1. The Undercover Economist by Tim Harford Chap 8:Why Poor Countries Are Poor Presented by: 1.Rajendra Kumar Singh 11PPM13 2.Revathi Mannepalli 11PPM14 3.Shashikant Upadhyay 11PPM15

2. About the author Tim Harford-an English economist and journalist Other books: 1. The Logic of Life 2. Adapt Writes – ‘The undercover Economist ‘ column for the Financial Times – ‘Dear Economist’ for Men’s Health Presents popular BBC Radio 4 show ‘More or Less’

3. Daula(Cameroon)-the Armpit of Africa The author tries to explain the reason for poverty in poor countries He take the example of Cameroon – visited Daula in 2001 – Average Cameroorian is eight times poor than average citizen of the world – Fifty times poorer than typical American

4. Cameroon: Some facts Achieved independence on January 1, 1960 as the Republic of Cameroon For a quarter century following independence – one of the most prosperous countries in Africa. Suffered a decade long recession in the mid 80’s due to – drop in commodity prices for its principal exports — petroleum, cocoa, coffee, and cotton – overvalued currency and economic mismanagement Real per capita GDP fell by more than 60% from 1986 to 1994. The current account and fiscal deficits widened, and foreign debt grew. However because of its oil reserves and favorable agricultural conditions, Cameroon still has one of the best-endowed primary commodity economies in sub-Saharan Africa.

5. Economy of Cameroon ( Source: CIA World Fact Data Book) CurrencyCFA Franc (XAF) Fiscal year Calendar year GDP $47.12 billion (2011) Rank: 94th (2011) GDP growth3.8% (2011) GDP per capita$2,300 (2011) GDP by sectoragriculture (19.7%), industry (31.9%), services (48.4%) (2011) Inflation (CPI)3.4% (2011) Population48% (2000) below poverty line Unemployment 30% (2001) Main industriespetroleum production and refining, aluminium production, Food processing, light consumer goods, textiles, lumber, ship repair Ease of Doing Business Rank 161st Externa l Exports$5.361bn (2011) Export goodscrude oil and petroleum products, lumber, cocoa beans, aluminium, coffee, cotton Main export partnersSpain 15.1%, Netherlands 12.8%, China 9.4%, Italy9.3%, France 6.5%, U.S. 6.4% (2011) Imports$5.901bn (2011) Import goodsmachinery, electrical equipment, transport equipment, fuel, food Main import partnersFrance 19.1%,China 13.3%, Nigeria 12.4%,Belgium 5.5%, Germany 4% (2011) Public finances Public debt 16.2% of GDP (2011) Revenues2.493bn 2004) Expenses$2.248bn (2004)

6. Cameroon- the most corrupt country According to Transparency International In 1999-the most corrupt country in the world In 2001-the 5 th most corrupt out of 91 countries surveyed In 2010-the 26 th most corrupt out of 178 countries surveyed The President Paul Biya came to power in 1982 and has been in office since then – An authoritarian – Presently in his sixth term(latest elections in October2011) – Has won power through elections which have lost credibility – Has sweeping executive and legislative powers – Highly unpopular

7. President Biya and the first lady

8. The theory of diminishing returns Economic wealth comes from a combination of – Man-made resources(roads, factories, machines, telephone systems) – Human resources( hard work and education) – Technological resources( technical knowhow/machinery) Poor countries should have been catching up with rich ones for the past century or so. – the further behind they are, the faster the catch-up should be Poorer countries should catch up quickly because new investments should generate quick and attractive returns. – Rich countries don’t gain much from further investment. This is called ‘diminishing returns’

9. Contradictions Countries like Taiwan, South Korea or China, Botswana, Chile, India, South Korea are catching up – But many poor countries like Cameroon are growing more slowly than the developed countries and the gap is only increasing The theory of ‘increasing returns’ is patched up with the traditional theory of ‘diminishing returns’ to explain this poverty in poor countries The ‘Big Push theory’ was also propounded by Paul Rosenstein-Rodan to explain this difference – the model emphasizes that underdeveloped countries require large amounts of complementary investments to embark on the path of economic development from their present state of backwardness.

10. The theory of government banditry(1/2) The political system does matter when it comes to economic development. Economist Mancur Olson distinguished between the economic effects of different types of government – tyranny, anarchy and democracy. Olson argued that a "roving bandit" (under anarchy) has an incentive only to steal and destroy, whilst a "stationary bandit" (a tyrant) has an incentive to encourage a degree of economic success – he will expect to be in power long enough to take a share of it. – he thereby takes on the primordial function of government - protection of his citizens and property against roving bandits.

11. The theory of government banditry(2/2) A leader who needs to secure broader support for his policies will need to spend more government revenues on wealth- creating goods and services like roads and courts, and less on himself and his cronies. – The greater the democratic pressures, the more healthy the economy is likely to become. In Cameroon, the democratic pressures exist, but they are weak – President Biya is no absolute dictator but he is hardly a democrat Cameroon is a combination of – Widespread poverty – Economic growth running in reverse – Crumbling infrastructure

12. Institutions matter Dysfunctional institutions are the key explanation of poverty in developing countries The author visited a poorly designed and built library in a prestigious private school in Cameroon – an example of wasteful expenditure – a lack of monitoring and accountability Self-interested and ambitious people are in positions of power all over the world – In many places they are restrained by the law, the press and democratic opposition – In Cameroon there is nothing to hold the consequences of ambition or self-interest in check

13. Incentives and Development(1/2) The 2009 Nobel Prize in Economic Sciences was awarded to Elinor Ostrom – "for her analysis of economic governance, especially the commons.“ Through a multidisciplinary approach, she showed that ordinary people are capable of creating rules and institutions that allow for the sustainable and equitable management of shared resources. – countered the conventional wisdom that only private ownership or top-down regulation could prevent a "tragedy of the commons”

14. Incentives and Development(2/2) Many irrigation systems in Nepal with modern concrete dams and canals designed by experts and funded by big international donor agencies ended in failure – The human properties of the traditional system has not been addressed Any development project is most likely to be successful if the people who benefit from its success are the same people who make it possible. – development projects are often commissioned by people with less interest in success and more in bribes and career advancement.

15. Is there a chance for Development?(1/2) The small amount of education and technology and infrastructure that Cameroon does have could be much better used if the society was organised to reward good productive ideas. But in Cameroon, this simply does not happen, because – there is no point investing in a business because the government will not protect you against thieves – there’s no point in paying the phone bill because nobody can successfully take you to court – there’s no point getting an education because jobs are not handed out on merit – there’s no point setting up an import business because the customs officers will be the ones to benefit

16. Is there a chance for Development?(2/2) These problems cannot be fixed overnight. – But there are some simple reforms which will move poor countries like Cameroon in the right direction. One simple reform is to cut red tape – allowing small businesses to be quickly established, which makes it easier for their entrepreneurs to expand and borrow money. – The legal reforms necessary are often trivial; and while they still rely on sensible and benevolent government, all it takes is a single diligent minister. Another option, is to open up the country to the world economy. – Most poor countries are also very small economies and cannot possibly be self-sufficient – The barriers to Trade can be reduced

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