The United States has
demonstrated considerable dedication to promoting economic
development in sub-Saharan Africa. America has provided about $51.2
billion (in 2003 dollars) in bilateral official development
assistance to sub-Saharan Africa since 1960.[1]
Under President George
W. Bush, America has doubled its development assistance to $19
billion in 2004, including tripling its assistance to sub-Saharan
Africa since 2000. It has expanded access to the U.S. market
through the African Growth and Opportunity Act (AGOA). The U.S. is
the world's largest humanitarian aid donor, providing $3.3
billion in 2003. It also is the world's largest source of bilateral
and multilateral support to combat HIV/AIDS, malaria, and
other infectious diseases, including $2.4 billion in international
HIV/AIDS programs.[2]
Yet the U.S. is often
criticized for not providing enough resources for development. The
basis for this criticism is the theory that if only aid flows
increased, developing countries would achieve economic growth and
development. Economic analysis and the historical record do
not support this reasoning.
The United States and other donor nations
have spent over $2.3 trillion on bilateral and multilateral
development assistance (in 2003 dollars) since 1960 to help poor
countries attain economic growth and prosperity-about a fourth of
it in sub-Saharan Africa.[3] Few recipients have achieved substantial
improvements in per capita income, and in no case has a development
success story been clearly attributable to economic
assistance. The evidence provided by numerous studies
indicates that this failure is due not to insufficient funds, but
to the poor policies of recipient countries.
The Disappointing
History of Development Assistance
There are 92 developing
countries that are in the 2006 edition of the Index of Economic
Freedom, co-published annually by The Heritage Foundation and
The Wall Street Journal, and for which per capita gross
domestic product (GDP) data from 1980 to 2004 are
available.
Of these, 32 averaged
zero or negative compound annual growth in real per capita
GDP.
Another 23 averaged
marginal compound annual growth between 0 and 1 percent.
And only 37 averaged
compound annual growth in real per capita GDP over 1 percent (China
and Equatorial Guinea averaged over 8 percent).
Despite hundreds of
billions of dollars in development assistance, individuals in
developing countries averaged a disappointing 0.94 percent in
compound annual growth in per capita GDP from 1980 to
2004.
Sub-Saharan Africa
performed even worse than this dismal average.
No other region of the
world is in more dire need of development than sub-Saharan Africa.
Sub-Saharan Africa's 719 million people face tremendous
challenges, including the world's highest incidence of
HIV/AIDS, deep poverty, unemployment, political instability, and a
host of related problems.[4] For instance, per capita food production
has fallen every year since 1962, and seven out of 10 Africans are
extremely poor or on the verge of extreme poverty.[5] The
total GDP in constant 2000 U.S. dollars for those 48 countries in
2004 was $385.6 billion (approximately the same GDP as Michigan or
New Jersey in a region nearly three times the size of the United
States in land area and population).[6]
Between 1980 and 2004,
the United States provided $37.7 billion (in 2003 dollars) in
development assistance to the 48 countries in sub-Saharan
Africa in an effort to address the region's problems and spur
economic growth.[7] All development assistance (bilateral and
multilateral) to sub-Saharan Africa from 1980 to 2004 totaled
$455.9 billion (in 2003 dollars), of which aid to the individual
countries totaled more than $435.3 billion (in 2003 dollars).[8] (See
Table 1.)
The aid investment in
sub-Saharan Africa has been enormous, particularly when the
relatively small sizes of the recipient countries' economies are
taken into account. On average, sub-Saharan Africa received
official development assistance equivalent to 6.3 percent of the
region's GDP annually for 24 years. (See Chart 1.) To put this in
perspective, if all of the aid spent over that period were gathered
together in today's dollars and simply handed out to the 719
million people of sub-Saharan Africa, per capita GDP would increase
by about $600- more than doubling the region's per capita
GDP.
Despite this
assistance, however, the region's economic growth has been
extremely erratic, as illustrated in Chart 1. What is clear from
the chart is that increased aid flows do not seem to be
associated with increased economic growth.
Table 1 provides
additional detail. There are 47 sub-Saharan African countries for
which real per capita GDP data are available for the period between
1980 and 2004. These 47 countries averaged compound growth in
per capita GDP from 1980 to 2004 of 0.33 percent.
Of these, 23
averaged zero or negative compound annual growth in per capita
GDP.
Another 9 averaged
marginal compound annual growth between 0 and 1 percent.
And only 15 averaged
compound annual growth in per capita GDP over 1 percent (Botswana
and Mauritius averaged over 4 percent, and Equatorial Guinea
averaged over 8 percent).
In other words, about
half the countries in sub-Saharan Africa experienced negative
growth in real per capita incomes despite hundreds of billions of
dollars in aid invested over the past two decades.[9] Instead of
desperately needed economic growth, sub-Saharan African as a region
saw a decline in per capita GDP from $575 in 1980 to $536 in 2004
(in 2000 dollars).[10]
What are the
implications for poor growth? To reach upper-middle-income status
(gross national income per capita of $3,256 or higher), the average
sub-Saharan African with an income of $536 would have to experience
real compound growth in per capita income of over 5 percent for
over 35 years.[11] To become as wealthy as the United
States, the average country in sub-Saharan Africa must grow at 5
percent per year for nearly 90 years. Quite simply, without high,
sustained levels of economic growth, sub-Saharan Africa will
not close the gap with the developed countries.
The poor growth record
undermines improvements in human development as well. World
Bank estimates indicate that sub-Saharan Africa will require annual
growth of 7 percent to halve severe poverty-one of the United
Nations' indicators for the Millennium Development Goals
(MDGs)-by 2015.[12]
Some have argued that
this lack of growth is due to a paucity of aid and call for a
"Marshall Plan" for Africa modeled after the effort to rebuild
post- World War II Europe. But an objective look at the Marshall
Plan reveals that, in constant dollars and in terms of aid to GDP,
sub-Saharan Africa has received a Marshall Plan several times
over.
As shown in Table 1,
the United Kingdom was the largest single recipient of Marshall
Plan assistance, receiving the equivalent of 20 percent of its
1950 GDP in assistance between 1946 and 1952 (in constant 1950
dollars).[13] The largest single annual disbursement in
1947 was equivalent to 11.5 percent of its GDP in 1950. In 2004, 23
countries in sub-Saharan Africa received more net
assistance in relation to GDP than the U.K. did in 1947 under
the Marshall Plan. Only Nigeria and South Africa have received less
net development assistance between 1980 and 2004 as a percent
of 2004 GDP than the U.K. did under the Marshall Plan.
With the support of
donors and private-sector innovations in medicine, science, and
agriculture, sub-Saharan Africa has experienced improvements in
literacy, school enrollment, infant mortality, and life expectancy
(although it has decreased since its 1990 high of 50 years to 46
years due to AIDS and the higher incidence of other diseases such
as malaria). However, in most cases, these improvements have
fallen short of advances elsewhere in the developing world because
poor economic growth erodes the resources governments and
individuals have to invest in improving these indicators.
While foreign assistance may be able to finance short-term
improvements, these achievements are transitory without
economic growth to sustain and improve upon them.
The Need for Economic
Freedom
While it is impossible
to say how sub-Saharan countries would have done without receiving
economic assistance, the record discussed above clearly
shows that large disbursements of development assistance did not
lead to the economic growth in sub-Saharan Africa that many aid
advocates envisioned. However, achieving high per capita
economic growth is possible even in low-income countries. This
fact is illustrated by successful development by countries in East
Asia. Per capita GDP in East Asia and the Pacific was lower than in
sub-Saharan Africa in 1960 but has since far eclipsed sub-Saharan
Africa.
How did this happen?
Economic studies indicate that sound economic policies, the rule of
law, and good governance are the key.
Over the past decade,
economic studies have concluded that economic freedom, good
governance, and the rule of law are key drivers in
promoting economic growth and reducing poverty. A 1997 World
Bank analysis of foreign aid found that, while assistance
positively affects growth in countries with good economic policies
(free markets, fiscal discipline, and the rule of law),
countries with poor economic policies did not experience
sustained economic growth regardless of the amount of foreign
assistance received.[14]
Other studies have
reached similar conclusions, maintaining that aid can increase
economic growth in certain circumstances.[15] These studies conclude
that aid may help the poor to cope temporarily with some of the
consequences of poverty but that countries beset by a weak rule of
law, corruption, heavy state intervention, and other policies that
retard growth will not experience increased economic growth
even with greater amounts of economic assistance. Subsequent
studies question whether aid could spur growth even in good policy
environments.[16]
Yet many advocates of
aid ignore this research and evidence. The U.N. Millennium Project,
commissioned by U.N. Secretary-General Kofi Annan in 2002 to
assess what is necessary to meet the MDGs, advocated "a big push of
basic investments between now and 2015 in public administration,
human capital (nutrition, health, education), and key
infrastructure (roads, electricity, ports, water and
sanitation, accessible land for affordable housing,
environmental management)."[17] Jeffrey Sachs,
special adviser to the U.N. Secretary-General on global
poverty, reaches similar conclusions in The End of Poverty,
which asserts that developed countries must transfer "about $100
[billion] to $180 billion per year for the period 2005 to 2015" to
meet the MDGs and that "Africa needs around $30 billion per year in
aid in order to escape from poverty."[18]
Several recent economic
studies, however, dismantle the arguments used by Sachs and
the U.N. for increased aid. Former World Bank economist William
Easterly specifically analyzed the evidence on whether increased
aid or investment can spur growth:
The classic
narrative-poor countries caught in poverty traps, out of which they
need a Big Push involving increased aid and investment, leading to
a takeoff in per capita income- has been very influential in
development economics. This was the original justification for
foreign aid…. Evidence to support the narrative is
scarce…. Takeoffs are rare in the data, most plausibly
limited to the Asian success stories. Even then, the takeoffs do
not seem strongly associated with aid or investment in the way the
standard Big Push narrative would imply.[19]
A 2005 study by two
economists at the International Monetary Fund (IMF)
corroborates this conclusion, finding that their research
yielded "no evidence that aid works better in better policy or
geographical environments, or that certain forms of aid work better
than others."[20] The same authors published a subsequent
study that concluded:
We examine one of the
most important and intriguing puzzles in economics: why it is so
hard to find a robust effect of aid on the long-term growth of poor
countries, even those with good policies…. We find that aid
inflows have systematic adverse effects on a country's
competitiveness, as reflected in a decline in the share of labor
intensive and tradable industries in the manufacturing sector. We
find evidence suggesting that these effects stem from the real
exchange rate overvaluation caused by aid inflows. By contrast,
private-to-private flows like remittances do not seem to create
these adverse effects….[21]
A Better Strategy for
Development. A World Bank study
found that increased integration into the world economy from the
late 1970s to the late 1990s led to higher growth in income. The
more integrated countries achieved 5 percent average annual growth
in per capita income during the 1990s.[22] In contrast, the
non-globalizing nations experienced average growth of only 1.4
percent during the 1990s, and many experienced negative growth
rates.
A related World Bank
study found that increased growth resulting from expanded trade
"leads to proportionate increases in incomes of the poor" and that
"globalization leads to faster growth and poverty reduction in poor
countries."[23] Easterly concurs in his 2005 study,
finding "support for democratic institutions and economic freedom
as determinants of growth that explain the occasions under which
poor countries grow more slowly than rich countries."[24]
Why would economic
freedom, globalization, and the rule of law contribute to economic
growth? Rigid labor policies, high regulation and bureaucratic
red tape, high official taxation, corruption, and trade barriers
are obstacles that create a drag on economic growth. The greater
the level of government intervention in the economy, the lower
the probability that individuals, investors, and businesses
will be able to prosper because costs on private economic
activity become higher. This leads talented people to leave the
country for more advantageous opportunities or to engage in
activities that do not contribute to GDP (such as
government service) and enrich themselves through rent seeking
and corruption. The practical result is that countries with
anti-market economic policies and bad governance are more likely to
be poor, to be isolated from the international economy, and to find
it more difficult to escape that poverty.[25]
The Heritage Foundation
has been analyzing the effect of economic freedom on development
for many years. Our work indicates that economic freedom and the
rule of law played a key role.
The central product of
this research is the Index of Economic Freedom, co-published
annually by The Heritage Foundation and The Wall Street
Journal. The Index analyzes 50 economic indicators in 10
independent factors: trade policy, fiscal burden of government,
government intervention in the economy, monetary policy,
capital flows and foreign investment, banking and finance, wages
and prices, property rights, regulation, and informal market
activity. Those 10 factors are graded from 1 to 5, with 1 being the
best score and 5 being the worst score. Those scores are then
averaged to give an overall score for economic freedom. Countries
are designated "free," "mostly free," "mostly unfree," and
"repressed" based on these overall scores.
This is not to say that
there is no role for government in development or that all
government intervention is counterproductive. On the contrary,
the Index defines economic freedom as "the absence of
government coercion or constraint on the production, distribution,
or consumption of goods and services beyond the extent necessary
for citizens to protect and maintain liberty itself." (Emphasis
in original.) Thus, the Index clearly recognizes that
without some government, economic growth and development is
impossible.
For instance, a
government can greatly facilitate economic growth by enforcing an
impartial and reliable rule of law. A rule of law with these
characteristics serves as the supporting structure of an
economy, without which it cannot operate efficiently. It
ensures entrepreneurs that (1) policies will have lasting power and
can be changed only through transparent, widely recognized
procedures, permitting an environment conducive to long-term
investment; (2) the rules will apply equally to all rather than
exempting some or being subject to change at the behest of the
powerful; and (3) they will have legal recourse if policies
unlawfully affect their activities, thereby reducing the risk
of investments.
On the other hand, an
arbitrary, overly onerous, or poorly enforced rule of law can prove
a very strong deterrent to growth by creating opportunities for
corruption or increasing the costs of complying with the law to the
point where economic activity is discouraged or leaves the formal
sector. In other words, governments must be cautious that efforts
to create and maintain a secure environment for economic
activity do not become excessive and thereby impede such activity.
The Index offers an objective means for weighing the
economic policies of a government in pursuit of this
goal.
One inescapable conclusion from this research is that
economically free countries are associated with higher
per capita incomes than countries with less free economies.
Chart 2 illustrates this relationship. As shown in Chart 3,
"free" countries on average have a per capita income (in
purchasing power parity) over twice that of "mostly free"
countries; "mostly free" countries have a per capita income
more than three times that of "mostly unfree" and "repressed"
countries.
Chart 4 ranks the
graded countries according to the improvement in economic freedom
between the 1997 Index and 2006 Index.[26]
Not only is a higher level of economic freedom clearly
associated with a higher level of per capita GDP, but GDP growth
rates increase as a country's economic freedom score improves.[27]
The countries represented in the left-hand bar were most improved,
and those in the right bar were the least improved. Average growth
rates across the 10 years of changes were then computed for the
countries in each bar or group. In general, the more countries
improved their economic freedom, the higher the average economic
growth they achieved. In other words, over the past decade,
countries that have most improved in terms of economic freedom have
enjoyed the most progress toward prosperity.
Table 2 lists the
sub-Saharan African countries graded by the Index along with
their current score and the net change in score since they were
first graded. Although average levels of economic freedom in
sub-Saharan Africa remain poor and the region remains the world's
least free economically, no other region has made greater strides
in economic freedom than sub-Saharan Africa. The median
economic freedom score for sub-Saharan Africa improved by 0.37
point from the 1997 Index-more than any other region-and the
improvement in the average score followed only North America and
Europe.[28] In the 2006 Index, economic
freedom in 25 sub-Saharan Africa countries improved, and it
declined in 12 countries. Regrettably, these gains have been from
relatively low levels of economic freedom undermining the
impact of these improvements.
As illustrated in Chart
5, "mostly free" economies in sub-Saharan Africa graded in the 2006
Index averaged a per capita GDP (in purchasing power parity)
over twice that of "mostly unfree" economies, which in turn
averaged a per capita GDP about $700 greater than "repressed"
economies.[29]
Similar to the trend
for all countries, Chart 6 illustrates that those sub-Saharan
African countries that improved their economic freedom score
experienced higher GDP growth rates. As with all countries,
African countries that improved the most saw the greatest
improvement in GDP growth rates. While short-term trends are always
suspect, increased growth rates in sub-Saharan Africa in
recent years may indicate returns on improved economic freedom.[30]
Botswana and
Mauritius are good examples of these trends. Both countries
achieved a compound average growth in per capita GDP from 1980 to
2004 of 4.62 percent and 4.29 percent, respectively. Not
surprisingly, these countries adopted economic freedom early
and reaped the rewards. Both nations have been rated "mostly free"
economies for most of the time that the Index has graded
them. Botswana is currently the freest economy in sub-Saharan
Africa, and Mauritius is sixth in the region.
Trade
Openness
Much attention has been
given to the need for developed countries to lower trade barriers
to developing country goods. Such attention is merited. A key
component of economic freedom is the freedom to trade. Increased
economic freedom in trade involves lower trade barriers in
developing and developed countries alike, leading to lower costs
and greater efficiency as entrepreneurs determine the activities in
which they have a global or regional comparative advantage. These
gains translate into increased economic growth and per capita
income.
Despite the claims of
many anti-globalization groups, the evidence indicates that
increased trade and globalization does not lead to a "race to the
bottom." On the contrary, global per capita GDP and global trade as
a percent of global GDP have been increasing in virtual lockstep
since 1960. (See Chart 7.)
But what about claims
that trade hurts workers? A World Bank study found that "In the
long run workers gain from integration [with the world
economy]. Wages have grown twice as fast in globalized
developing countries than in less globalized ones…."[31]
And the environmental damage caused by trade? "Despite widespread
fears," the study continued, "there is no evidence of a decline in
environmental standards. In fact, a recent study of air quality in
major industrial centers of the new globalizers found that it had
improved significantly in all of them."[32] Same story on poverty:
Globalization is good for the poor. A related World Bank study
found that increased growth resulting from expanded trade "leads to
proportionate increases in incomes of the poor" and that
"globalization leads to faster growth and poverty reduction in poor
countries."[33]
Quite simply, trade
liberalization brings far more benefits than costs and is a key
aspect of economic growth and development. However, the focus on
developing and developed country trade is only part of the
equation. The World Bank notes:
[I]n addition to facing
high barriers in [Organisation for Economic Co-operation and
Development] countries, developing countries impose high barriers
on trade with one another, and the incidence of these
intra-developing country trade restrictions is higher for poorer
countries- just as the incidence of OECD trade restrictions is
higher for poorer countries.[34]
Indeed, the U.S.
Department of State reports that "Seventy percent of tariffs paid
by developing countries go to other developing countries."[35]
This is particularly true for sub-Saharan Africa, which is one of
the world's most protectionist regions. According to Marian Tupy of
the Cato Institute, "nontariff protection in the poorest countries
of SSA [Sub-Saharan Africa] is four times greater than nontariff
protection in rich countries. Strikingly, trade liberalization
within SSA could increase intra-SSA trade by 54 percent and account
for over 36 percent of all the welfare gains that SSA stands to
receive as a result of global trade liberalization."[36]
To measure a country's
willingness to interact with the global economy, The Heritage
Foundation developed a Trade Openness Index from a subset of four
of the 10 factors used in the Index of Economic Freedom:
trade policy, capital flows and foreign investment, property
rights, and regulation. These four factors were deemed most
influential over decisions to engage in international
transactions.[37]
Not surprisingly, more
open economies on average have higher levels of trade as a
percentage of GDP. Analysis of the relationship between trade
openness and per capita GDP (in purchasing power parity) reveals
that "open" economies have an average per capita GDP nearly
twice that of "mostly open" economies, "mostly open" economies
have a per capita GDP more than three times that of "mostly closed"
economies on average, and "mostly closed" economies have
a per capita GDP nearly twice that of "closed"
economies.
Unfortunately,
sub-Saharan Africa as a region has missed out on the benefits of
trade. Trade as a percentage of GDP in sub-Saharan Africa has
increased only marginally since 1960. Taking the poor economic
growth of sub-Saharan countries over that period, this means
that trade has been largely stagnant for decades. As a result, the
region has fallen behind in international trade and has seen its
percentage of world trade dwindle to less than 2 percent of global
trade. While the region as a whole has done poorly in terms of
trade, individual nations in sub-Saharan Africa have
approached trade differently.
The relationship
between trade openness as measured by the Index of Economic
Freedom and higher per capita GDP (in purchasing power parity)
holds for sub-Saharan Africa. "Open" economies (Botswana is the
only one) in sub-Saharan Africa have a per capita GDP about one and
a quarter times that of "mostly open" economies. "Mostly open"
economies have a per capita GDP more than three times that of
"mostly closed" economies, which in turn have a per capita GDP a
bit less than twice that of "closed" economies.
Thus, developing
countries and developed countries alike need to reduce barriers to
trade in the Doha Round of World Trade Organization negotiations if
the benefits of trade to economic growth and development are to be
fully realized.
Lessons for
Development
Experience demonstrates
that simply providing assistance will not spur economic growth and
development. On the contrary, indiscriminant distribution of
assistance may actually hurt development prospects. According
to IREN Kenya, a Kenyan think tank:
The combination of
massive aid increases and uneven or ineffective policy
conditionality has ensured the sustainability of policies that
would have been disciplined by market forces. Aid has had a
powerful effect on state institutions in Africa, simultaneously
sustaining them and stripping them of decision
making-power…. Public aid has been used as a substitute for
private capital and has provided support to African governments to
survive the economic crisis while minimizing policy change….
[Government-to-government assistance has also] played a major role
in eroding political and economic entrepreneurship in Africa.[38]
The lessons from nearly
five decades of development efforts indicate that sub-Saharan
Africa needs policy change far more than increased aid. While there
may be a role for assistance and donor nations, the key to
development lies in the hands of governments in developing
countries. For development to occur, governments must remove
obstacles preventing their people from seizing opportunities to
benefit them, their families, and their communities. This is
best done by adopting the policies that bolster economic freedom,
good governance, and the rule of law-policies that are the key to
economic growth and development with or without foreign
assistance.
The fact that
development lies predominantly in the hands of developing country
governments does not mean that there is no role for developed
countries. Specific policy changes that can help
include:
Focusing assistance on
countries with good economic policies and institutions.
By focusing
on rewarding good performers, donor nations can help to encourage
policy reforms that are associated with increased economic growth
and development and reduce chances that aid will be squandered. An
example of this approach to aid is the United States'
Millennium Challenge Account (MCA).
The MCA makes
assistance available only to countries "that govern justly, invest
in their people and encourage economic freedom" as determined by
their performance on 16 specific indicators.[39] If a country
bests the average in at least half the indicators in these three
general categories, it becomes eligible to receive MCA grants.
Failure to meet that standard excludes the country from aid
consideration for that year.[40]
This provides
incentives for reform among candidate countries. For instance,
one of the economic indicators used by the MCA to determine
eligibility is the number of days it takes to open a business.
According to the World Bank, which is the source for this
indicator, establishing a business in sub-Saharan Africa took
74 days on average in 2004 (the MCA's first year). In 2006,
the average had fallen to 63 days and, out of the 31 countries
measured in both 2004 and 2006, 17 countries reduced the number of
days required versus only five that increased the number of days
required.[41] Moreover, six countries not measured in
Doing Business in 2004 provided the World Bank the data
necessary to conduct their measurement in the 2006 edition. Thus,
the opportunity to receive MCA grants is both providing an
incentive for countries to improve their business environment and
encouraging transparency.
Differentiating among
potential recipients and denying aid to countries that fail to
demonstrate a commitment to good policies and awarding it
based solely on objectively measured, pre-existing policies
has potential for improving the effectiveness of foreign
assistance, which has long been hindered by the failure of aid
recipients to adopt policy change to remove obstacles to economic
growth.[42]
Reducing trade barriers
and subsidies. While developed
countries generally maintain relatively low average trade barriers,
their highest trade barriers tend to apply to the goods that
developing countries export, such as textiles and agricultural
products. They also tend to provide subsidies disproportionately on
goods that compete with developing country products, particularly
agricultural products.
The World Bank and
Oxfam estimate that trade barriers erected by developed countries
cost developing countries $100 billion a year-roughly twice the
amount they receive in official development assistance.[43]
Non-tariff barriers that distort trade also pose
significant problems. For instance, agricultural subsidies
encourage production and put downward pressure on agricultural
prices, which makes it difficult for developing countries to
compete. Michael Moore, former Director-General of the World
Trade Organization, estimated that removing all tariff and
non-tariff barriers "could result in gains for developing countries
in the order of $182 billion in the services sector, $162 billion
in manufactures and $32 billion in agriculture."[44]
The U.S. has partially
addressed these trade distortions through the African Growth
and Opportunity Act, which provides duty-free access to nearly all
(in 2004 over 98 percent of imports from AGOA countries entered the
U.S. duty free) goods exported from African countries through
2015-provided they have established or are making progress
toward market-based economies, enhanced rule of law,
representative governance, lower barriers to U.S. trade and
investment, improved human rights, and other goals.[45]
AGOA contributed immediately to a strong increase in two-way
trade between the U.S. and sub-Saharan Africa from $19.6 billion
1999 to $29.4 billion in 2000, including a 67 percent increase in
African exports to the U.S.[46] U.S. merchandise imports
from AGOA-eligible countries continued to increase by 88 percent to
$26 billion from 2003 to 2004. Much of this increase is due to
higher oil prices, but even non-oil imports increased 22 percent
over 2003.[47] Two-way trade in goods between the U.S.
and sub-Saharan Africa increased 37 percent from 2003 to 2004 to
$44.4 billion.[48] The European Union has also partially
opened its market through its "Everything But Arms"
initiative.
However, full
realization of the benefits of free trade for development requires
a broad-based multilateral effort to remove tariff and
non-tariff barriers among developed and developing countries
alike. Successful negotiation of the Doha Round, including
eliminating applied tariffs, reducing non-tariff barriers by half,
and eliminating agricultural production and export subsidies, could
result in substantial gains for developing countries. Indeed,
according to the World Bank:
Deep trade reform could
generate large global gains. Freeing all merchandise trade and
abolishing all trade-distorting agriculture subsidies would boost
global welfare by $80-280 billion a year by 2015….
[R]esearch suggests that developing countries would obtain about
one-third of the global gain from freeing all merchandise trade,
well above their one-fifth share of global GDP.[49]
But the World Bank also
cautions that improvements from trade liberalization are
"conditional on further liberalization by developing
countries."[50] Trade liberalization needs to be adopted
in conjunction with other policies linked to improved economic
growth.
Conclusion
Foreign assistance
alone cannot increase economic growth and development.
Achieving these objectives requires the political will to implement
policy change to expand opportunities and remove barriers to
growth. Developed countries can assist development by encouraging
good policy and opening their markets to developing country
products, but success in development ultimately depends on
developing countries' adopting and implementing policies that
promote economic freedom, good governance, and the rule of law.
Only then will developing countries be on the path to economic
development.
Brett D.
Schaefer is Jay Kingham Fellow in International
Regulatory Affairs in the Margaret Thatcher Center for Freedom, a
division of the Kathryn and Shelby Cullom Davis Institute for
International Studies, at The Heritage Foundation. Anthony Kim, a
Research Associate in the Center for International Trade and
Economics, also contributed to the research for this paper, which
was presented at the Third Africa Resource Bank (ARB) meeting
hosted by the Inter Region Economic Network (IREN Kenya) and held
in Kenya on November 27-30, 2005. The November presentation
has been updated to incorporate more recent aid and economic growth
data and country scores from the 2006 Index of Economic
Freedom.