Does world bank performance solve the capital scarcity of problem of less developed countries?
Answers
Answer:
This emerging evidence has increasingly brought the conventional neoclassical view of trade and development into question, implying that international support for LDCs may need to be reconsidered. As argued in part I, no amount of liberalization or exposure to ‘correct’ prices may induce economic progress. The challenges facing LDCs go beyond mere incentives, and include often intractable problems such as smallness, distance from major markets, fragmentation or being landlocked.
An alternative to the neoclassical perspective has long existed, although it has fallen out of fashion and has not yet been used to inform the design of international support measures for LDCs. This perspective, based on the developmentalist and structuralist traditions, tends to emphasise the importance of measures aimed at building productive capacity and directly promoting structural transformation.
Some critics of neoclassical trade models have been particularly harsh. According to Erik Reinert: “International trade theory’s prediction of equalization of wages across countries is, in my view, the key terrible simplification that causes world hunger. Not only are all qualitative differences assumed away, the production process itself is also abstracted away. Assuming away unemployment, as the World Bank traditionally does in its models, only adds another dimension to the terrible simplification on which our world economic order is based. In many countries, 80 per cent of the potentially active population are unemployed or underemployed. Assuming that fact away is a terrible simplification” (Reinert 2009: 3).
Maybe the time has come to look again at the implications of the structuralist perspective for international support, adapted for the contemporary era and taking into account the 2030 Agenda for Sustainable Development? Recent attempts at synthesising the insights of the neoclassical approach, with its emphasis on trade, with the older structuralist and developmentalist perspectives, can be seen in the contrasting work of Ocampo (2005), Lin (2012) Spence (2011) and others.
Until now, international support for LDCs has focused too much on international demand for these countries’ existing or potential products. In essence, LDCs face almost unlimited demand for their exports. What has been relatively neglected has been domestic production, sustainable or otherwise — and whether or not orientated toward export or domestic consumption. In very blunt and simplistic terms, many LDCs simply do not make enough to meet the significant demand that would potentially exist for their products, and however good the incentives, their economies will not adapt to take advantage of that demand.
Both Michal Kalecki and Albert Hirschman, the latter of whom was the leading light of the structuralist school, understood the essentially Keynesian insight that developing economies operate permanently below conditions of full employment and demand. Kalecki and Hirschman recognized that no single set of policy recommendations was appropriate to all circumstances, and that support and policy advice should vary according to country context. Broadly, however, development policy should focus on the active promotion of investment in the capital stock, which was more likely to be fully utilized in developing than in developed economies because it was smaller and less advanced. Kalecki said that the main problem in developing countries was the deficiency of productive capacity rather than its under-utilisation. In contemporary language, simply ‘getting the prices right’ via global economic integration would not necessarily lead to the development of productive capacities; active government policies and measures to stimulate the accumulation of capital are also necessary.
These insights map directly on to the experience of LDCs, many of which feature extremely undeveloped capital stocks, low rates of investment and permanent shortfalls of demand. Gross fixed capital formation is 23% on average in LDCs, well below the level of 25-30% believed to be necessary for structural transformation. In a classic 1963 paper Nicholas Kaldor extended this point when he said that: “It is shortage of resources, and not inadequate incentives, which limits the pace of economic development. Indeed the importance of public revenue from the point of view of accelerated economic development could hardly be exaggerated.” Ha-Joon Chang follows Kaldor in stating that the investment rate is the most important indicator of structural transformation (Chang 2014).
Yes, the world bank performance solve the capital scarcity of problem of less developed countries.
Step by step explanation:
- An International organisation, the World Bank's vital goal is to reduce poverty.
- It helps in improving the income of 40% of the population (bottom line population).
- The world bank is not a usual bank. It has two main functions.
- First is to help for reconstruction and development of countries and the second is to provide no interest loans or very low interest loans to developing countries.
- It grants loans to help in improving the health sector, education sector, infrastructure sector, agricultural sector, and for the natural resource management of developing countries.