Class 15

- Democracy- final thoughts

- Economic trajectories
o Some basic facts
o Explanations

 Constraints
o Elections are less likely to produce turnover/alternation in Sub Saharan Africa relative to the rest
of the world
o How presidents leave power- fundamental transformation in the wake in the movement towards
democracy. Used to be coups/violent overthrows and is now natural death, voluntary resignation,
or losing elections.
o However unique Africa may have been, it is now starting to look like other countries in the world-
Posner and Young (2007)
o Presidential term limits in Africa tree, 1990-2005. How term limits have ended
o Reason to believe that constitutions are starting to matter more, beyond the success of presidential
turnover in elections.
 Leadership discretion- rates if leader is constrained by other branches of government.
Africa is steadily rising.
 Big jump from 1990 to 2000. Gap is closing in more present years
o Road building in Kenya- single party system- patterns of ethnic favoritism is stronger; multiparty-
co-ethnic benefits are not as strong
 In sum…
o Much has changed, much has not
o Even imperfect democracy matters
o Variation
 For leading countries, challenge now moves to slower phase of reform
 For laggards, challenge is still initial opening (ex. meaningful elections)
 Economic trajectories
o Agricultural sector- consistent pattern across different types of regimes in different areas that
imposed a tax on agriculture to pay for industry.
o Structural adjustment- meant to be temporary but has lasted, does not work.
o Mean GDP per capita has gone up. A lot of it has to do with massive increase in value of oil.
1980s- Lost decade- period of disadvantages that led to hurt economy
o industrial development (SSA)- flat line, despite efforts towards industrial development. What is
missing is transformation from agrarian to industrial
o Ghana vs. South Korea- started off in around the same GDP in 1960s (agrarian economies), drastic
differences moving forward. GDP in S. K. increased drastically, whereas Ghana has only
increased very little.
o Why?
 Bad leaders
 Bad policy
 Inconsistent investment in industrial sector
 Bad luck
 Challenging environmental factors
 Unfortunate trade conditions- oil crisis for everyone except exporters, hurt
African importers
 Bad timing
 Other parts industrialized/developed first. Late developers faced some unique
challenges by virtue of that. There were already basic goods, etc. being
produced. Late developers must find a way to compete w early industrializers

Class 16
- Bates (1981): The political economy of public policy
o Agriculture
 o Industry
o Political explanations
o Effects
- Thoughts:
o Restrictions on imports abroad would help internal investments
o Tone attempts to not judge but it is one of criticism towards pathological decisions of bad policy
that hurt Africa.

Agricultural policies
 Consistent set of policies that made agriculture and life difficult for small scale farmers, they tried to escape
or focused on crops that weren’t as disadvantageous.
 Keeping prices low through marketing boards
 Subsidizing inputs (fertilizers, etc)
 Export crops
o Goal: to keep prices low though marketing boards
 Revenue imperative (necessity for tax revenue, easy to tax agriculture)
 Pay for industrialization (using revenue from countryside)
 Forex (foreign exchange- agricultural surplus)
 Inputs to local processors (moving from just growing food to processing it bc you get
more value from it, keeping inputs/raw materials cheap helps this industry)
 Bloated bureaucracy (in charge of purchasing, processing crops- the share of value that
goes to government agencies is very large)
 Food crops
o Goal: keep prices low for urban consumers
 Overvalued exchange rates (cost of foreign currency in your country, overvaluing means
that the officially fixed exchange rate is higher than the market conditions would allow--
make imports cheaper, makes it harder for domestic producers to compete)
 Marketing boards for foodstuffs
 Why not raise wages instead? (private employers have an interest in maintaining a cheap
cost of production, also the state- keep cheap labor force available)
 Farm inputs
o Goal: increase food production to reduce imports
 Inputs: land, capital, equipment, fertilizer, seeds
 Strategy: promote large scale farms
 Why: clientelism (large scale farmers were maybe more important and could mobilize
against the state)
 Why not raise prices for all producers instead? (if everyone was being paid at a higher
rate, there wouldn’t be a clientelist logic)
 Problem in this is overvalued exchange rates making imports cheaper- trade deficits
Industrial Policies
 Industry
o Goal: foster nascent industry
 Strategy: import substitution industrialization
 Shelter first from external competition
 Tariffs (domestic producers can charge more bc they’re safe)
 Quotas for imports (licensing for imports and foreign exchange)
 Shelter from internal competition
 Rationale: economies of scale (encourage large domestic corporations and keep
the number of them relatively small- less competition, low drive for efficiency
and low prices)
 How: licensing and parastatals
 Consequences: higher prices and lower efficiency
Political Explanations
 What’s the political logic?
 o Gatekeeper states and clientelism: appease powerful interests (policy and intervention was an easy
way to benefit state and clientelism and receive interests quickly.)
o Why don’t peasants rise up?
 Avoidance strategies: grow other stuff, smuggle goods, migrate
 Collective action challenges (many small scale farmers, many large scale famers—easier
to benefit the few.)
 Rural demobilization
 Selective incentives to rural notables
Effects
 Interventionist state
 Disincentives to invest in agriculture
 Inefficient industry
 Overvalued exchange rates and chronic trade deficits
Example: Ghana
 Ghana Cocoa Board
 Steady decline of cocoa production until the 1985s and then steady increase. Farmers are exiting cocoa
production as prices decrease. Increase has brought production back up.

Class 17- May 9

- Bates (1981) final thoughts
- Crisis and reform
o The debt crisis
o Structural adjustment programs
o Recent “growth” in emerging countries

Bates (1981) final thoughts

 Is it all about policy choices?
o No:
 Challenging international environment
 Some really bad leaders
 Some difficult structural conditions
 Prevailing paradigm
o But policy explains variation between countries and over time
 Ivory coast vs. Ghana; Kenya vs. Tanzania; Botswana
 Growth since 1990s in emerging countries
 Crisis: 1970s
o Spike in oil prices
o Coalition headed by Syria and Egypt were defeated. Oil producing states in middle east imposed
embargos on the west.
o War w Iran and Iraq caused the prices to spike again
o Trade deficits- it’s hard to just import less bc we rely on it so much.
o Budget deficits- strains on government budget
o Responses: import controls, foreign borrowing – expand and impose new restrictions as much as
possible, borrowing from aboard, well runs out in mid 80s when debt level becomes unsustainable.
o Results: debt & default
 Enter the IFI’s
o Created in the aftermath of world war 2—IMF and World Bank
 World Bank was created to reconstruct Europe/world after WW2- helps assist
development at international level
 Bank of last resort, when countries can get money anywhere else. Used for balance of
payments, crisis, and- imports cannot meet amount you’re ending. Has the power to
choose what countries can access foreign capital- caused a lot of resentment.
o Structural adjustment reforms
 Book- very critical opinion of structural adjustment.
  Goa: Lower import tariffs deregulation of agriculture
 Return to normal foreign exchange rates.
 Reduce what government expenditures looks like
(come back and look this part up again)
 Did SAPs work?
o Criticisms—Nugent (2004)
 Austerity
 De-industrialization
 Not a long-term growth strategy
 “structural adjustment failed to unlock the development potential of the continent… at the
start of the new millennium, the depressing reality was that africa’s position within the
global economy seemed destined to…”
 primary enrollment in Kenya. Primary school age is 6-13. Gross enrollment rate (sometimes goes over 1 if
kids below or above primary enrollment age are also in primary school), but these rates spiked in early 80s-
went down in mid 80s until 2000 when fees were imposed bc Africa was told it could not afford free
education.
 Did SAPs work? Looking at number of adjustment loans between 1980 and 1999 and time in IMF
programs, and per capita growth rates. Some had negative growth rates. Claim that if SAPs work, then we
should see positive per capita growth. Argument that perhaps countries that started off worse and have
gotten better maybe matters more.
 Industry, value added (% GDP)- shows possible negative development.
 Hesitant to draw conclusions from data bc it’s not necessarily evidence of deindustrialization. It could be
switch towards agriculture and away from industry which does not mean deindustrialization.
 BUT: Reform and Growth (emerging Africa- ratalay)—looking ahead from the criticism. Era of structural
adjustment has passed.
o Key point of book- since about mid-90s- there has been substantial growth, but is has been
obscured if you look at it generally. Emerging countries have sustained annual growth rates of 2%
since the mid 90s. Oil exporters have been growing at slower rates. And other countries are the
ones that have negative/zero growth.
o Big point is divergence- it doesn’t make sense to contrast continent wide traits (bates), bc paths are
diverging.

Class 18- May 11

Reform and growth
- Recent growth in “emerging” countries
- Changing paradigms
- Midterms

The Power of Policy – reforms in emerging Africa

 Idea that policy is at the root of change in trajectories
 Cumulative effects of growth (1-4% per year has very significant differences over time).
 Divergences in policies and performances (are mirroring each other)
o Plot of agricultural production (in quantity being produced) shows divergence in emerging
(grower) countries and other countries.
o Investment has soared in emerging countries v other countries—not just using existing resources
more effectively but there’s money that is flowing in
o Ghana one of the first early reformers in the 1980s
o Trade has tripled in emerging countries—perhaps bc of structural adjustment (effects took a while)
 Policy reforms
o Overvalued exchange rates in the 70s
o Exchange rate movements-- Looking at Kenya- steps by which the government devalued the
currency and dollars became more expensive in Kenya. Causes people to not be able to afford US
products bc imports are more expensive. Controversial- electronics that are good are more
expensive, food is more expensive if it’s not being produced in the country. But also Kenya is
 food self sufficient and it helped not import high commodity items. Domestic inflation in Kenya
that makes their money less valuable too
o Agricultural policies are much more favorable- shows nominal rate of assistance in agriculture
(cumulative effect of all the things government is doing in agriculture—sums up the policies to see
if they’re good or bad. Shows that emerging countries are now trying to benefit agriculture more.
o Ghana cocoa board: 1984/1992 reforms: part of structural adjustment that Ghana went through
 Staff reduced by 90%-- (bloated bureaucracy is reduced, more cost effective_
 Private sector role in purchase, transport, inputs (reforms allowed this not the cocoa
board agents, but now 6 private companies and compete w each other- more efficient and
more value of cocoa would go to farmers-)
 Price floor established by commission- currently at about 70% of market value (high and
help farmers/producers and encourages growing more cocoa)- government is paying
farmers to take out old trees and encouraging them to plant hybrid trees, insecticide
 Cocoa production has gone up.
o Malawi fertilizer subsidy
 Introduced in 2005 after drought- preceded by really bad harvest years
 Provides seeds and fertilizer to small farmers- fertilizer subsidy program, targeted
explicitly towards people on the lower end of the income scale.
 Newspaper clipping- president is elected to continue this subsidy program. She lost,
opposition confirmed that they would abolish subsidy and they would promote universal
fertilizer subsidy. Political benefits of this type of policy 6% voted if they got subsidy in
comparison to same income bracket that didn’t.
 Alternative explanations? ratalay
o Commodity prices- luck
 not true, proof- oil prices are high again, in early 90s it made sense. Countries that are
growing are doing it in spite of the difficult world conditions from the oil crisis. Leaving
aside oil producers, what differentiates the better performers from others—policy
 maybe cocoa prices are high which benefits the country that produces that commodity—
no, terms of trade are worse now (export price v import price). Only oil exporters are
benefitting.
o Foreign aid
 A lot of aid in 90s, dropped in 2000, and has now stabilized- inconsistent. We would
expect the aid level to be higher now and since it is not, then cant be foreign aid.
 Political incentives and policy reform (bates and block 2013)
o Track divergences between countries that have become more democratic and those that have
remained less democratic.
o Ratalay- political and economic reforms move together- causal relationship is unclear. Implication
that democracy is good for economic reform.

 Colonial legacy- countries that emerged from colonialism w greater set of challenges faced a crisis and
were later more inclined to reform--- might not be consistently true. Ex. Ghana came out well, reformed
heavily. Post independence leaders choices had an effect on this. Trade relations primary crops and oils
(colonialism)- fit needs of their economies. Main reformers did not stop there though
 Foreign aid- conditional or not- humanitarian, social service provision (education and health) go towards
need, other types of aid care more on what political systems it’s going towards. Democracy more aid?

 Botswana- has been sustaining growth since the mid 60s- unlike ratalay’s 16. Landlocked, desert, low pop
density, no natural advantages. Has diamonds! Least corruption in Botswana from all Africa, very much an
outlier.