The Problem with Global Income Categories

With so many countries experiencing rapid rates of growth, with so much income disparity and with so many countries whose particular demographic/economic situations are of a complexity which belies the simplicity of mere income-based rankings, how come the World Bank’s famous global income categories, measured in Gross National Income per capita are still used with such authority?

Several possible reasons stand out: 1-because GNI per capita and global income categories are widely understood and used categories, useful for communicating and coordinating with a multitude of international actors; 2-because these categories can be indicative of countries’ capacities to produce goods and services; 3-because many developing countries have embraced the terminology derived from these categories, with attaining the middle income category being seen as a significant achievement.

The Middle Income Angle
Much of the debate within international financial institutions, development agencies and global fora is focused on identifying the position and role of middle income countries in global development assistance architecture. Key considerations include whether to continue to allocate resources to middle income countries, whether or not to prioritize certain middle income countries in global aid and lending strategies, identifying the role of middle income countries as emerging donors and sources of development experience and expertise, as well as specifying the type of engagement that the international development world needs to take in middle income countries.

The conventional view espoused by the main development and lending organizations as well as some OECD donor countries is that rapidly narrowing poverty gaps and growing GDP in middle income countries, along with increased capacity to formulate and actuate viable development solutions means that a higher priority should be given to lower income countries in development assistance, and at the least that support to MICs should not come at the expense of support to other categories of countries, such as LDCs.

Middle income countries have better access than their lower income counterparts to funds through their tax bases or their ability to enter sovereign bond markets, mobilize more competent bureaucracies and provide additional support for expanded social safety nets, and therefore less in need of development assistance.

The critique to the conventional view suggests that while specific country needs and responses by the international community may change with a ‘graduation’ to middle income status, this does not necessarily mean that serious problems do not exist within MICs, or that less priority should be placed on all middle income countries.

Recent studies have noted that with 74 per cent of the world’s poor (living on under 1.25$ per day) now living in middle income countries, the only way to make significant gains in the struggle against global poverty is for international development cooperation to give special attention to poor people, not just poor countries.


Living the middle income dream at $ 2.25 a day

Moreover the growth in GNI that can push countries across the imaginary line to another income category is not necessarily a reflection of commensurate increases in the wellbeing of all of their population. Many countries have persisting inequality and ‘pockets of poverty’, often in underserved regions or among marginalized populations, which national governments are often unable or unwilling to address. In short GNI growth by itself is misleading, and efforts must be made to better represent the relative quality of growth in global-level discussions.

While the conventional view generally acknowledges a broad diversity in countries which cuts across income categories, it still makes reference to and accepts these categories as approximate indications of the overall wellbeing of a country. However the link between income and other areas of development is not always very clear, and discussions on a variety of development-related topics, including food security, run the risk of becoming misleading if they take their cue from income categorizations.

Bigger is Better? Firms and Principles for Job Growth

Should developing countries prefer big firms or small firms? Are slow gains in productivity and hiring across all small firms preferable to seeing faster graduation of a few small firms into larger ones? Can big firms really pull an economy up, like they say (or not) happened in East Asia?

The latest post from World Bank’s Africa Can blog toes the line like a boss. (Very informatively though):

At the end of the day, size may not be as much a driving force for business development as the ability and propensity to create vital linkages between small and large firms. These do not only facilitate transfers of skills, know-how, and technology, but they also promote economies of scale by reducing the entry costs for small firms.

This seems to be what lots of OECD countries are struggling with too: how to achieve a balance between the advantages of large, multinational firms and the higher potential for immediate job creation and innovation of small firms.

But in developing countries, Dani Rodrik tells us that the trend for these lower-productivity segments of the economy (by and large small firms, often informally set up), is on the rise:

Productive heterogeneity – or what development economists used to call economic dualism – has always been a central feature of low-income societies. What is new – and distressing – is that developing economies’ low-productivity segments are not shrinking; on the contrary, in many cases, they are expanding.

Something is obviously not going right. Dani says essentially that leading with the firms is the more effective thing to do- find those more productive sectors of the economy and make sure that they are well equipped to absorb new workers. With so many people employed in informal microenterprises in some of these countries though, it seems kind of hard to tell if that would really be an easier transition than removing barriers to formalizing existing enterprises, and giving them the proper assets (training, work space) to become more productive.

Other noteworthy tidbit in this World Bank article: In the United States, “small (young) firms contribute up to two-thirds of all net job creation and account for a predominant share of innovation.” Weird.

Not so sure how ‘fundamental’ logframes are…


‘Getting fundamentals right’…Korean development aid

0096I have just finished a couple of months designing, carrying out and writing up a Baseline Study for Korea’s pilot Saemaul Undong programme in the country where I work, as a sort of side project. The survey component was huge- 5 villages, 1100 households surveyed with a questionnaire that still makes my head boggle. It was in many ways a great introduction to how KOICA (Korea’s aid agency) does business (not to mention the wonders it has done for my confidence in quantitative analysis!)

The introduction to how KOICA goes about its work, however, leaves me a little less than impressed, and wondering if KOICA shouldn’t take a leaf from the old World Bank report praising Korea (among others) for ‘getting fundamentals right’.

The phrase ‘getting fundamentals right’ of course was first used in reference to macroeconomic fundamentals, but here I’m speaking about ‘development fundamentals’.  I found out through my long nights working with the KOICA team that, for instance, the Saemaul Undong programme has no results framework, no strategic framework, no logframes, no indicators, no monitoring mechanisms, no project activity design process to speak of, etc.

Not that logframes are or should be the end-all, be-all of development programmes. Not that these specific frameworks or mechanisms must be present for any success to be registered. No, the problem is more fundamental, really: there is no conception of planning. No one knows what results should look like, or who should be benefitted. There is no real logic in who is targeted. There is no idea of what should be measured, of what information should be gleaned out of activities. By extension, there is only a vague idea of what is actually successful, of what fails, and why.

The Saemaul programme is led by volunteers (think Peace Corps), who come over from Korea, live in the village in which they work and each take on (or share) one or more projects for the village in collaboration with the community.banner_koica

The programme is in its third year of pilot. As far as I can tell, the inception and design of a project goes something like this:

-“The villagers want to produce [crop]”

-“Really? Okay, sounds good. How much money should we put in it?”

-“How about [amount]?”

-“Great, when do we start?”

I am of course caricaturing, but the caricature is not that far removed from reality. This is to say that there is no systematic approach to projects- that as they come in, volunteers are asked what kinds of projects they would be interested in doing in the villages. Projects are documented by the volunteers, who send weekly reports and who conduct themselves, along with a KOICA officer in the national office, the evaluations.

So this baseline study will be the first of its kind for KOICA in this country- the first time that a rural development project incorporates baseline statistics and statistical analysis in decision-making on future projects.

A small step, maybe, but still one that could be built on at a faster rate. The Saemaul programme is just the tip of the iceberg…

So yes, fundamentals are important.

Incidentally the main critique of the famous 1993 World Bank report The East Asian Miracle was that it in great part overlooked the more state-driven factors in the economic success of the Asian ‘Tigers’ in favor of a more market-based, orthodox view of how the Bank thought development happened back then. So maybe in that same vein one could think that the ‘fundamentals’ that I mention here are also just the tenets of orthodox development practice, held up as truth. This would be the case if it weren’t so clear that no one has any idea where the programme I mention here is going. The solution, again, may be in logframes and it may not. But goodness, a little direction would not go amiss.

Special Economic Zones in Africa: What Lessons from China?

ChinafriqueThe government of Ethiopia announced earlier this month that the long-awaited and carefully planned Bole-Lemi Industrial zone (a Special Economic Zone, or SEZ) would finally be seeing light by the end of the fiscal year. The first government-lead economic zone of its kind in the country, it will cost an estimated 49 million USD to set up. And it looks like this is only the beginning; five more such zones are planned in the country. The trend is also visible a little to the south, in Tanzania and Kenya- also Nigeria. What could possibly be pushing this renewed interest in the Special Economic Zone, you ask? Because it’s not as though this is the first time (PDF-p.61) governments on the continent have warmed to the idea of SEZs. What makes the Ethiopian Minister of Industry so eager to tell the world that this new SEZ will be the “key for [their] industrialization”? Why the Chinese of course.

The Chinese?

Okay, so it’s not just the Chinese. But if you look at who is funding many of the new SEZs popping up in African countries, or if you look at the countries who are hosting conferences on SEZs, those who are in the boardrooms and Prime Minister’s Offices, providing the policy advice, giving the lessons learnt and helping to draw up the master plans, you’ll find a likely group of suspects: China, Singapore, Hong Kong, and Japan and Korea (to a slightly lesser extent).

You’ll find no shortage of people to explain to you why this is exciting, not the least of who work in the World Bank. And they are right: the twist on South-South cooperation that is this African SEZ development in partnership with Asia has some great benefits that were not there beforehand. Take China. Not only does it have the experience setting up over 100 SEZs in its own country, Chinese politicians are playing for keeps, showing how serious they are about producing actual sustainable results in the zones they manage (Oh yes: you see, in addition to helping states set up SEZs, China has already set up a number of its own SEZs on the continent, run mainly by Chinese capital interests). Plus the Chinese are in large part subsidizing the establishment of these zones, making them more accessible to governments who previously who not have ventured that far into exploring this type of economic tool.

The real gains from partnering with East Asia

But (I know you felt this coming) all is not cotton candy and unicorns. This opportunity of learning from the East Asian development experience in this particular area is a real one, but one must be oh so careful when going down this road. After thinking it over, I’ve come to the following conclusion: the greatest benefit from East Asian collaboration on SEZ development for African countries is not the money they get to make the Zone, and it’s not the capital they attract. It’s not even the vaunted technology transfers that always make the list of plusses. The greatest benefit is the actual technical advice, the capacity gains one gets from being with a partner on the ground and seeing how they go about doing things. It’s the gains in policy-formulation, in learning literally how you write up a new law, who the best person or company is to talk to about X subject, and so on. You don’t need to copy your partner 100%, but you need to see what they are doing, who they are talking to…

Of course, the potential is there for gains from SEZs for the economy which come from the SEZ itself- that’s after all one of the reasons it’s being built. Chief among these are more competitive industries (ideally able to compete in global markets i.e. to export), technology transfers, skills acquisition, technology transfers, and so on. The expected benefits are certainly there. But the more one looks at it, the more one sees that the value from these gains is pretty ephemeral compared to the possible value of the technical know-how and policy-savvy that I mentioned earlier. This is certainly not the main line of reasoning that one hears in the papers, however. The real value of the partnership is not where it initially appears to be.

‘Leading Dragons’ is not enough

Partnering with Asian countries, especially with China, often leads to the following line of reasoning. Since wage rates in China are climbing, one can anticipate a very substantial shift of manufacturing jobs out of the Middle Kingdom and into the backyard of lesser developed Southeast Asia and Africa. Establishing SEZs with Chinese cooperation is a means of making sure that African economies get their share of this so-called ‘Leading Dragon’ effect.

But this is dangerous thinking. For one, this phenomenon isn’t a sure thing; it’s contingent on rising wages in China, but no one is sure if wages for these unskilled manufacturing jobs will keep rising at the same rates- imagine a slowdown in wage increases which lasts for a good 10 years. Where is your massive influx of manufacturing jobs now? The second point is that even if this is the case, and the demand for labor in manufacturing industries (along with the requisite relocation of said industries) actually happens, African countries still find themselves in a race-to-the-bottom competition. Without concrete gains in productivity, without harnessing the technology, then all these economic opportunities are little more than passing fancies; one cannot drive a shift in economic structure on another country’s costs of labor.

As it is, many of these Chinese-backed export zones risk becoming enclaves of special economic activity and subsidies, in unfair competition with the host country’s other domestic industries. What is more, in many cases the leadership/managerial roles in running these zones are left exclusively to the partners- that is, out of African hands. Who will ensure that the technology transfers will happen properly, that skills will be acquired, and that in short, the venture does not just become another ill-fated economic experiment? As it stands, the Africans run the risk of missing the possible high-tide brought on by the Chinese.

The East Asian Miracle- Ignored

The real value of these Africa-Asia SEZ cooperation initiatives is not, I said, where it initially appears to be. This is also because a very partial and partial (this play on words sound better in French: partiel and partial) account of how these Asian countries have used SEZs in their development seems to be privileged when it comes time to explain the role of these economic zones in East Asian countries’ development. These conferences on the subject that are held seem to drive past the larger development experience and come right down to the point: ‘How did China/Singapore succeed in establishing and managing its SEZs?’

But when you look, especially in the Chinese case, at the history, you find that it tells you more than what is being said today (it seems so at least). Case in point: Chinese establishment of SEZs was the result of and a response to gains in factor accumulation (mostly capital, some labor) as its economy enlarged, not the other way around. Now, it’s true that with 7-10 million people in Africa’s least developed economies entering the job market each year, there is a chance that smart, adaptive policies and the right type of capital inputs can bring about large economic expansion. But this isn’t really what the Chinese did, nor does it take the lesson that the Chinese example is giving.

Then there is the standard argument that the likes of Dani Rodrik have been giving against the export-led model of growth, which applies in part here too: for the East Asian Tigers, first came gains in productivity, then exports-oriented industrialization, not the other way around. Exports played a smaller role than often thought in the actual economic takeoff of the likes of Korea and Taiwan. Both these points come to the same (cautious) conclusions: 1) SEZs are the result, not the start, of a certain economic process, and have been effective in Asian countries which have already seen important gains in capital and labor inputs. 2) Economic zones have led to globally competitive domestic industries (mostly) after these industries have gained in productivity (usually through gradual competition with industrialized countries’ exports in the domestic market).

It is not clear at all that this same dynamic is taking place in East Africa. Rather, the SEZs appear to be treated as the solution in and of itself to the question of factor accumulation and total factor productivity.

The Most Important Factor

I attended a talk by Japanese professor (and industrial policy scholar) Kenichi Ohno last summer in Korea, and he said something which really gave me pause. He said that, in the process of advising the Prime Minister of Ethiopia’s office on how to set up Special Economic Zones, he received what he considered to be the best question, from some Ethiopian official. It was something like: ‘Can you show us an example of a well-written proposal? What should go in it? What does the Table of Contents look like?’

This was the best question because it was precisely with information like this, Ohno said, that the government would build the expertise necessary to successfully manage a Special Economic Zone. Once this know-how is transferred, no matter the partner -be it the Chinese, the Japanese, the Europeans, or other Africans- Ethiopia would have the tools necessary to achieve their goals- whatever those be. It struck me as a very true point. The know-how, the technical skills, the transfer of concrete experience goes miles beyond the ideology, the money, the ‘comprehensive development experience’ and the pitfalls of debates that inevitably turn to a meaningless merry-go-round of “developmental state or free market? Import substitution or export orientation?” etc.

It remains to be seen how well this know-how and these tools will be transferred and used by African countries, but this is without a doubt the richest experience that can be gleaned from these new SEZ partnerships.

Chris Blattman

International development, economics, politics, and policy


Governance: An international journal of policy, administration and institutions

Unused Entity

เซื่อในสิ่งที่เฮ็ด เฮ็ดในสิ่งที่เซื่อ

The Charnel-House

From Bauhaus to Beinhaus

Konakry Express

L'Histoire est patiente, la Vérité têtue!


Advancing the rule and role of law in Africa


A Travel Blog - Traveling the World and Doing Good


A motley group of international aid bloggers, practitioners, and critics. Interested in impact, poverty, evidence, and throwing things off planes.


A site on limited government, development and free markets


Exploring Unbeaten Paths of Culture

Joe Studwell's blog

On the theme of development in East Asia, Britain, Italy, and the United States

The More Things Change

Translating French foreign policy ... and other musings

Monitoring & Evaluation & Learning

Weitzenegger's Knowledge Network

Sustainability in Crisis

Faith in sustainability

Bedside Readings

Humorous, thought provoking, brain teasing, factual and developmental

Lesley on Africa

African politics, security, and occasional travel tales

Africa is a Country

a site of media criticism, analysis and new writing

Bridges from Bamako

life in a budding West African metropolis