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Sach 2003- Institutions matter, but not for everything. Finance and Development

What nouns would you use with these adjectives? Provide examples.

tuan nguyen12

on 26 February 2014

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Transcript of Sach 2003- Institutions matter, but not for everything. Finance and Development

The role of geography and resource endowments in
development shouldn’t be underestimated
Institutions Matter, but Not for Everything
2. Geography also matters
The problem in sub-Saharan Africa and central Asia
+ Adam Smith:
Geographic isolation => high transport costs => international trade disadvantages => small internal markets => inefficient labor division => poverty
+ Diseases hinder foreign investment, international trade, migration, tourism

+ Skilled workers tend to emigrate to other countries => brain drain
+ Skilled workers move to other regions in the country => massive labor shift
Example: China

3. Both institutions and geography matter
Unfavorable geography doesn’t mean the end of an economy
+ Not all malarial, isolated regions are condemned to poverty
+ They need special help from the outside world
4. Helping the poorest regions. A conclusion
- Poverty traps are real
- Millennium Development Goal: a starting point for the international community
reducing poverty rate by a half and child mortality rate by two-thirds
- The industry world promised to increase debt relief and official development assisance
- Both institutions and resource endowments are critical

1. Institutions matter
The role of institutions in economic development has been over-simplified
+ To improve economy is to improve institution
+ Many other aspects are being left out (resource constraints, physical geography, economic policies…)

Why rich countries tend to assume this
+ To attribute their high income levels to superior institutions
+ To avoid their financial responsibility for the poor since development failures are due to institutional failures

Institutions matter, but not exclusively
+ Fighting diseases, restoring soil nutrients, building roads, etc are more important in very poor countries
+ They need direct assistance from more-developed countries
+ Good institutions also make such assistance more effective

- In 20 years of globalization, developing countries are divided into 3 categories
+ Countries with good geography and good institutions
Example: Korea, Taiwan, Hong Kong, Singapore, Thailand, Malaysia, Indonesia
+ Countries with good geography and bad institutions
Example: central Europe
+ Countries with bad geography and bad institutions
Example: sub-Saharan Africa, central Asia, Andean region, central America

3 short-term alternatives for isolated regions
+ Continued poverty
+ Migration of population from the interior to the coast
+ Sufficient foreign assistance
A longer-term strategy
+ Regional integration: breaking political barrier, strengthening cooperation between countries in a region to expand the size of the market
+ Hard to established due to political realities
Full transcript