Financing for Development Series: Foreign Direct Investment - A Means to Foster Sustainable Development

2008/12 - Deutsches Institut fuer Entwicklungspolitik (DIE), Briefing Paper No. 12, Authors: Julia Kubny et al.

Abstract:

Foreign direct investment (FDI) represents an increasingly important source of external finance for developing countries. However, its developmental effects arestill debated. This paper provides an overview of the possible effects of FDI and stresses the importance of host country characteristics and the type of FDI for a beneficial impact to the host country. Potential benefits
from FDI include its contribution to increasing the domestic capital stock, creating employment and raising incomes, and promoting technology and skill transfer. Yet FDI may also lack positive impacts or even carry negative consequences, such as crowding out local firms, reinforcing domestic inequalities, or contributing to an outflow of foreign exchange.
Rather than attracting as much FDI as possible host country governments would be well advised to focus their efforts in inviting the “right” kind of FDI. Most importantly, foreign investments should be wellintegrated into the local economy. The international
community should work to strengthen the capacity of host countries to enact policies which facilitate a beneficial economic impact of multinational enterprises.
In light of these challenges and the unequal global distribution of FDI, increasing private investment alone cannot be considered a cure for poverty in the world’s least favored economies in the foreseeable future.

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Views from the South: The Impact of the Global Financial Crisis on Developing Countries

2009/02 - Institute of Development Studies (IDS); Working Paper, Authors: Neil McCulloch et al.

Abstract:

The debate in rich countries about the impact of the global financial crisis has largely ignored its impact on developing countries. But the instability in financial markets around the world is already spilling over to the ‘real economy’ in poorer countries around the world. It is vital that policymakers from both North and South understand how this crisis may impact developing countries and the implications for development policy.

Voices from Developing Countries

IDS has invited 21 thinkers, academics and policymakers from 14 developing countries to present ‘snapshots’ looking at how the financial crisis is affecting their countries and how it is being discussed and characterised by policymakers, academics and in the media.

[Link to the IDS website with the 21 publications]

Why do Leading Economists Argue that All Small European Economies Should Join the Euro?

2009/01 - Danish Institute for International Studies (DIIS); DIIS Brief, Author: Ian Manners

Abstract:

Paul Krugman, the Nobel Prize winner for economics, has recently argued in the Swedish Sydsvenskan that all small European economies should join the Euro: “I think the lesson of thecrisis is that one should join the euro…. For good or evil should probably all the small European countries join.”
 
The 1st January 2009 marked the ten year anniversary of the Euro, but Denmark and Sweden are the only small, open EU economies not seeking to join in the immediate future. Why do leading economists, such as Klugman, argue that all small European economies should join the Euro? A DIIS Brief surveys four main economic arguments related to the global economics crisis and new evidence emerging from studying the past 10 years of the Euro: 

1. That membership of the Euro provides protection from the worst effects of the global financial crisis;
2. That the positive trade effects are conclusive;
3. That Foreign Direct Investment  (FDI) has been effected by the Euro, and;
4. That relative Euro-zone economic performance has been understated over the last 10 years.

It concludes that Danish and Swedish membership of EMU and the Eurogroup would help contribute to the role of the EU as protection against the worst excesses of globalisation and help build more sustainable global financial architecture.

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Blue, Green or Red? A 'Rainbow' Stimulus to Tackle Global Recession

2009/02 - Overseas Development Institute (ODI); Opinion No. 125, Author: Dirk Willem te Velde

Abstract:

This Opinion argues for a 'rainbow' fiscal stimulus to help developing countries cope with the global financial crisis. Such a stimulus would combine the best of economic and political ideologies: the blue of conservatism and market forces; the green of environmental sustainability and the red of state interventionism. It gives three key reasons why the developed world should support such a stimulus for developing countries:
 
First, the crisis has been caused by failures in developed countries. In addition, the benefits of higher growth in the developing world will be felt in developed countries. Second, countries such as the US and UK have suffered a period of over–consumption, accumulating large debts. It may be that a fiscal stimulus will have less impact in these countries, where additional resources may be used by households to pay back debt, and will work better in the developing world. Third, if the poorest countries are unable to put in place a fiscal stimulus, while other richer countries do so, they will suffer from a kind of beggar-thy-neighbour economic nationalism.
The Opinion concludes that developed countries should provide a rainbow stimulus for developing countries, including more aid for trade, investment in infrastructure, support for green growth and improved social protection.

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Recreating Political Order: The Somali Systems Today

2009/02 - Institute of Development Studies (IDS); IDS Research Summary, IDS Working Paper Volume 2009 Number 316: Author: David Leonard

Abstract:

This paper explores the meaning of statelessness and social contracts, in the context of the territories of the former Republic of Somalia. Too often, observers assume Western philosophy and models of the functioning of the state and society are applicable to Somalis. This paper re-examines those assumptions.

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Africa's Bane: Tax Havens, Capital Flight and the Corruption Interface

2009/01 - Real Instituto Elcano; Working Paper 1/2009, Author: John Christensen

Abstract:

Corruption is widely recognised as harmful to sustainable development. Less well recognised, however, is that secrecy jurisdictions (also known as tax havens) and the bankers, lawyers and accountants who operate from these jurisdictions, actively encourage and support corrupt practices by facilitating illicit financial flows through an ‘offshore interface’ between the illicit and licit economies. Financial market liberalisation has contributed to this problem by not addressing the ‘secrecy space’ comprised by banking secrecy, non-disclosure of ownership of corporations and other legal entities, lack of accounting transparency for multinational companies, and the lack of provisions for effective exchange of information between national authorities.

The outcome of this failure to ensure sufficiently transparent financial flows has been the creation of a criminogenic environment, in which illicit flows are easily disguised and hidden amongst legitimate commercial transactions, encouraging capital flight and tax evasion on an awesome scale. Sub-Saharan Africa (SSA) has suffered a net accumulated outflow of capital amounting to over US$600 billion since 1975, and for every dollar of external debt borrowed by SSA countries 80 cents has flowed outwards as capital flight in the same year. The situation is deteriorating, not least because the Government of Ghana has recently announced its intention to support the development of offshore banking services in Accra, which could contribute to a significant increase in the volume of cross-border illicit financial flows in the West African region.

Unless this supply side of corruption is tackled there is little prospect for an end to aid dependency and sovereign indebtedness or the creation of economically stable and democratic states able to provide food security, education and healthcare to their citizens.

[See the full publication on the Real Instituto Elcano website]

The Somali Conflict. The Role of External Actors

2009/02 - Danish Institute for International Studies (DIIS); DIIS Report 2009:3, Author: Bjoern Moeller

Abstract:

Somalia has been without a functioning state ever since 1991, when the former dictator, Siyad Barre, was overthrown. None of the competing factions were strong enough to take his place as ruler of the country, producing first chaos, but gradually a form of stateless order. The international interventions have ever since the failed, and counter-productive intervention by the United Nations and the United States in the early 1990 exacerbated rather than mitigated the problems, let alone solved them. This was especially the case for the Ethiopian invasion (December 2006-January 2009), which produced utter chaos and a severe humanitarian crisis. Since the withdrawal of the Ethiopian forces, Islamist extremist militias have been establishing control of Somalia, and they may or may not be able to maintain this control. If they pursue their radical programme of Islamisation, their reign is likely to be short, but if they moderate themselves they may retain control.

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Challenging Common Assumptions on Corruption and Democratisation

2008/09 - Swiss Agency for Development and Cooperation (SDC);

Abstract:

Why do rule of law and democratisation matter for development cooperation ? How can donors successfully support processes of democratisation? Is the perception of corruption always a good indicator of the effective level of corruption in a given country? How can national authorities and donors better target corruption? Such are some of the key questions to which this brochure attempts to respond. Without minimizing the challenges which may be encountered in this field, and avoiding the proffering of ready-made solutions, it proposes key recommendations and guiding principles for donors and national authorities.

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Building Accountable Justice in Sierra Leone

2009/01 - Fundacion para las Relaciones Internacionales y el Dialogo Exterior (FRIDE); Working Paper No. 76, Author: Clare Castillejo

Abstract:

Sierra Leone's civil war left the country's justice system severely damaged, and rebuilding and reforming this system has been a major priority for Sierra Leone's government and donors following the end of the conflict. Within this, there has been a particular focus on developing a justice system that is accountable to citizens, as both lack of justice and unaccountable and unresponsive governance were root causes of the conflict.

This Working Paper by Clare Castillejo examines the extent to which a more accountable justice system is being built in Sierra Leone and the challenges and opportunities for doing this. It analyses five key components of accountability - access, equality, information, oversight and participation - and asks to what extent these are being developed within Sierra Leone's justice institutions. Based on this analysis the Working Paper suggests policy options for strengthening accountability as part of current justice sector reform initiatives. 

This Working Paper is based on field research conducted by FRIDE and Campaign for Good Governance in Freetown and Kono, Koinadugu and Moyamba districts in June 2008.

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