeadcount2001–2005(percent) 246 h at 12.3 MacroeconomicIndicatorsforUzbekistan,2000–2006 248 n C e 12.4 MacroBalances,SavingandInvestmentinUzbekistan, u J F 1995–2005(SharesofGDP) 251 o 12.5 EstimationofInvestmentRatesRequiredforEconomic ed t s n Growthat5,6and7percent 252 e c 12.6 ExportsandImportsbyBroadCategory,1995–1998and m - li 2003–2006 259 co ct. 12.7 DistributionofSownLandamongDifferentFormsof e n n Organization(percentoftotal) 263 co e 12.8 RelativeProductivityLevelsinDifferentKindsofFarms av gr (percentoftotal) 264 al p 12.9 IndexofYieldperHectareofWheatinPrivateandDehkan ww. Farms(Shirkats=100) 264 m w o 12.10 InfantandChildMortalityRates1991–2004(Official al fr AdministrativeData:NumberofDeathsper1000Live eri Births) 266 mat 12.11 DistributionofFormsofSocialAssistancebyQuintile 267 ght 13.1 LabourForceParticipation,1994–1999(percent) 275 pyri o C 13.2 SectoralStructureofEmployment(percent)1999 276 13.3 GainsandLossesinPaidJobsbyEconomicSector, 2002–2003 280 13.4 GainsandLossesinPaidJobsbyEstablishmentSize, 2002–2003 280 13.5 HoursandEarningsbySector,1999 284 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley August4,2009 14:57 MAC/AGER Page-viii 9780230_220980_01_prexiv ListofTables,FiguresandBox ix Figures 1.1 AnnualGrowthRatesforSub-SaharanAfricanCountriesby Category,1985–2005 16 1.2 InflationRatesforSub-SaharanAfricanCountries, 1983–2006 20 1.3 RealInterestRates:PercentageofCountriesbyRange, 1985–2005 21 05 3- 2.1 InflationandEconomicGrowthforLow-IncomeCountries, 1-0 1 1961–2000 25 20 2.2 MoneySupplyGrowthinKenya:M1asPercentageofM3, ct - e n 1997–2006 27 n o C 2.3 AverageInterestRateSpreadsin2006 30 e v a 3.1 U.S.IncomeGrowth 38 gr al 3.2 U.S.TradeandCurrentAccountBalances(PercentofGNP) 38 y - P 3.3 NetDebtPositionoftheU.S.vis-à-vistheRestoftheWorld, sit er HistoricandProjectedLevels(PercentofGNP) 39 v ni 3.4 StockofForeigners’FinancialInvestmentintheU.S. c U CorporateSector(PercentofTotalCorporateAssets) 40 holi at 3.5 NetSavingPositionsoftheMainSectorsoftheU.S. C n Economy:Private,PublicandExternal(PercentofGNP) 41 Je u 3.6 NetPrivateSavingsDisaggregated:PersonalandCorporate o F Sectors(PercentofGNP) 43 d t e s 3.7 FinancialBalancesofthePersonalSectorandtheExternal en c Sector(PercentofGNP) 43 m - li 3.8 NetSavingandBorrowingofthePersonalSector(Percentof o c DisposableIncome) 44 ect. n 3.9 DebtStockofthePersonalSector(PercentofDisposable on c Income) 45 ve a 3.10 AssetPrices:HousesandStocks(IndicesinRealTermsUsing algr p theGDPDeflator) 46 w. w 3.11 U.S.andRestoftheWorldIncomeGrowth 47 w m 3.12 EEancehrgPyoDinetm) and(AverageRateofGrowthOverTenYearsfor 48 erial fro 3.13 EnergyPriceIndex(DeflatedbythePriceofManufactures) 49 mat 3.14 RealFinancialWealthofthePersonalSectorRelativeto ht g Income 53 yri p o 3.15 Ten-YearAverageGrowthRatesofDebtAccumulationand C DisposableIncome 54 3.16 GrowthofU.S.Income 56 3.17 U.S.TradeBalanceDuringSlowdown(percentofIncome) 56 3.18 TradeBalances(percentofEachBloc’sGNP) 57 3.19 TradeBalances(percentofEachBloc’sGNP) 58 3.20 RoWIncomeGrowthwithU.S.Slowdown 58 10.1057/9780230250635 - Economic Alternatives for Growth, Employment and Poverty Reduction, Edited by Terry McKinley August4,2009 14:57 MAC/AGER Page-ix 9780230_220980_01_prexiv