FOR IMMEDIATE RELEASE: October 6, 2005
CONTACT: Jennifer Linker, 202/939-2372, jlinker@carnegieendowment.org

Despite the promises made by globalization, in the last twenty years the world’s poorest countries have fallen further behind the rich. In a new Carnegie Paper, Branko Milanovic debunks current development theories that explain why poorer countries have not reaped the rewards of global economic integration. Using statistical analysis, Milanovic finds that the higher likelihood of poor countries to be involved in wars and civil conflicts is the most important determinant for their lack of growth while, surprisingly, the effects of domestic reforms or international lending were minimal. Why Did the Poorest Countries Fail to Catch Up? is available at www.CarnegieEndowment.org/trade.

In the past two decades, the average growth rate for poor countries was zero. This is an unexpected outcome of globalization, since widely-accepted economic theory states that comparative advantage and international economic-policy convergence should allow poor countries to grow even faster than wealthy nations. Trying to identify the causes of this disconnect, Milanovic demonstrates in a cross-sectional study that war and civil strife in the poorest countries account for an income loss of about 40 percent over twenty years.  Slower and delayed reforms compared to middle-income countries played a minimal role in explaining poor countries' dismal performance. Surprisingly, increased flows from multilateral lenders did not help--Milanovic estimates their net effect on growth to have been zero. Finally, neither democratization nor better educational attainment can be shown to have had any positive impact on poor countries’ growth. 

Lessons from Milanovic’s research are clear:

  • Less war and civil strife are key to restoring growth. Attention to conflict resolution and post-conflict reconstruction are essential aspects of development efforts.
  • Multilateral aid is unlikely to help the world’s poorest countries. Policies of multilateral lenders need to be re-examined in light of this lack of impact.
  • The much-touted role of democracy is difficult to discern. While a worthy goal in itself, it does not seem to lead to economic development in any measurable way.

Direct Link: http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=17557&prog=zgp&proj=zted

Branko Milanovic is lead economist in the World Bank Research Department and adjunct scholar at the Carnegie Endowment for International Peace.

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