New Sources of Development Finance

New Sources of Development Finance

New Sources of Development Finance

New Sources of Development Finance


As their Millennium Development Goals, world leaders have pledged by 2015 to halve the number of people living in extreme poverty and hunger, to achieve universal primary education, to reduce child mortality, to halt the spread of HIV/AIDS, and to halve the number of people without safe drinking water. Achieving these goals requires a large increase in the flow of financial resources to developing countries - double the present development assistance from abroad.

Examining innovative ways to secure these resources, this book sets out a framework for the economic analysis of different sources of funding, applying the tools of modern public economics to identify the key issues. It examines the role of new sources of overseas aid, considers the fiscal architecture and the lessons that can be learned from federal fiscal systems, asks how far increased transfers impose a burden on donors, and investigates how far one can separate raising resources from their use.

In turn, the book examines global environmental taxes (such as a carbon tax) the taxation of currency transactions (the Tobin tax), a development-focused allocation of Special Drawing Rights by the IMF, the UK Government proposal for an International Finance Facility, increased private donations for development purposes, a global lottery (or premium bond), and increased remittances by emigrants. In each case, it considers the feasibility of the proposal and the resources that it can realistically raise. In each case, it offers new perspectives and insights into these new and controversial proposals.


Two powerful and divergent forces grip the world at present. On the one hand, the effectiveness of international organizations has been called into question. The role and functioning of the UN are debated. Some nations exhibit frustration with multilateral cooperation, resorting to unilateral action. Solutions are sought in regional groupings rather than in worldwide coordination. On the other hand, the recognition is being cemented that a global economy requires global institutions. International organizations are viewed by many as the key to the free movement of goods, services, and capital. We have seen the adoption of ambitious development targets in the form of the Millennium Development Goals (MDGs). Donor countries have pledged increases in official development assistance.

The tension between these two forces pervades discussion of resources for world development. On the one hand, there is talk of 'donor fatigue', and official development assistance (ODA) has stood still for many years. The amendment to the IMF's Articles approved by the board of governors in 1997 allowing a special allocation of Special Drawing Rights (SDRs) remains unratified. Proposals for any form of global taxation meet immediate opposition from powerful elements in the US Congress. On the other hand, there is widespread appreciation of the need for new resource flows to allow the MDGs to be achieved. There are interesting proposals for new sources of revenue such as a global lottery or the International Finance Facility (IFF). Individuals continue to support development charities. US billionaires are personally funding development and world health activities.

The direction taken at this juncture will depend largely on political events and political decisions. But sober economic analysis has an important role to play. This book reports the work of a project on 'Innovative Sources of Development Finance' undertaken at the request of the UN. As a result of the Five Year Review of the World Summit for Social Development, the UN General Assembly adopted a resolution calling for 'a rigorous analysis of the advantages, disadvantages and other implications of proposals for developing new and innovative sources of funding, both public and private, for dedication to social development and poverty eradication programmes'. As the UN Secretary-General observed, there has been a great deal of innovation in private financial markets, but less in the sphere of public finances. The UN Department of Economic and Social Affairs (DESA) in turn requested the World Institute for Development Economics Research of the United Nations University (UNU-WIDER) in Helsinki to commission the study of Innovative Sources.

The execution of this project has involved many people. First, as coordinator of the project, I should like to thank most warmly the other members of the project team, who in addition to the authors of chapters in the book included Ilene Grabel of the University of Denver. They have not only written individual chapters but also

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