Eric D. Werker

15 Results

 

The Curse of Double-Digit Growth

Liberia wants fast growth in order to solidify its social and political advances. Problem is, says Eric D. Werker, countries growing that quickly "are not unequivocally a club that one should strive to join." Closed for comment; 1 Comment posted.

Learning from Double-Digit Growth Experiences

Double-digit growth in real GDP is defined as a compound annual growth rate of 10 percent or more over a period of eight years or longer. This paper was written as a policy memorandum for the Government of Liberia, which seeks rapid growth in order to reach middle-income status by 2030. For Liberia, current IMF forecasts predict growth in real GDP on the order of 6 to 7 percent per year. The comparative analysis of this paper asks: In what ways do countries growing real GDP at double-digit rates differ from countries growing real GDP at rates of 6-7 percent? Overall, the findings suggest that Liberia is reasonably well positioned to become another country with double-digit growth. Yet as the analysis shows, countries that have attained double-digit growth are not unequivocally a group that one should strive to join. The ultra-rapid growers whose growth has been driven by resources, aid, or remittances have not generally conducted the sorts of reforms to the legal, regulatory, and governance environment that could have generated high growth without such unearned income. They have also not generally invested their rents well in infrastructure or human capital. Moreover, post-conflict double-digit growers have found it difficult to reform or invest well. Read More

Detroit Files for Bankruptcy: HBS Faculty Weigh In

After a long period of economic decline, the city of Detroit filed for bankruptcy protection last week. John Macomber, Robert Pozen, Eric Werker, and Benjamin Kennedy offer their views on some down-the-road scenarios. Closed for comment; 22 Comments posted.

Developing the Guts of a GUT (Grand Unified Theory): Elite Commitment and Inclusive Growth

Why do some countries successfully initiate episodes of rapid growth while others suffer extended stagnation? Furthermore, why are some countries able to sustain growth episodes over many decades of rapid or steady growth, while other growth episodes end in reversion to stagnation or collapse? This paper represents an initial step in a research agenda aiming to build a unified theory of growth that considers the complex dynamics and varied roles of elites. The analytical model suggested here is capable of generating both transitory and sustained episodes of accelerated growth. As Pritchett and Werker argue, progress on a unified theory of growth would explain, better than current long-run growth theories, the onset of growth episodes. It would also examine how the dynamics of growth interact with existing political and institutional configurations to produce feedback effects on policy and institutions such that some growth episodes end in bust or stagnation while others are continued. Read More

The Political Economy of Bilateral Foreign Aid

Foreign aid has always been political, a fact long noted by diplomats, journalists, and scholars. But then, political forces are behind why aid was developed in the first place and why it continues to survive, even as much of this aid has as its goal to promote economic development or poverty reduction. From a developmental standpoint the political economy of aid allocation and receipt can interfere with its optimal distribution. Aid policymakers, who want to maximize the developmental impact of foreign assistance, have devised a number of ways to attempt to subvert the political forces at work. This paper, a chapter in a forthcoming book, explores the distortions present in aid allocation and spending, and the development community's efforts to depoliticize such allocation and spending. As it turns out, none of their solutions can shield foreign aid from the heavy hand of politics. Read More

Unobserved State Fragility and the Political Transfer Problem

This paper describes how the dynamics of unobserved state fragility may generate negative consequences for other countries. Ahmed and Werker argue for the theoretical possibility that autocrats experiencing a windfall in unearned income may find it optimal to donate some of the windfall away in order to make the state less attractive a prize to a potential insurgent. Additionally, recipients of the aid may themselves become more repressive with high aid and fall into conflict with lower levels of aid. These joint phenomena make up what the authors term the political transfer problem. The largest windfall in unearned income of the 20th century, the period from 1973-85 during which oil prices were at all-time highs, produced political dynamics consistent with this model. Read More

Misgovernance at the World Bank

Board members may be inclined to advance their own interests at voting time. This appears true for the World Bank's Board of Executive Directors, too. The problem? Many countries are being shut out of development funding. New research by Harvard Law School student Ashwin Kaja and HBS professor Eric Werker tells why misgovernance at the World Bank should be corrected. Read More

Corporate Misgovernance at the World Bank

This paper examines the politics of corporate governance at the world's largest appropriations committee, the World Bank's Board of Executive Directors, and exposes a weakness in the design of the World Bank's decision-making structure. Any large public organization faces a challenge of representation and management. Since all decisions cannot be made by all members, founders often grant a more nimble body with decision-making powers. But representatives on the decision-making body may face a temptation to govern in the interests of their own wallet or narrow constituency rather than in the interests of the larger body. In 2008, the Bank's two primary component institutions—the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)—committed nearly $25 billion in loans and grants through some 300 development projects around the globe. Where did it go? By exploring the political dynamics and corporate governance of an international appropriations committee, we not only learn about international organizations but also the nature of the international system itself. Read More

Do Voters Appreciate Responsive Governments? Evidence from Indian Disaster Relief

In a functioning democracy, politicians' ability to win reelection declines when they perform poorly. This idea fits well with models of political accountability. Recent evidence suggests, however, that voters may punish politicians even for events outside their control. This behavior may violate standard models of democratic accountability, and has been advanced as evidence of voter irrationality. This paper uses detailed weather, electoral, and relief data to identify the relationship between government responsiveness to an emergency and electoral decisions. Specifically, the authors look at the decisions that Indian voters made in provincial elections, using the intensity of the monsoon rains as an exogenous shock to welfare. They find that voters, on average, punish incumbent politicians for being in office during weather events beyond their control. However, the degree of voter punishment is reduced somewhat when the government responds more vigorously to the crisis. Read More

What Do Non-Governmental Organizations Do?

Non-governmental organizations play an increasingly important role in international development. They serve as a funnel for development funds both from individual donors in wealthy countries and from bilateral aid agencies. At the same time, NGOs are frequently idealized as organizations committed to "doing good" while setting aside profit or politics—a romantic view that is too starry-eyed. Development-oriented NGOs, which have existed for centuries, have played a growing role in development since the end of World War II; there are currently 20,000 international NGOs. This paper argues that the strengths of NGOs and their weaknesses easily fit into economists' conceptualization of not-for-profit contractors. Read More

The Political Economy of “Natural” Disasters

With the onset of global warming, it is likely that the incidence of natural shocks will only increase in the years ahead. In addition, rising inequality between rich and poor countries combined with a commitment on the part of developed countries to increase foreign aid disbursements indicates that international relief in natural disasters will grow. Disaster relief is one of the most basic and important transfers of wealth between developed and developing countries. This paper argues that the relief enters and affects a highly political situation. It also argues that the political economy of natural disasters is understandable and predictable, and may be mitigated. Read More

Company Town: Fixing Corrupt Governments

Too many democracies are ruled by corrupt leaders, says HBS professor Eric Werker. So how about letting good corporate citizens run for elected office in Third World regions? Read More

How is Foreign Aid Spent? Evidence from a Compelling Natural Experiment

Foreign aid is viewed as a transfer of resources that can be used to generate meaningful growth in the recipient country's economy. How this aid is ultimately spent, therefore, determines how effective it is in achieving its purposes. Yet economists to date possess little understanding of how foreign aid trickles through a country's economy. This paper examines a foreign aid windfall that poorer Muslim countries have systematically received from rich, oil-producing Arab states. When the price of oil skyrocketed during the 1973-1986 oil crisis (and again after 2001), OPEC nations took a substantial portion of the money they received and gave it away as foreign aid, mostly to Muslim nations. When the price of oil crashed and income plunged in the oil-producing countries, the aid dried up. Werker, Ahmed, and Cohen examined the short-term effect of foreign aid on aggregate demand, the components of gross domestic product, and the balance of payments. Read More

How South Africa Challenges Our Thinking on FDI

After the fall of apartheid, South Africa accepted the standard prescription for countries to receive more foreign direct investment. Yet FDI has been a mere trickle. Why? The answer may reside in the country's strong corporate environment, says HBS professor Eric D. Werker. Read More

Male Circumcision and AIDS: The Macroeconomic Impact of a Health Crisis

The AIDS epidemic is a humanitarian disaster that has struck sub-Saharan Africa with particular severity, but its macroeconomic impact is much less certain. Though conflicting theories abound, empirically-based studies on the link between HIV prevalence rates and economic growth have shown no consensus. Given the significant medical evidence that male circumcision can reduce the risk of contracting HIV in Africa, tribal circumcision practices provide an "experimental" setting to test the impact of the AIDS epidemic on the overall economy. Read More