ECO100Y1 Lecture : Poverty Reduction and Conclusion
April 8, 2009
Number of hungry people 850 million in 2007, 1Billion now
Sachs-primary goal is the removal of poverty
-Africa needs a big push, flood of foreign aid
-foreign aid is much better than trade, solution is a big foreign aid program to African nations
-program charge foreign aid for $150 Billion to solve poverty in 10 years to achieve millennium goal
-US spends 450 Billion on Military sector and only 15 billion in foreign aid, misallocation of resources
-8 years ago, not one African was treated for Aids, no medicine in Africa, no bedmats
-in the international community, not too many people are doing anything to solve poverty
-the food shortage in 2006-7 will put more people into poverty
-US should not become involved in alternative oil, takes corn out of food supply, put 5 Billion into
making energy from corn, will harm food supply for the world
-develop a new spirit for global cooperation, should fight extreme poverty, curb population growth, fight
environmental degradation
-cost of inaction is too great
-technological improvements will help food shortage
Problems:
-some countries want to be able to feed themselves before helping others
-cartels for rice
-too much spending on Iraq
-center of economic gravity will change towards Asia
-Sachs concludes: if we continue to focus on the Iraq war and neglect other issues (poverty reduction,
food supply) we will not solve global problems that are much bigger, will end up in a deeper mess than
now
African economist
-foreign capital inflow in small doses
-Africa has new trading partners, should expand their international trade, use micro-financing, small
loans to increase trade
-after 60 years of failure from foreign aid, need new path, new strategies
-stop foreign aid, African nations will have to find new means to finance their investment from private
sector, will be the driver of growth
-foreign aid crowds out foreign private investment
-global current recession is good, creates new priorities and opportunities in Africa, reduce existing
flows of foreign aid
-this will give them the ability to grow successfully, trade not aid
-past 60 years of aid have produced failures
Sachs, Easterly, Lewis
Prosperity, productivity, poverty
Prosperity
-higher standard of living driven by productivity growth
-economic growth leads to higher standard of living, will create new jobs and reduce poverty
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-convergence (Thurwall), Lewis-50 years of economic growth have failed,
-convergence will take time and effort, convergence depends upon productivity growth
Productivity
-solow model-Y hat=alpha L hat + beta K hat+ total factor productivity
-alpha L-improvement in education
-beta k hat savings, domestic and foreign savings will increase capital formation
-total factor productivity-improve resource allocation, increasing returns to scale and technological
change
-Economic growth not supported by tech. change will face diminishing returns to capital and growth
must slow down, total factor productivity-was achieved by agriculture labor moving to industry
-Y/pop=Y/L x L bar/pop
-basic reason for per capita income differences is productivity differences, when higher per capita in
countries, the productivity is higher by the same amount
Poverty
-2000 millennium goal, reduction of poverty by 50% by 2015, 50% reduction in ppl without water, 100%
education enrollment
-over time, economic growth reduces poverty
-Sachs poverty traps, big push in foreign aid, millennium villages, need for 150 billion in each year in
foreign aid to Africa to reduce poverty
-Easterly-markets and incentives, planners vs. searchers
-Lewis-power of productivity, the missing element, strategy in developing countries is attention to
productivity, increase productivity
-Kreuger-economic policy reforms
Stage 1-1950-1975,80-ZÀÇP}À[]vÀv]}vUñÇovUmassive intervention of government into
economic change
-import sub strategy, industrialization with protection, support public companies, macro deficits, some
inflation, structuralist theory, fixed exchange rates-wrong and countries had foreign exchange shortages
Stage 2-new deveo}uvP]UZoÇ}v]v[Á}lUµ}(Zð]PUÆ}-oriented,
private sector allocation, export led growth, change from protectionism, only have a small deficit,
support for small businesses, government involved in infrastructure, education and health
-where do we find productivity growth, industrialization first, alan young increasing returns to scale-new
industry expand, lower unit cost, yield in increasing externalities
-foreign branches meant higher capital labor ration, yielded higher productivity
-total agricultural surplus-fewer workers, same output, higher product of labor
-labor shift to industry-informal sector arose
-the informal sector labor productivity is way below formal sector, negative change in labor productivity
(brazil-lewis, difference in productivity numbers???)
Export led growth-increase competitiveness in industry that have comparative advantage, efficiencies,
lead to increasing returns to scale, more efficiency, higher competition, higher labor productivity
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