ARE WE any closer to knowing what makes some economies grow and others languish? It's the question at the heart of economics and it seems particularly timely to raise it again amid all the attention focussed on economic development thanks to this week's summit jamboree in Johannesburg.
The United Nations fact sheets on growth and trade prepared for the summit imply that there's a straightforward answer. Item one on its development agenda is more official aid from the donor countries. The total has fallen from nearly $60bn (pounds 39.4bn) in 1990 to $43bn in 2000, declining as a share of donors' GDP from 0.33 per cent to 0.22 per cent - compared with a supposed target of 0.7 per cent of GDP. Research by the World Bank has found that development aid can be effective in increasing growth and reducing poverty if it goes to countries with good economic policies. The trouble with aid is that it is highly politicised and a lot has gone to countries with bad policies, where it does no good at all.
What's more, aid is now dwarfed by the scale of private investment in developing countries. Foreign direct investment (FDI), the useful kind involving new businesses and jobs, into developing countries has climbed from $36bn in 1991 to $178bn in 2000. The UN would like to see the FDI total grow. Out of a global annual total of more than $1 trillion, little of the investment favours developing countries at all, and, it points out, four-fifths of the FDI into the developing world has gone to only 10 countries, mainly in East Asia. US direct investment in China and Hong Kong combined, two of these 10 winners in attracting inward investment, was last year lower than the amount American businesses invested in Ireland.
So on to the third big focus of the UN's attention, external trade. Although severely dented by the current slowdown, world trade has grown much faster than world GDP over an extended period. The value of world trade in goods and services has doubled over the past decade, and the developing country share of the total is now nearly a third. There is no doubt that increased trade is tremendously important for growth. Again, though, not all countries have benefited. Africa in particular has lagged behind.
The message from this development shopping list - aid, foreign direct investment, exports - is therefore not encouraging. While all can help boost growth, in theory and practice alike, they have worked in the past for only some countries. They are certainly among the ingredients for successful development, but do not amount to the full recipe. Nor do they help understand why some East Asian countries have, despite the setback of 1997-98, experienced a complete transformation in fortunes within a generation while sub- Saharan Africa has seen scarcely any growth for a decade. Is stagnation in Africa a consequence or a cause of the lack of foreign investment, for example? If the latter, simply exhorting the business participants in Johannesburg to invest more in Africa will have no effect.
Better clues come from looking at the great diversity of economic trends within Africa, a diversity which is …