Category: Developing Countries

According to Van den Cate, the world no longer consists of closed national economies. Accordingly, all countries have opened their borders to international trade. For that reason, the idea of a borderless economy is now real (Van den Cate). Additionally, the need to open economies to foreign investments has resulted into internationalization.

Consequently, developing countries’ local industries are now fully liberalized (Van den Cate). However, local companies now face competitive pressure from domestic and foreign rivals.

Therefore, for the less developed countries, international trade is an opportunity as well as a threat. Accordingly, internationalization can either expand or restrain the possibilities of a developing country. This essay discuses the impact of internationalization on developing countries.

According to Banerjee and Nikolaos, internationalization has led to the development of local firms in developing countries. As these firms exploit new markets elsewhere, they expand and grow. This growth leads to developing countries’ economic growth.

Consequently, firms accrue benefits from economies of scale. Additionally, firms from developing countries are able to spread their risks when they enter an international market. Furthermore, internationalization has also brought new skills to developing countries (Banerjee and Nikolaos). These skills are within the workforce that comes with foreign investment or trainings offered to the locals.

Moreover, through internationalization, a developing country increases its possibilities of accessing new technologies and ideas. In addition, these countries are also able to promote their brands to new audiences (Banerjee and Nikolaos). For that reason, their companies and brands gain regional or worldwide recognition.

However, most developing countries believe that internationalization give them a raw deal. For instance, most of the developing countries rely on few goods as their main exports. On the other hand, their counterparts from the developed countries have multiple goods on their export list. For that reason, a developing country accrues less benefit from exports than a developed county.

Additionally, developing countries cannot control prices of their goods and services in the international market. Prices of goods in the international markets are controlled by major economic powerhouse. For instance, the dollar determines the pricing of imports and exports in most instances. Consequently, the economies of developing countries are at the mercy of the dollar.

Furthermore, since developing countries’ economies are not based on manufacturing, they import manufactured goods from developed countries (MissNikki). However, prices of the manufactured goods increase all the time. As a result, the economies of these countries are stretched due to overspending on these goods.

Moreover, trade barriers stand on the way of developing countries that try to export manufactured goods (MissNikki). Quotas and tariffs are some of these barriers. Quotas limit the amount of a good produced by these countries. This clearly indicates that all decisions relating to international trade are made by the developed world.

From a developing country point of view, internationalization has serious flaws. For that reason, there are trade problems between developed and developing countries. Moreover, these problems are preventing developing countries from getting the most out of the international trade. The main problems include trade barriers, imbalances in exports and imports and pricing of goods and services.

Nonetheless, internationalization provides new opportunities to a developing country. These opportunities include access to new markets, skills, technologies and information. Therefore, if exploited well, these opportunities can increase a developing country’s gains from the international market.

Works Cited

Banerjee, Diptesh and Nikolaos. 2010. Internationalization Process in Developed and Developing Countries. Web.

MissNikki. 2010. Trade Issues between Developed and Developing Nations. Web.

Van den Cate, Roel. “The Impact of International Trade on Less Developed Countries”. Business Intelligence Journal 2.1 (2009). Print.

Executive Summary

The country of Syria “is an Asian country located on the eastern coast of the Mediterranean Sea, bordering Turkey to the north, Iraq to the east, Jordan and Palestine to the south, the Mediterranean Sea and Lebanon to the west (Benn 2010 p. 138). Some people like to refer to it as the Euphrates, famous from industrialization and civilization of Mesopotamia.

Syria is in the headlines currently for all the wrong reasons one may say. These reasons are based on the riots to demonstrate about the politics of the country and the struggle for ‘democracy’. Devlin indicates that, “The People and Their Culture Syria is a Muslim society, that is to say, six out of seven Syrians identify themselves as Muslims” (1983 p. 25).

And the “Syrians still resent the loss of so many lands and peoples formerly associated with their country. Syria’s people are mostly Arabs, and the major religion is Islam, although there are other ethnic and religious minorities” (Morrison and Woog, 2008 p. 16).

Once a revolution is experienced in a state, there may be many reasons for that to happen. One may be able to emancipate people from political tyranny or poor state of the country. Whichever the reasons are, this paper examines why Syria is classified as a developing country.

The World Bank definition of developing countries includes all low income and middle income countries (except economies with a population of less than 30000), including countries in transition (Ross and Harmsen, 2001 p.4). The question then should be, is Syria a developing economy country or is it developed? The paper tries to examine the situation in the country focusing mainly on the status of its economy and why the country is a developing country.

Statement of the Problem

In the recent past, Syria has hit the headlines because of its security situation. The security situation became worse because of the uprising popularly known as the Arab uprising which hit countries like Libya, Morocco, Egypt and now Syria which are Arab countries. It is rare for the masses to rise against their governments in protest.

Uprising usually comes in when people realise they are being oppressed or have been made political slaves of a given family lineage. The situation in the Arab countries has been associated with long serving heads of state. With the world economy dwindling and food prices escalating, the masses have experienced inflation in their houses. Generally, people are facing extreme conditions and the gap between the rich and the poor is widening which may make people to revolt.

Considering the situation in Syria, what would be the state of the economy of Syria? Developing, underdeveloped and developed countries are the terms used to explain the economic status of a country. The characteristics which are common to these countries are specified by the definition itself. Poverty, income and accumulated capital backwardness in technique by the standards of North America, Western Europe and Australia.

But even with respect of these characteristics, there are big differences between the under developed countries and the rich under developed countries and is close to the poorest advanced country (Perthes, 2004 p.4). The state of the economy of one country as compared to the other determines whether it will trade competitively. The economic growth of a country as well depends mainly on the policies and legislation that encourages business activities while protecting the consumer.

The work of the Central Bank to control the flow of money and curbing of money crimes is also very important. With this information, the basis of this study is set and the main point is to analyse and conclude that Syria is a developing country. It will also be important to analyse the actual state of the economy of Syria. In summative phrase, the main theme is to prove that Syria is considered a developing country.

Objectives

The main objective of this report is to explain why Syria is a developing country. To achieve this objective, it would be subdivided to more discrete objectives that can be quantified as follows:

1. To find out the indicators of underdevelopment
2. To find out the remedies put in place by the government in improving the state of the economy in Syria
3. To find out the problems preventing the moving out of underdevelopment in Syria and why are the remedies are not being effected effectively
4. What is the political will in the improvement of the economic status
5. What are factors contributing mainly to the state of the economy in Syria

As this report tries to sum up the objectives above, it is proper to state that in Syria, “a state agricultural policy also becomes more essential, now that the obstacles to expansion of the cultivated area have been removed by mechanization and water control it is time to think of better farming” (Taheri 2002 p. 22). Perhaps these statements that may have been made years ago would have made sense now that the economy is far from a developed country’s economy.

Ethical Considerations on the Report

The work reported in this work is purely based on the available information from academic and credible internet sources. The report is a collection of information trying to analyse the state of the economy of Syrian as indicated by the scholarly and other peoples work. The report is none biased to the best of the ability of the writer. However, some of the information may not be verified but the sources of the information are credible.

Extreme care is to taken in giving fair reporting of the information and as accurate as possible. It would be awkward to imply religion, racial or even economic discrimination. The careful selection of the sources of information presented in this report gives it the credibility that may be desired.

Other issues relating to copying someone else’s work without person is well taken care of by citation and actual request for information. Otherwise, all information relating to information rights were strictly adhered to. The work is also presented in a way that does not prejudice the Syrian people in any way.

The Economic Status as Indicated by World Bank Economy (2010)

*according to International Monetary Fund (IMF 2010) statistics

The data above shows the average transactions in terms of the economic activities being carried out by the Syrian people in income generation. These factors generally explain the state of the economy. The relationship between exports and economic growth, including the direction of causality between the two variables has been a subject of much debate in the international economics literature over the past two decades (Kaushik, Arbenser and Klein 2008 p. 155).

It is vividly clear that the relationship between imports and exports of a particular country mainly determines the state of the economy. Despite this fact, other players may come like the ability of the citizens to afford basic needs like food, clothing and shelter. From the above report of World Bank, it is clear that Syria is a developing country.

According to Benn (2010, p.8), “in its extreme form, it is characterized by lack of basic human needs such as adequate and nutritious food, clothing, clean water and health services.” Agba et al (2009, p. 1) believe that poverty is a state where people lack basic human commodities which are inadequate food, clothes and housing. If the poverty level of a country is that one that 20% or more people are living below the poverty line then, even if the country has a balanced importation versus exportation, it is terribly underdeveloped.

When we look at the economic indicators in comparison with the population, an assumption that one can make is that the country is a middle economy country. A middle economy country is a country that is developing at a very high rate per year. The Syria crisis could be a deterrence of the growth.

The installation of proper development policies that encourage investment both local and international would be a brilliant thing that any government must do. Another thing is that the government must be in a position to work ways of increasing exports in other goods other than petroleum products and tourism so as to encourage foreign income.

The World Bank (2012) classifies countries using some Criteria. According to World Bank (2012), “Economies are divided according to 2010 GNI per capita, calculated using the World Bank Atlas method.” The groups are classified as; low income, $1,005 or less; lower middle income, $1,006 – $3,975; upper middle income, $3,976 – $12,275; and high income, $12,276 or more (“Data” 2012). From the assumption, Syria is a developing economy.

Array of Indicators

What would be the indicators of underdevelopment in Syria? A nation that is developing is defined as country whose cumulative average income is much below that of industrialised states. Such economies are characterised by low volumes of exports and traditional agricultural techniques.

Food supply in these countries does not meet the demands of the population. “Developing nations have also been called underdeveloped nations,” (Hirsch, Kett and Trefil 2102 pp. 316). Having this in mind, one can be able to list the indicators of Syria as a developing country. From the IMF classification, it is evident that Syria is a middle lower income country. According to Syria Agriculture (2012), the following indicators are listed: “

1. Farming methods are crude: The average farmer’s reliance on out dated and inefficient irrigation methods is a major obstacle to improving agricultural outputs. The introduction of drip, sprinkler, and subsurface irrigation methods is handicapped because of the limited amount of money available to the common farmer. Because of these shortcomings, Syria is susceptible to food shortages during long droughts.”
2. The decline of oil reserves, therefore, casts a shadow of uncertainty on the sustainability of the current Syrian economic program as oil revenues decline, the government could be faced with hard times (Cavendish 2006 pp. 280). This kind of economic activity is serious pegged on the amount of the reserves that are available for export. The economy mainly depends on the oil industry but it is affected by extremist activities and terrorism. Sometimes the country has been put under economic sanctions which are not healthy.
3. According to Sukkar (2006, p.33), “Al-Utri attributed the moderate performance of the Syrian economy to eight negative factors which will be explored more fully in the subsequent analysis:

• Weakness in the performance of some economic sectors and low personal income
• Population growth pressures
• Dependency of export on declining oil production
• Small return on investment
• Low levels of national and foreign investments
• Low productivity and growing unemployment
• Low levels of wages and corresponding low levels of incentives
• Poor technical standards in the production sectors.”

The indicators listed above are characteristics of an unstable middle economy of the state of Syria. It is clear that if there is a problem in any economy in its production and labour channels, then one can conclude that the economy is facing hard times in the economic development of the country.

With the facts presented, it is evident that the economy of this country needs a number of remedies in order to forge forward and move away from a low middle income economy to a higher middle income economy as the oil reserves are getting depleted. Therefore, one can conclude that Syria is a developing country (United Nations Development Program, 2012).

Remedies of the indicators of Underdevelopment

In every situation a country gets into, there are avenues through which it can forge its prosperity ahead. This purely depends on the political will and the workmanship of the people of the country. The policies that will be designed and followed to the later will enable the country to do great things in economic development. Syria put in place such remedies to the obstacles of development in the country and are examined below.

At times, the economic policies of a country do not rhyme with the demand of its local market thereby, going against each other. This in turn makes it difficult for the government to go beyond its boundaries to look for foreign markets (“AKDN” 2012). The country is using development partners in wealth creation and foreign investments to increase employment opportunities which are not enough for the ever growing population.

A high population may be a very good market for locally produced goods but if production is not sufficient, there is extreme pressure on the available products. That will cause an undesirable effect of high prices and occasional lack of commodities for sale. The increase in population should be looked at carefully and be controlled as much as possible with regard to the growth of the economy.

For instance, “the Aga Khan foundation introduced the Aga Khan Fund for Economic Development (AKFED) and the Aga Khan Trust for Culture which are proposing investments that will combine tourism development with conservation and re-use of landmark monuments, rehabilitation of historic areas, urban planning, and wide-ranging socio-economic development to boost living conditions in historic areas and create new opportunities for residents” (Aga Khan Development Network 2012). This may help in the improvement of the tourism sector which will increase employment opportunities in Syria.

Talking about policies that affect both international and local business in the country is a thing that the government has been trying to do in order to make the country sail ahead. Simmers et al (2008, p.67) stated that, “as indicated by the U.S. Library of Congress, spot shortages of basic commodities occurred frequently and industry operated far below capacity because of routine power outages.

Foreign exchange reserves plummeted, the trade deficit widened, and real gross domestic product (GDP) growth fell as economic difficulties compounded. Although the government instituted limited reforms to respond to the burgeoning crisis, Syria’s pressing economic problems required a radically restructured economic policy to improve future economic performance”.

It is clear that the policy makers and implementers have not thought of far reaching effects of the policies they make and try to implement. Its trade partners like Iraq have been in a series of crisis activities which have been making trade with its neighbours very difficult. It is recorded that Iraq that was under war had sanctions but since Syria is its neighbour, it was allowed to trade with it (Simmmers et al 2008, p.9).

As it engaged in the trade of essential commodities, the country helped Iraq to smuggle oil to other countries which was against the sanctions that were put. This made Syria to be charged at the United Nations Security council and later, Iraq was attached and it lost because the pipeline they purported they were trying was destroyed. These and many more instability issues affected largely its endeavours in economic policies hence, dragging it to be a developing economy (Aldosari 2002, p.6).

Modernisation theory, “sees economic development as a process by which traditional societies become more complex and differentiated, in order for economic development to take place, modernisation theory proposes that countries have to change their traditional attitudes, values and institutions” (Andersen and Taylor 2007 p. 252).

Syria however, did not embrace much change in its development. For instance, it did not open the internet services as fast and the telecommunication facilities were so much controlled by the government. If some of these ways of disseminating information cannot be liberalised so that people can communicate freely and effectively, a country may lag behind.

A number of Syrians are Muslim extremists which mean that they had to conserve some values that may not be good for economic development. An example perhaps could be the fact that Muslim women cannot work in a bar would really affect the tourism sector in one way or another.

Things like satellite TV, Facebook, twitter and other social networks were not allowed in the country. The information system was strictly controlled implying that there was no innovation or even copying from the outer world. However, since the effects of these restrictions were evident, the government allowed people to access social sites.

In February 2011, Syria announced on a Wednesday that it would reopen access to social media sites like Facebook and Twitter. For the first time since 2007, Syrians were able to access these sites freely without going through proxy servers abroad (“France 24”, 2011). As the news spread, the internet activity was evident because people who were under restriction and had devised mechanisms of manoeuvring around found using the facility very easy.

Some sites and blogs were never left open to the public. This may have been confused with westernisation which in their view is a bad thing. The hate of the so called Western Culture would have influenced the thinking. This in itself indicates signs of a developing country.

Analysis of the Alternative Perspectives

Dependency

In any country, the dependency ratio is very critical in its economic status. If the economy’s population is largely containing working youth with less people depending on them, the growth of the economy may be fast.

The Age dependency ratio of the old (% of working age population) in Syria was last reported at 6.67% in 2010, and the age dependency ratio (% of working-age population) in Syria was last reported at 69.05 in 2010 according to a World Bank report released in 2011 (Trading Economics 2012).

This indicates the population that depends on the working population is very high hence, a slow growth in development. If this won’t change in a few years, then Syria may as well retard back to the low income economy rather than a developing economy that it is right now.

Post Colonialism

Chaitani’s goal is to show that the approaches to economic relations between Syria and Lebanon before and after independence did not necessarily follow the lines that one would have expected (2008 p. 268). He first lists three main groups of economic and political voices which are Syrian Arab nationalists, Lebanese Arab nationalists and Lebanese nationalists.

These divisions within the Syrian people did not work well for the economy of the country. Some of them were seen to be detrimental to the economy of the country because of the extremist’s activities within the Syrian economy. It is clear that a divided nation with political agitation is not healthy to economic development but scares aware investments.

Localism

In plain words, localism is the use of political philosophies which prioritize the local, that mainly support local production and consumption of goods, local control of government, and promotion of local history, local culture and local identity.

Clearly, this is something that can affect trade directly in the Syrian Republic. Trade is something that must involve exchange of goods and services. Syria has to be ready to buy goods from countries it sells oil to.

Critical Feminist

Hooks indicates that, “feminism is a movement to end sexism, sexist exploitation, and exploitation” (2000 p. 1). For sure, the past was so blurred because any economic opportunity was mainly directed to men. This meant that women cannot do certain things in the society just because they are women.

This has remained an issue in Syria for quite long because of the traditional and religious beliefs. Country’s that embraced the feminism strategy surely realised changes in lifestyles because the number of dependants on the working was drastically reduced. For Syria, this is still a challenge.

Religious Views

Other factors that can affect the economy are things that people believe in and which define their way of life. Religion can be defined as the spiritual beliefs and practices of an individual (Simmers et al. 2008 p. 291). Religion obviously affects people’s way of life and their day to day activities. Some religious practices are backward whereas others enable people to practice moderation in all that they do which is a good thing. In Syria however, Islamic extremism has made the economy to have little or no progress at all.

Conclusion

In conclusion, it is clear that Syria is a low middle economy country referred to as a developing country. With its numerous economic issues like unemployment, classify it as an underdeveloped country. Its economy solely depends on oil production, tourism and commerce.

Industrialisation is not coming out clearly. Another issue is that it has been in various political crises, its neighbours too have experienced political instabilities which has adversely affected its economy from time to time. Its implication of helping Iraq to smuggle oil outside the sanctions that had been put on them was a setback in its economic operations.

Reference List

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Aga Khan Development Network 2012. Web.

Aldosari, A. 2002, Middle East, western Asia, and northern Africa, Marshall Cavendish, Singapore.

Andersen, M. & Taylor, H. 2007, Sociology: Understanding a Diverse Society, Belmont, California.

Benn, T. 2010, Muslim Women and Sport, Taylor & Francis Publishers, New York.

Cavendish, M. 2006, World and Its Peoples, Marshall Cavendish, New York, NY.

Chaitani, Y. 2007, Post-Colonial Syria and Lebanon: The Decline of Arab Nationalism and the Triumph of the State, Journal of Islamic Studies, Vol. 19, no. 2, Tauris, London.

Hirsch, E., Kett, J. & Trefil, A. 2002, The New Dictionary of Cultural Literacy, Houghton Mifflin Harcourt, New York, NY.

Hooks, B. 2000, Feminism Is for Everybody: Passionate Politics, Pluto Press, London.

IMF, 2010, Syria, Journal on Syrian Arab Republic, Vol 167, International Monetary Fund Publication Services, Washington D.C.

Kaushik K., Arbenser, L., & Klein K. 2008, Export Growth, Export Instability, Investment and Economic Growth in India: a Time Series Analysis, The Journal of Developing Areas, Vol. 41, no. 2, pp. 155+, via ProQuest LLC.

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Perthes, V. 2004, Economic Challenges and Policy Responses. Web.

Ross, D. and Harmsen, R. 2001, Official Financing for Developing Countries, International Monetary Fund Press, Washington, DC.

Simmmers, A., et al. 2008, Diversified Health Occupations, 7^th Edition, Cengage Learning, Clifton Park, NY.

Sukkar, N. 2006, Pitfalls Along Reform Road, Oxford Business Group, Lebanon.

Syria Agriculture 2012, Information about Agriculture in Syria. Web.

Taheri, A, 2002, An Alternative Syrian Voice: Meet Nabil Sukkar, National Review Online Journal, Vol 3, No. 2, Syrian Embassy.

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United Nations Development Program 2006, Human Development Report. Web.

Introduction

This is a report about Mali. It focuses on a range of issues, challenges, and controversies that Mali faces as a developing nation. It also highlights how actors and interests affect the country’s development.

Mali is a West African landlocked country. Over the last 20 years, Mali has strived to develop a stable democracy after the coup that toppled Moussa Traoré. Amadou Toumani Touré (ATT) ruled the country in a way many observers claimed was stable. However, in 2012, Mali has experienced a coup twice. This situation has made the country unstable for investments.

According to the African Report of 2011, Mali has over 13.3 million people (African Report 1). About 33 percent of people live in urban areas. The country’s GDP (gross domestic product) was approximately US$ 10.98 billion in 2011 (see fig. 1).

Figure 1: Mali Profile, 2012 from the African Report, 2012

Before the general election of 2012, many citizens and professionals believed that the new president would bring stability to the country. They presumed that the new president would tackle the issue of neglected policies and act tough on elements of Al Qaeda that reside in the Maghreb in the northern part of the country.

This group is responsible for several attacks on government establishments. Also, there are also Tuareg militias in northern Mali. These groups present serious threats to the security of the country.

Recent Developments

The African Economic Outlook report notes that the real GDP grew by 1.1 percent. The primary sector recorded a growth of 5.8 percent. The secondary sector had a growth of 8.3 percent while the tertiary sector recorded a growth of 3.8 percent.

A forecast had predicted a growth of 6.9 percent based on good yields from agricultural sector rising prices of gold (Reuters 1) in the international markets. However, the unstable political environment has negatively affected these gains (African Economic Outlook 1).

The growth in population has increased consumption. Consumption increased by 2.8 percent during the year 2011. This was due to pay rise among civil servants and increased employment in other areas of the public sector.

In the last five years, the government of Mali has endeavored to improve the northern part of the country through road construction. It has spent over “$1.4 billion on road projects, which covers 227 kilometers from Bamako to Ségou” (African Report 1). The aim of this project is to reduce the marginalization of northern Mali. The Chinese contractors are also working on an airport at Kayes. This will supplement the main airport at Bamako.

There are also developments in power supply in which the government aims to supply power to iron-ore and gold mining areas. These power projects will provide additional 84MW to the national grid upon their completion. The dams shall also supply agricultural water to nearby farms.

Prices of commodities in the global markets have favored Mali’s export earnings from gold. Indian firms have also invested in the country to increase the mining of iron-ore.

The military seizure of power in March 2012 has altered support from the US and other development partners.

To facilitate economic growth, the government of Mali has identified key investment areas and offer incentives for investors. These areas include:

• Agribusiness
• Human and animal health promotion enterprises
• Communication
• Tourism and hotel industries
• Mining and metallurgical industries
• Housing development
• Transportation
• Cultural promotion enterprises
• Fishing and fish processing
• Vocational and technical training enterprises
• Livestock and forestry
• Water and energy production industries

In 2013, the World Bank report of Doing Business Mali indicated a serious decline in ranking of some key areas relative to the previous year (World Bank 1). Mali dropped to position 151 in 2013 compared to position 145 in 2012. This represented a drop of six positions out of 185 countries in the report. We can attribute such negative developments to the military seizure of power in March and December of 2012.

Table 1: Doing Business 2013: Mali

Source: The World Bank, 2013 (Doing Business 2013 data for Mali)

Openness to Foreign Investment

The government of Mali has advocated for foreign investments in the past. Under this initiative, both foreign and domestic firms undergo the same processes. The country has enhanced structural adjustment facility (ESAF) to encourage foreign investment and resource mobilization since 1992.

The ESAF got support from the World Bank and the IMF. To fight poverty in the country, the World Bank and other partners in development recommended the important roles of the private sector in facilitating development.

Mali’s past structural adjustment program had focused on key areas like mining, investment, and trade for economic growth. The government has encouraged direct investment and export-oriented economy through its development policies.

Foreigners doing business in Mali can own 100 percent of their ventures. Also, the government allows foreigners to buy shares in during privatization of public companies. On this note, foreign investors can also create joint ventures with citizens of Mali.

The government uses job creations as a way of determining tax rates for firms. It argues that companies that hire young graduates should have tax advantages because they pay reduced rates.

Political Violence

Mali is a multi-party state. For the last two decades under ATT administration, the country has strengthened its democracy. This stability has encouraged investments from both local and foreign areas. There are instances of political demonstrations, students’ riots, and violence. However, these are minor cases, which cannot deter investors.

Mali is mainly Islamic nation. However, it has a tolerant form of religion. The Al Qaida in the north has created instability in the region by attacking government installations and declaring independence.

The government also has to deal with Tuaregs in the north. According to the Heritage Foundation 2013, these Tuaregs are fighters who had served in “the security forces of former Libyan leader Muammar Qadhafi” (Heritage Foundation 1). They have perpetuated fragile rule of law in Mali.

Most recently in 2012, the military took control of Mali from the government. This has affected Mali because investors have shunned the country as an investment destination. Also, donors, especially from the US, have withdrawn their support to Mali (Bureau of African Affairs 1). Mali has good relationships with the neighboring countries, but coupled to sanctions from some countries (Callimachi 1).

From the recent activities, it is evident that the Malian army lacks the capacity and resources to control insecurity in the country. This was the case when rebels took control of several towns in Mali. Security in the country depends on safety in the northern Mali and political transition.

Corruption

In Mali, corruption remains a crime that is punishable under the law. Despite such provision in the law, there are widespread cases of corruption in Mali. These cases affect large-scale investors and investment. Corruption has been a major obstacle to foreign direct investment in the country.

Government officials openly take bribes for routine jobs. According to Transparency International (TI) Corruption Perceptions Index 2012, Mali ranked 105 out of 176 countries (Transparency International 5). The score of 34 represents countries with high rates of corruption.

Table 2: Corruption Ranking:

Source: Transparency International Corruption Perceptions Index 2012

Corruption in Mali is rampant in procurement procedures and the criminal justice system. The government officials demand their commission that ranges from ten to 15 percent of the cost. The government created the “Direction Generale des March Publiques” in an attempt to fight procurement corruption.

This body must establish that all procurement processes meet “requirements of fairness, price competitiveness, and quality standards” (Bureau of African Affairs 1). This shows that the government has committed to fight corruption in the public sector.

Cases of corruption are severe in dispute settlements. Also, the judiciary is slow and incompetent. Judiciary officials have low pay while the system has inadequate resources. These factors have increased the rate of corruption in Mali. Countries that operate under anti-corruption laws may find it difficult to operate and compete with firms that do not adhere to any form of ethics or do not have such legislation. This is why Chinese companies may thrive in Mali.

In some cases, the Court of Appeal has turned questionable judgments. Also, Mali has weak copyright law (Heritage Foundation 1). While such laws are available to protect inventions, the weak, corrupt, and inept judiciary has facilitated abuse of copyright law.

Labor

Labor is readily available in Mali, but with varying skills, experience, and qualifications. In the past, some qualified individuals have lost their jobs from state-owned firms. These people have increased the rate of unemployment in the country. Most graduates are also in search of jobs.

According to African Economic Outlook, the results of “the national employment policy and initiatives such as the youth-employment program (YEP) are below expectations as unemployment hits young people hardest, with the rate standing at 15.4% for 15‑39 years old” (African Economic Outlook 1).

Also, young job seekers represent “81.5% of all unemployed people” (African Economic Outlook 1). On the contrary, the supply of qualified labor in areas with high growth like mining, telecommunication, and construction has been low.

According to the Global Economy, the average rate of unemployment in Mali for the last ten years is 8.8 (Global Economy). It notes that the average rate provides an accurate picture because a figure from a single year might be misleading.

Table 3: Unemployment rate: averages for the period from 2000 to 2010

Source: The Global Economy, 2013

The Accelerated Economic Growth Strategic Objective (AEG)

The USAID started a ten-year program (AEG) that aimed at increasing economic growth and combating poverty through a partnership with the government, private firms, and development partners.

The AEG focused on promoting agricultural sector, trade in selected goods, and facilitating access to financial services (USAID 1). The aim of this initiative is to accelerate trade in agricultural products. It also focuses on promoting fast trade in products that Mali has a relative advantage.

The structural reform in Mali did not bring the desired changes because the growth stagnated at some points. Mali relies on export commodities, which suffer from fluctuations in international prices. This suggests that Mali must focus on alternative ways of growing its economy rather than depending on exports. Diversification of the economy shall create jobs and improve the competitive advantage of the country.

Mali must also form a partnership with neighboring countries to promote regional trade. Mali is a member of the West Africa Economic and Monetary Union (WAEMU) and the Economic Community of West African States (ECOWAS) that consist of 15 states. Such trade agreements have preferential advantages in terms of gaining access to market opportunities.

The country is also a member of the World Trade Organization (WTO), as well as the African Growth and Opportunity Act (AGOA). Under AGOA, the country has free access to the US market. The USAID in Mali has facilitated trade under the Sustainable Economic Growth Strategic Objective (SEG). SEG has aimed to improve the accessibility of market information under the OMA program.

OMA has emphasized livestock and cereal produce. It aims to provide farmers with reliable market information that can improve trade in the agricultural sector. OMA has focused on developing the same system across the West African region. It also organizes market outlook forums for regional farmers. In this regard, the program has enhanced the integration of the region’s economy.

The Africa Trade and Investment Program (ATRIP) has conducted many studies in the agricultural sector, especially on manufacturing, rice, and livestock sectors to establish growth opportunities in the sector. The USAID has also organized training and development programs under ECOWAS and WAEMU. Such training programs develop business skills, capacity, and encourage participation in the market.

The USAID reviewed challenges to Mali’s economic growth and listed them as follow:

• Inadequate managerial skills in most enterprises because many of them are informal
• Underdeveloped trade-related infrastructures
• Lack of business support services like financial aid, market information
• Weak links between private and public organizations
• Weak integration and enforcement of regional agreements

Government Reforms

The private sector is small in Mali with wide differences in cash flow. Such small enterprises depend on informal relations and networks. Private firms are also small. The government of Mali has focused on developing the private sector to spur economic growth and reduce unemployment. According to the Doing Business report, Mali recorded some improvements among WAEMU member states.

However, the political instability in the country has eroded such gains. In the year 2011, the government of Mali introduced a new investment standard to promote the growth of the private sector. On this note, technical and financial partners like AfDB (the African Development Bank) have also focused on Mali’s private sector by conducting studies and provide the missing information about the sector.

Accessibility of financial services in Mali has remained low with only “10% of Malian companies having obtained credit to finance their activities” (African Economic Outlook 1). Gaining access to credit facilities has been difficult due to the inability of traders to provide adequate guarantees, complex applications procedures, high-interest rates, and a lack of real need for credit.

In this respect, the government has responded through studies that have resulted into “the creation of a private-sector guarantee fund (FGSP) and a capital-stock investment company (SICR)” (African Economic Outlook 1). FGSP aims to guarantee short-term credit facilities, whereas SICR aims to promote the acquisition of shares in firms.

The AfDB has also responded by providing a loan to the Malian Solidarity Bank to spur growth in the private sector, especially among small and medium enterprises and traders. The government also embarked on privatization to induce development in the private sector.

Mali experiences serious environmental challenges such as desertification, shrinking forest cover, silting, inadequate rainfall, and decline in biodiversity. These conditions are likely to increase in the coming years. As a result, the government and other private partners have embarked on effective management of environmental resources to combat the effects of climate change.

Bilateral Economic Relations and the US assistance to Mali

In terms of trade and investment, Mali remains a small market for the US. However, Mali has a huge potential for growth because it has not exploited its resources for economic expansion. The volume of trade between the US and Mali remains low.

Before the military coup of March 2012, there were a number of US agencies like USAID and Peace Corps among other organizations, which provided developmental assistance to Mali. The USAID focused on promoting peace and stability in northern Mali and enhancing political and economic integration of West African states.

The US Department of Defense has initiated training programs in Mali to develop the capacity that can allow Mali to combat security challenges it faces from rebels and Al Qaida. There are also agricultural development plans.

However, following the military seizure of power in Mali, the US ended all aid to Mali except humanitarian aid. The US reviews such assistance on a case-by-case basis. It will only resume development programs in Mali if the country reinstates a democratic government.

Conclusion

Mali has made some achievements since it embraced democracy some 20 years ago. However, the instability in the north has made the country vulnerable to terrorists’ activities. Also, the current political instability has eroded gains that the country has achieved.

Mali depends on agriculture and exports of gold and iron-ore for economic growth. However, fluctuations in the international market prices have affected the economic growth of the country. As a result, development partners and the government of Mali have seen the need to diversify areas of economic growth.

Weaknesses in key institutions like the judiciary and other public offices have facilitated the poor growth of the economy by encouraging corruption. Corruption has made an inept justice system that is prone to political control.

The country has not reformed various issues like free trade, investment, and agreements, which affect investors.

Mali has started some reforms in public and private sectors to spur economic growth. However, these reforms face serious challenges like political instability and weak institutions. The country must gain investors confidence and develop credit facilities for small traders to spur economic growth in the private sector. This will facilitate trade, investment, and increase consumption.

Works Cited

African Economic Outlook. Mali. 2012. Web.

African Report. Mali: Country Profile 2012. 2012. Web.

Bureau of African Affairs. U.S. Relations With Mali. 2012. Web.

Callimachi, Rukmini. Post-coup Mali hit with sanctions by African neighbours. 2012. Web.

Global Economy. Mali: Unemployment Rate. 2013. Web.

Heritage Foundation. 2013 Index of Economic Freedom: Mali. 2013. Web.

Reuters. Mali gold reserves rise in 2011 alongside price. 2012. Web.

Transparency International. Transparency International Corruption Perceptions Index 2012. London: EYGM Limited, 2012. Print.

USAID. Mali Accelerated Economic Growth Strategic Objective Program. 2007. Web.

World Bank. Ease of Doing Business in Mali 2013. 2013. Web.

Abstract

This paper reveals the way developing countries should transition to a green economy. It emphasizes the fact that such an alteration is advantageous for them because it allows for the enhancement of the living conditions of the population when other practices turn out to be ineffective. Also, it identifies those challenges the countries may have when maintaining the transition and points out those issues and advantages that are related to this process. Thus, following the examples of Nigeria and South Africa, other countries can reach sustainable development.

Introduction

Among the most critical global issues that the representatives of the general public are faced with today are water and food supply, increasing greenhouse gas emissions, and terrorism. This list may be continued, but the causes of these problems are mainly limited to environmental mismanagement and inequality. The most vulnerable of them are developing countries that still face a lot of challenges and yet survive due to external assistance. They can be negatively affected by climate changes and the usage of resources. International efforts today are used to emphasize the overall desire to make countries reach sustainable wealth. However, for now, they are focused on the promotion of green growth as a part of it. Green economy presupposes “improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities” (UNEP, 2010). In its framework, professionals within both the public and private cooperate to reduce emissions and pollution. The main purpose of the transition toward this economy is to increase economic growth. Its main challenge is the differentiation of the desires that both rich and poor countries have.

A transition toward a green economy as a tool for sustainable development is worth discussing because numerous developing countries try to undertake various initiatives to improve their performance and make the lives of their populations better. Unfortunately, the expected achievements within a short period are reached only by a few. The rising number of issues such as malnutrition, water contamination, or homelessness indicates that new approaches should be introduced and discussed. In this way, however, a green economy is not currently very popular.

Green growth affects not only the economy but also the environment and society. Thus, it increases GDP and distributes it better. Economic diversification and innovation can also be reached in this way. The usage of natural resources enhances so that they are efficiently used and preserved. In this way, adverse environmental influence reduces so that it becomes less complicated to manage risks. Due to green growth, the quality of people’s lives are enhanced; they obtain better jobs as well as equality. Such improvements that are obtained due to the transition toward a green economy prove that it is likely to be beneficial for developing countries to maintain it. This paper will provide evidence on the topic to make this statement well-grounded to trigger further changes. Thus, the objectives of this paper will include:

• discussion of the green economy;
• review of different literature related to the topic;
• analysis of the data gathered from the authoritative sources;
• identification of challenges for the green economy;
• identification of advantages that can be obtained by countries that transition to a green economy;
• discussion of the issues developing countries have and the way they can be solved with the help of a green economy;
• discussion of the practices developing countries should utilize to transition toward a green economy; and
• information concerning South Africa’s and Nigeria’s examples.

Literature Review

The advantages for different countries regarding the transition toward a green economy were observed by Acharya and Sequeira (2012). They emphasize the fact that it can be treated as a measure of sustainable development. A green economy allows for the alignment of economic development and growth in harmony with the environment. Professionals state that a lot of attention has been paid to this type of economy recently, but no definite conclusion was made regarding its implementation. They focus on the policies developed by the United Nations Environment Program (UNEP) and analyze them to point out main issues and challenges, such as the lack of attention paid to the social dimension, insufficient technology, inequalities, etc. Besides, Acharya and Sequeira (2012) state how a green economy can be promoted, including initiatives to avoid soil erosion and reforestation, increase recycling, and utilize renewable energy.

Similar ideas are revealed by the Department of Environmental Affairs (2017), whose African representatives claim that a green economy is a “system of economic activities related to the production, distribution, and consumption of goods and services that result in improved human well-being over the long term, while not exposing future generations to significant environmental risks or ecological scarcities” (para. 1). Professionals provide a list of related jobs, claiming that they are to be promoted actively so that there will be enough professionals that can promote a green economy. Among the key areas that require improvement are building, transportation, energy, waste and resource management, and agriculture.

One of the most informative sources that are used in this paper is written by Nwosu, Uhuegbulem, and Ben-Chendo (2015). Professionals investigated the way a green economy can be used by developing countries to reach sustainable development. They used Nigeria as a sample country for their research. The authors identified the issues of a green economy, such as the lack of consideration of the international dimension, failure to apply initiatives for a particular country and to follow environmental standards, and treatment of subsidies. Also, they claimed that a green economy allows for the enhancement of a population’s living conditions, which concurs with the ideas of other professionals. However, according to the report prepared by Ocampo, Cosbey, and Khor (2012), it can also be used to reduce environmental risks. They claim that professionals need to consider environmental spending and policies because financing for initiatives plays a vital role in the success of the entire transition. It can help countries to cope with the environmental crisis and to conserve natural resources. However, the authors also reveal their concerns associated with the fact that developing countries should make sure that they undertake green economy initiatives contributing to sustainable development because by choosing a wrong approach, they may replace it.

OECD (2012) supports a previously discussed idea that green growth has many benefits for developing countries. Unlike other authors, it also separately indicates that usual business is not appropriate in this perspective. It is underlined that a lot of attention should be paid to the production of food and the preservation of air, water, food, and energy as well as climate effects. Poverty and equity are discussed as the main issues that can be solved with the help of a green economy when its initiatives are implemented. Policy frameworks and international dimensions are also thoroughly discussed, including environmental agreements, trade, and finance.

Method of Analysis

This paper is prepared based on the qualitative approach, as it gathers and analyzes the information obtained from other literature sources. All in all, the sample includes nine sources that are both primary and secondary. With the help of primary sources, official reports and original studies are obtained, which provides an opportunity to deepen the knowledge regarding a green economy with the focus on particular examples and true-to-life practices that were used by some countries. In this way, the paper becomes evidence-based, which makes it more valuable for utilization. However, secondary sources are also used. This step is explained by the fact that primary sources are focused on a particular country, which prevents the author from generalizing and making the paper useful for a larger audience. Professionals underline that a green economy cannot be adopted by different parties in the same way, because each of them has a range of differences. Thus, it is critical not only to discuss particular cases of successful transition and achievement of sustainable development but also to point out some general initiatives that can be undertaken by all countries on their initial steps toward a new economic approach. Secondary sources tend to be the most appropriate sources of information in this perspective because they allow them to see how other professionals assess, evaluate, and analyze those finding that were reached by their colleagues.

Of course, it is possible to base this paper on quantitative research and discuss the way countries’ economies improve with the transition toward a green economy. However, in this way, the focus of the work will be altered so that it will not be possible to fulfill those objectives that were pointed out in the introduction. Quantitative data will allow for the assessment of the benefits and/or drawbacks of a green economy in some perspectives. However, the required explanations of the concept, the challenges and advantages connected with them, and the discussion of those practices that developing countries should utilize to develop a transition toward a green economy can be thoroughly revealed only with the help of a qualitative approach that is focused on exploration and understanding.

Analysis

The transition toward a green economy is currently discussed as a great tool for economic development. Since the beginning of the 21^st-century countries started paying more attention to environmental goods and services, which also affected their GDP (see Tab. 1). Being aware of these tendencies, Nwosu et al. (2015) focused on the way Nigeria maintained its green economy. This country as well as South Africa belongs to those that have adopted different growth strategies, which attracted professionals’ attention (see Tab. 2). They identified that it achieved a range of advantages due to such a step. First of all, the country reduced poverty rates so that social inequality became less critical. Almost 45% of Nigeria’s population lived in poverty in 1985, and this number was reduced to 34% in just four years. The discussed issue was resolved with the help of agricultural growth so that its decline led to the repetition of poverty increase at the end of the 20th century. However, such findings are enough to claim that there is a connection between the reduction of poverty and practices implemented under the influence of a green economy.

An increased number of vacancies and improved social welfare is also achieved due to the desire to achieve green growth. Professionals believe that those jobs that can be found in related spheres can increase global employment by 4% (Nwosu et al., 2015). Much emphasis can be put on manufacturing because it is likely to be affected by the necessity to extend the life of provided products as well as recycling and energy efficiency. Besides, a green economy provides countries with enabling conditions. For example, Nigeria designed a regulatory framework that allowed it to take business operations under control and reduce risks. It also developed green subsidies that can be used to manage natural capital, to develop green infrastructure and technologies, and to foster new industries. What is more, it allows for the strengthening government capacity, identifying clear market-based instruments, and implementing strategies for the further improvement of agricultural productivity and standards (Allen & Clouth, 2012).

Developing countries have a range of environmental issues that differ greatly from those that developed countries have. This fact affects the nature of initiatives and practices that are to be undertaken to enhance the situation and reach sustainable development with time. Thus, professionals must take into consideration the ways they can deal with “poor water, poor sanitation, crowded housing, sickness, diseases, and natural disasters” (Acharya & Sequeira, 2012, p. 10). These problems tend to occur because of inappropriate exploitation of resources and their unequal distribution. Developing countries must apply modern technologies to reach at least some enhancement. For instance, they need to focus on reforestation, protection of cropland, waste recycling, and the use of alternative energy resources.

When trying to transition to a green economy, South Africa focused on the necessity to increase economic activity in the related industries and to reach cleaner industries and sectors (Department of Environmental Affairs, 2017). The desire to make such a step was triggered by:

• An understanding of environmental unsustainability. Those economic growth patterns that were used by the country failed to fulfill the country’s expectations regarding substantial growth.
• The possibility of a climate crisis. To cope with climate change, the country had to increase investments but failed.
• The necessity to achieve substantial transformation. Behaviors, technologies, and structures connected with the industry should be changed.

The challenges the country faced on its way to success mainly dealt with the possibility to lose those jobs that existed in the energy and mining sectors because they were affected by the transition more than others. In addition to that, the improvement of technology and the necessity to resort to innovations turned out to be rather difficult to maintain. The development of local skills and the adoption of new technologies required much time and effort as the workers had to alter their usual way of working and had to learn new information. It was also critical to provide new regulations so that the industry could be controlled and guided. A range of alterations led to increased production costs, which affected competitiveness and trade experiences. Finally, it was critical to discussing the possibility of alterations considering climate change mitigation (“The transition to a green economy”, 2011). Even though the country developed slowly, it had to deal with poverty as soon as possible to ensure that its population lives in appropriate conditions (see Fig. 1).

The way South Africa moved toward a green economy can be observed in Fig. 2. It proves that this process is long-lasting and requires the implementation of those objectives that are considered in perspective.

In addition to those benefits that were discussed earlier, it is significant to mention that the transition to a green economy provided South Africa with the opportunity to reduce greenhouse gas emissions and make the effects of global warming less critical than they could have been because they are increasing over time (see Fig. 3). In this way, it also positively affected people’s health. The representatives of the general public realized that nature is important. The green economy put a price on it so that people became motivated to protect it. Finally, agricultural improvements and reduction of deforestation enhance the situation in rural territories (Sukhdev et al. 2010).

Conclusion

Based on the discussed information, it can be concluded that the transition toward a green economy is a long-lasting process that differs depending on the country that utilizes it. With the help of qualitative analysis, the way Nigeria and South Africa maintained such an alteration was revealed. This approach provided an opportunity to fulfill those objectives of the paper that were outlined in its beginning. It was stated that a green economy is targeted at the improvement of living conditions for the representatives of the general public through the implementation of those initiatives that are connected with the environment. Using the information from nine authoritative sources, it was claimed that developing countries could face a range of challenges when transitioning toward a green economy, including the lack of attention paid to the social dimension, insufficient technology, and inequalities. It was emphasized that developing and developed counties tend to emphasize a green economy for different reasons. Nigeria and South Africa, for instance, wanted to cope with the poor quality of water, earth, and air; diseases; and lack of natural resources. As a result, they obtained an opportunity to reduce poverty rates, increase the number of vacancies, and control the business sphere. All in all, it can be claimed that even though every country should develop a separate plan for transitioning to a green economy, developing countries are likely to benefit from those practices discussed in this paper.

References

Acharya, S., & Sequeira, A. (2012). A model of green economy for developing countries. SSRN Electronic Journal, 1. Web.

Allen, C., & Clouth, S. (2012). A guidebook to the green economy. Web.

Department of Environmental Affairs. (2017). About green economy. Web.

Kaggwa, M., Mutanga, S., Nhamo, G., & Simelane, T. (2013). South Africa’s green economy transition: implications for reorienting the economy towards a low-carbon growth trajectory. Web.

Nwosu, F., Uhuegbulem, I., & Ben-Chendo, G. (2015). Green economy: A tool for achieving sustainable development and poverty reduction in Nigeria. European Journal of Academic Essays, 2(5), 1-4.

Ocampo, J., Cosbey, A., & Khor, M. (2012). The transition to a green economy: Benefits, challenges and risks from a sustainable development perspective. Web.

OECD. (2012).Green growth and developing countries. Web.

Sukhdev, P., Stone, S., & Nuttall, N. (2010). Green economy developing countries success stories.Web.

The transition to a green economy: Benefits, challenges and risks from a sustainable development perspective. (2011). Web.

Introduction

Most developing countries are faced with the problem of poverty and microfinance institutions can play a major role in alleviating this menace. The microfinance institutions famously known as MFIs provide relatively cheaper loans to small businesses and the poverty-stricken people in the society. My study aims to determine the impact of microfinance institutions in the alleviation of poverty in society. I am interested in this topic because, in some parts of the world such as in Bangladesh, the Grameen Bank which is a microfinance institution has improved the lives of poor women, especially in the rural areas. According to Khandker, microfinance has provided small loans for the poor women in the rural areas of Bangladesh without the need for collateral thus improving their living standards (263). This can be replicated in other countries in the world where there is a high level of poverty.

Research Questions

The study will be based on the following questions:

• What is the potential of microfinance in the reduction of poverty in society?
• How do microfinance institutions lead to the establishment of small businesses by the poor people in society?

Research Objectives

The main objectives of this study are to determine the effects of microfinance in the alleviation of poverty and improvement of the welfare of people.

• To know whether microfinance institutions contribute to the alleviation of poverty in a poor society.
• To find out how microfinance institutions lead to the establishment of small businesses by poor individuals in society.

Literature Review

The poor people and the poverty menace has become a topic of concern in many international meetings held all over the world (Marr 511). Poverty reduction is among one of the many aims of millennium development goals. Microfinance has played a major role in the mitigation of poverty especially in the developing countries of the world. Hughes (9) argues that microfinance leads to a significant increase in the rate of savings by the poor people and also the rate of self-employment through the establishment of small businesses.

Research Approach

The research methodology to be used will be by the use of questionnaires that will be distributed to small businesses and low-income households. The questionnaires will aim to find out how microfinance institutions have impacted the lives of poor people and whether microfinance has improved their welfare. The questionnaires will also find out from the small business owners whether they have used the services of microfinance institutions and how their services have led to the growth of their businesses. The data will then be analyzed to find the impact of microfinance on both small businesses and the poor in society (Marr 515).

Works Cited

Christie, Pat. “Microfinance should be a key G8 development tool: Final Edition.” The Ottawa Citizen. 2002: A.15. Print.

Hughes, Helen. “Trade or Aid? Which benefits developing countries more?” Economic Papers: A journal of applied economics and policy 22.3 (2003): 1 – 19. Print.

Khandker, Shahidur. “Microfinance and Poverty: Evidence Using Panel Data from Bangladesh.” The World Bank Economic Review 19.2 (2005): 263 – 286. Print.

Marr, Ana. “Studying group dynamics: an alternative analytical framework for the study of microfinance impacts on poverty reduction.” Journal of International Development 14.4 (2002): 511 – 534. Print.

Debt relief packages for developing countries are aimed at reducing the debt burden that a country cannot manage. The International Monetary Fund (IMF) has taken this initiative to ensure that the country’s short-term needs and emergency needs are addressed.

Lending instruments are adjusted so that the nations will have doubled the resources normally available to them through 2014 (IMF, 2010). Lending at concessions is planned till 2011 and the concessions are to be increased. Steps have been taken to achieve macroeconomic stability. Radical policy changes have been incorporated. Policy changes have integrated the economies with concessional debt relief and led the low-income nations into the global economy (IMF, 2010). The activities noted are that low-income countries are “joining international capital markets, entering markets for goods and services, attracting foreign investment, nurturing their private financial sectors, and benefiting from money sent home by citizens working abroad” (IMF, 2010). Greater exposure indicated more openness and vulnerability causing great differences in food and fuel prices.

Lending windows have been introduced through the Poverty Reduction and Growth Trust which became effective in January 2010: the Extended Credit Facility, the Standby Credit Facility, and the Rapid Credit Facility (IMF, 2010). The Extended Credit Facility provides some flexibility to countries that can pay up within a moderately lengthy payment and also gives them sufficient time to prepare a poverty reduction statement. The Standby Credit Facility assists in short-term financing needs. The Rapid Credit Facility provides a single payment for urgent needs.

Accompanying policy changes help to support poverty alleviation. National budgets were aimed at the poor (IMF, 2010).

Apart from these, the IMF has provided $3.8 billion for concessional lending. IMF special drawing rights allowed the poorer countries to avail themselves of $18 billion. The countries could count the money as extra assets or use it for payments (IMF, 2010).

Multilateral debt relief initiative is another manner of a poor nation escaping. The flexibility of the MDR (multilateral relief) helps the low-income nations tide over their problems in a time-bound manner (IDA and IMF, 2009). Individual country situations have been considered safe. Arrears clearance operations of any nation wishing to be provided more funding for enhancing their performance is possible through multilateral debt relief. A track record for reforms could be built up using the MDR. The factor of judgment to assess progress towards the objectives must be appropriate. Poverty reduction strategies need to be prepared and implemented. Recipient countries have been greatly relieved of their debt burdens by 80% through the initiatives of multi-lateral debt relief.

Debt sustainability of developing countries is being helped by IMF and IDA through the Debt Management Facility (IDA and IMF, 2009). The use of the Debt Sustainability Framework is being promoted. Workshops have been arranged for the low-income countries to promote a better understanding of the DSF to guide them in their borrowing decisions. Efforts of HIPCs helped in increasing the poverty-reducing expenditure. However, the progress made was uneven. Primary education and gender equality changed for the better. Countries which were having difficulties in the political situations and governance were slow to deliver changes in the finance and services aspects. The “nominal GDP was reduced by 7%, exports by 9% and government revenue by 12%” (IDA and IMF, 2009). Countries could be classified into high risk, moderate risk, and low risk. To maintain debt sustainability, close monitoring and tight control of money could raise questions about availability. The HIPC Initiative and the MDRI have both contributed to the progress of low-income nations.

References

IMF (International Monetary Fund), 2010. Web.

IDA and IMF, International Development Association and International Monetary Fund, 2009. Web.

These days a number of South Asian countries including India still remain developing. “More recently, efforts have focused on changing the cultural mindset in India regarding entrepreneurship and on creating entrepreneurs by giving youth the self-confidence to become high achievers.” (Dana 2000) A number of studies have concluded that business is able to guarantee India and other South Asian countries the proper level of development; however, there exist certain pros and cons of business getting involved in the development process in South Asia (India).

Firstly, businesses will be able to boost the economies of South Asian countries and attract new investors. “For developing countries, balanced and sustainable economic growth in the long term also depends on attracting more foreign investment to grow their economies.” (Sulaiman 2006) Any kind of business in South Asian regions is likely to attract a great number of investors who will contribute to the development of the country due to their financial abilities. An increasing number of foreign investors will also be favorable for the already existing businesses because it will diversify them. “A lot of Asian families do not succeed after a certain level in business is that they do not want to diversify.” (Stirling 2006) This is particularly true about India where numerous family businesses crash because of a lack of diversification. Foreign investors will not only assist in the development of South Asian regions but will help the existing business.

Secondly, businesses will not let corruption develop in India. Corruption is the number one problem in India. For forty-five years of existence, the citizens of the country can hardly get services from public organizations without paying bribes. The government will enforce fighting with corruption for “Obstacles, such as corruption and weak infrastructure in developing countries, and some trade and other policies of developing countries, limit the role that business chooses to play in international development.” (Edelman 2005) South Asian countries will be able to tackle the problem of weak infrastructure and corruption and develop themselves by means of spreading businesses throughout the regions.

Furthermore, businesses will make it possible to implement CSR strategies in developing countries. Though these days corporate citizenship is not alien to developing countries, some changes still need to be introduced in order to make the companies act more responsibly. When Indian companies were asked whether they report on CSR-related issues, such as social welfare, environment, workers’ rights, anti-discrimination, etc), “24 percent said they did not, 35 percent said they did, and 41 percent did not answer the question” (Brown 2001). Business demands implementation of CSR programs; thus, introducing it in such countries as India will help to cope with social problems and develop the nation simultaneously.

However, the only fact the country is still developing may hinder the expansion of business. Poor development and a number of other factors do not let the international companies implement their strategies in such countries, “HIV/AIDS, climate change, poverty, and conflict all present risks to the future expansion of business in the global South, and thus to the long-term strategies of international companies.” (Bendell 2005) The fact that the countries are undeveloped frightens the investors and they avoid having business there.

In sum, business is beneficial for the development of South Asian countries. Businesses will attract a number of investors and help South Asian countries fight corruption and weak infrastructure; they will help to fight with the social problems by implementing different CSR strategies; the only disadvantage of business in developing countries is that, in case of a failure to conduct business there, the international companies avoid investing in such countries.

References

1. Bendell, J 2005, ‘In whose name? The accountability of corporate social responsibility,’ Development in Practice, vol. 15, no. 3-4, pp. 362-374.
2. Brown, K 2001, ‘Corporate Social Responsibility: Perceptions of Indian business,’ Centre for Social Markets.
3. Dana, LP 2000, ‘Creating Entrepreneurs in India,’ Journal of Small Business Management, vol. 38, no.1, p.86.
4. Edelman, 2005, Business and International Development: Opportunities, Responsibilities and Expectations, Kennedy School of Government and International Business Leaders Forum.
5. Stirling, N 2006. ‘Risk Taker with the Heart of a Lion; Monday Interview Devinder Malhotra Is a Member of His Family’s Tyneside Business Dynasty. He Has Built Up His Own Company – DAV Developments – since Arriving in Newcastle 17 Years Ago, Investing in Pubs to Care Homes. Nigel Stirling Talks about the Asian Business Community and the Future of the Malhotra Dynasty,’ The Journal, p.28.
6. Sulaiman, T 2006, ‘Companies must help countries hit by Aids, Barclays warns,’ The Times

Executive Summary

This analytical paper provides a comprehensive critique of the dualist approach to the labour market in the developing countries. It disapproves the dualistic labour market assumptions by reviewing the informal (secondary) and formal (primary) labour markets of the developing countries and the inefficiencies that operate in these markets.

Besides, the treatise examines the low labour productivity levels common in the developing countries that makes the informal employment sector an alternative desired by labour providers in developing countries.

In addition, the paper reviews the unique transitional features of the formal and informal labour markets of the developing countries that disapprove the assumptions made by dualistic view. Reflectively, the differentials in traditional earnings are indicated as unable to disapprove or approve the developing countries labour market segmentations within the unlimited mobility of the workforce that is non rigid and non proportional in the informal and formal segmentation.

Introduction

In the dualist market, there is a long traditional view that opines that a substantial proportion of the labour force in developing countries working in informal (secondary) sectors and are unprotected by legislations of labour are disadvantaged. However, the dynamics of the informal sector in the labour market have attracted different views. In the ideal dualistic labour market, increasing flexibility and efficiency of the labour market is an indispensable complement of the reforms that are market based.

In the ideal, the segmentation degree is controlled by union and government regulations that are designed to encourage rigidities and drive the costs of labour above the market clearing level. Therefore, the informal sector remains non proportional to reflect on the magnitude of the reforms required. Thus, this reflective treatise argues that the dualistic approach to the labour market is inappropriate in the developing countries.

As a matter of fact, the incentive drive to work in small firms is greater in developing countries than in developed countries. In developing countries, the rigidities and inefficiencies accompanying labour protection and taxation that are applied without factoring in a legal minimal wage often reduce formal (primary) employment attractiveness. Besides, the formal sector low productivity for the large number of poorly educated workers reduces independent employment opportunity cost developing countries.

Dualistic Labour Market Views

Dualistic labour market view envisages general patterns. The protagonists of this school of thought argue that dualism often exists between secondary and primary labour markets. In the primary labour market, jobs are well paid, there are good work environment conditions, job security and stability of employment is certain, formal and equitable work process is guaranteed, and certain advancement structures exist.

On the other hand, the secondary labour market is characterised by jobs that attract low wages, dismal working conditions, employment structure is variable, and they posses few opportunities for advancement (Harris and Todaro 1970).

Reflectively, “if formal sector work prefers to informal work, we would expect that workers would queue up for formal sector jobs and relinquish them only under the limited conditions permitted by the Constitution—egregious conduct or “acts of god” that induce firm downsizing” (Esfahani and Salehi‐Isfahani 1989, p. 824).

Moreover, a flow in an opposite direction is involuntary and far less in prosperous times. In addition, the dualistic view assumes that when there is an assigned probability of selection within a specific period of time, then the probability an ingression into formal employment should be a rising experience function in the salary earnings.

Thus, “in the dualistic labour market approach informal employment is an involuntary solution to unemployment. It is perceived by rural migrants as a temporary survival strategy while they wait for job opportunities to open up in the formal sector” (Dessy and Pallage 2003, p. 228).

Critique of Dualistic Labour Markets in Developing Countries

Several factors affect the labour supply in the developing countries. Reflectively, equilibrium and transitional wage differentials offer a valid explanation for the educe labour differential persistence in the labour markets of developing countries as part of the supply constraint.

Reflectively, homogeneous jobs and perfect competition within the labour markets in the dualistic labour markets rarely function in developing countries. Ideally, workers have unlimited options apart from changing jobs until optimal satisfaction is achieved through the creation of a theoretical balance characterized by identical wage payment across primary and secondary labour markets. In this process, the labour placement is not disrupted (Shapiro and Stiglitz 1984).

However, in reality labour wage rate variances are persistent in both empirical and casual rates despite the theoretical balance proposed by the dualistic labour market theory.

These variances are attributed to inconsistencies between casual and empirical wage rate reviews. Besides, nonwage factors, such as fringe benefits, job location, job status, wage advancement prospects, earnings regularity, and risk of death or injury in primary labour markets have substantial influence on positioning in either formal or informal employment since they form part of wage differentials in developing countries unlike in developed countries.

In developing countries, the primary sector is characterised by unstable wage differential determinants making a good number of workers to actual switch jobs from primary to secondary labour markets. Consequently, their intrinsic influence forms part of the overall wage differentials that are part of the generated labour placement effect (Ray 1998).

Market information placement is presented as another vital determinant of labour placement in the developing countries. Market information influences the behaviour of the labour market, its efficiency, and optimal operation. Thus, imperfect and costly market labour information is a major contributor towards persistent labour differentials at the micro and macro levels of the labour market in the developing countries. Besides, when their effect is long term, then the outcome may assume the form of long-lasting differential wage imbalances that are transitioning from a period to another in both the primary and secondary labour markets of such economies.

Consequently, wage structure immobilities such as institutional, geographic, and institutional often last longer than usual in developing countries. Reflectively, these immobilities are clear indicators of differences in wage rates within a similar industry for workers with the same educational level, skills, and experience as is the case in most labour markets of developing countries.

On the other hand, substitution and income effects also influence labour in the developing countries. In the process of changing occupation, the underlying decision science is the overall effect of the same on capital structure of a worker. Generally, the overall expected outcome is measured as a ratio of the total cost of investment on the relocation. For instance, transportation expenses, psychic costs, and forgone income during transition form part of the cost matrix in labour placement.

There is a consistent wage differential pattern in developing countries. Specifically, this is as a result of mobility and their influence on labour market variables and not just availability of primary jobs. The two major types of mobility are categorized as occupational geographical mobility. Reflectively, occupational mobility depends on labour units and the profession of the worker and mere existence of primary or secondary job opportunities.

As a variation of the market labour mobility in developing countries, efficiency in ‘allocative’ contributors is significant in balancing the distribution of labour units between low and high employment values as part of the wage differential matrix. Reflectively, the value of marginal product determines the regulatory effect on perfect competition and wage differential.

The two components often swing until the regulator balances for employments sharing self efficiency on ‘allocativeness’ as part of the wage differential. However, this interaction holds in a labour market with perfect knowledge of all determinant variables operating in a similar employment industry. However, the labour markets of developing countries are characterised by imperfect knowledge of the market dynamics and better terms in the informal labour sectors.

Due to similar experience, skills, and educational attainment, wage rates are expected to balance as the regulator moderates the two determining variables in a constant mobility parameter. Despite the perfect regulation, several interacting externalities are identified as determinants of efficiency ease in developing countries.

These externalities are associated with minimization of gains realized on efficiency metrics. The worst case occurs when pecuniary externalities interact with ‘allocative efficiency’ to minimize further these gains and actually push a good number of workers to the informal employment sector (Todaro and Smith 2011).

In different labour markets, wage differentials generate a recurring capital and product flows that interact concurrently to initiate an equalized balance on wages in the long term. However, the wage differentials are inconsequential, especially in the labour markets of developing countries.

Skills and experience are as important as the nonwage factors on wage differentials. In the ideal dualistic scenario, when there is a decisive crisis involving the review of wages in a production line, a rational employer would opt for increasing wages paid to highly skilled workers an employee retention strategy. The rate of wage increase will be higher for the highly skilled employers than what the low skilled counterparts eventually get (Thirlwall 2003). Efficiency of wage theories offers a better explanation of the above scenario.

These theories are based on the same notion that the higher turnover of labour units translates into higher wages paid, even though the ratio may not be proportional in the imperfect labour markets of developing countries. Besides, the secondary labour environments of developing countries with limited quantifiable variables for reviewing performance are a recipe for high wages given to employees in this sector since the principal may not be in a position to measure efficiency of each labour unit against wage compensation.

In the labour markets of developing countries, heterogeneous workers are responsible for the continuous wage disparities for the group to compete on the ‘nonwage’ aspects of work within varying stock capitals that are of human nature. Consequently, the quantifiable result would be unbalanced labour preferences within differing market consistency on every unit of labour.

This is explained by the hedonic theory of wages to classify this form of interaction between workers that have wage preference variances when interacted with ideal job amenities of nonwage nature. The most likely effect would be the standard labour market’s inability to churn wage differentials that are sustainable for employees sharing similar capital stocks of human nature and counterparts with varying capital stocks of human nature as opposed to the dualistic view (Porter and Phillips 1997).

As a result, wage differential is skewed towards market demand rather than skills and labour placement. Besides, wage differences exist across formal and informal employment due to job characteristics, such as compensating wage differentials, human capital, labour market discrimination and labour union.

Fringe benefits and wage earnings are identified as the main components of compensation summation in the dualistic view. However, fringe benefits are apportioned a larger share in the total compensation matrix due to the fact that their influence experiences a consistent growth over the last decade in the labour markets of developing countries.

These fringe benefits are classified as social security, unemployment compensation and employee’s compensation for every unit of labour given as indicated in the human capital theory. In classification, these fringe benefits assume the form of insurance benefits, paid leave, and legally acquired benefits to a worker for every unit of labour delivered against the revenue realized.

Currently, the informal labour markets in developing countries are to some extent structured and offer these services to the secondary workers who form the bulwark of their labour force (Keijiro and Yujiro 1988). Besides these, retirement benefits and savings are included in the summation of the fringe benefits accrued by a worker in the informal sectors as internalised in the labour laws.

Type and form of fringe benefits are never universal. Rather, they are influenced by the type of industry in which labour operates, ration and occupational groups as indicated in the labour market discrimination theory, rather than just by primary or secondary labour placement. This is due to the fact that governments and other agencies have introduced laws and regulations aimed at pushing for higher and reliable compensation.

In most instances, the blue collar employees have a larger share of the legalities, construed benefits than their counterparts in white collar jobs in developing countries as tax and labour redistribution policies. For instance, in Kenya, the government has balanced the labour indifference curve to be a product of various fringe benefits and wage rates that interact simultaneously to yield same utility level for each worker, irrespective of their sector of work (International Labour Organization (ILO) 2002).

When all other factors are held constant, higher swing of the indifference curve indicates higher levels of utility. Irrespective of the inclination of the indifference curve, it is apparent that levels of tax advantage determine the resultant fringe benefit accrued in the formal and informal labour markets. On average, jobs that demand higher skills attracts more wages than those that demand low skills irrespective of the labour market sectors (Fafchamps 1997).

The need for intrinsic substitution as a component of the decision science aimed at managing the fringe benefits are peculiar in labour markets of developing countries’ economies. This matrix is dependent on homogeneous labour inputs wages at market-clearing parameters and external forces like labour unions rather than placement in primary or secondary labour markets (Stiglitz 1986).

Conclusion

Conclusively, from the above discussion, it is apparent that the dualistic labour market theory claiming that the secondary sector is a direct compliment of the primary in the labour markets of developing countries is unconvincing. In fact, the continued fragmentation of the formal and informal labour markets in developing countries,as characterised by high mobility, has ‘informalised’ the assumption that secondary labour market is a complement of primary labour markets such as the labour markets of Kenya and South Africa.

Reference List

Dessy, S. and Pallage, S 2003, “Taxes, inequality and the size of the informal sector,” Journal of Development Economics, vol.70, pp. 225-233

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Harris, J, and Todaro, M 1970, “Migration, Unemployment, and Development: A Two‐ Device”, The American Economic Review, vol. 74 no. 3.

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Keijiro, O, and Yujiro H 1988, “Theories of Share Tenancy: A Critical Survey”, Economic Development and Cultural Change, vol. 37 no. 1, pp. 31‐68.

Porter, T, and Phillips, H 1997, “Comparing contracts: an evaluation of contract farming schemes in Africa “, World Development, vol. 252, pp. 227‐238.

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The main advantage of bilateral investment treaties is that if the host state is alleged to breach the BIT, the investor does not need to ask the government to accept a claim. Although investors are not parties to BITs, they nevertheless give them the right to admit host states to international arbitration, and they should not exhaust any domestic remedies. The investors do not need to involve their government. The host State must not agree to arbitration as this process is mandatory as soon as the investor calls for it. There is also no risk that the dispute will become the only one on the list of bilateral disputes (including other commercial issues) between the investor and another state. If the argument is resolved in favor of the investor, the BIT requires the arbitral award to be enforceable in the host state’s courts. If the host state does not legislate for this or intervenes in the enforcement process, this will lead to different investor-state demands. Still, it will negatively affect the host state’s position in other states and their investors’ eyes.

BITs have such an effective dispute resolution mechanism that the initiation or mere threat of an arbitration process can persuade the host State to resolve the dispute without having to go to court. Most investor states have model BITs that they adhere to in varying degrees, depending on the host state’s negotiation strength (Ye, 2019). Although the obligations are expressed as mutual, in practice, both parties are a developed state and a developing state, the former representing the investor and the other one being the receiving state. No two BITs are identical, but they usually have relatively similar definitions of “investor” and “territory”, and fair and equal treatment provisions; national or most favored nation (MFN) regime for taxes, repatriation of investments, payments, income, profits, expropriation, settlement of disputes.

Moreover, the provisions are similar regarding the BIT duration and its further application to investments tree made before its termination. It should also be said about those investments that are protected through the conclusion of a BIT. BITs protect assets made by citizens of one state in the territory of the receiving state. Citizens are defined as individuals holding the citizenship of the investor’s condition, and legal entities are corporations, partnerships, firms, or associations created or established by its legislation.

Reference

Ye, F. (2019). The impact of bilateral investment treaties (BITs) on collective labor rights in developing countries. The Review of International Organizations, 1-23.

Introduction

In economic literature, monetary policy is most often defined as central bank policy. Monetary regulation is one of the elements of the state’s macroeconomic policy. This is a set of short and long-term measures aimed to change the money supply in circulation, the volume of credit, the level of interest rates, and other indicators of the loan capital market. Therefore, the central bank of any state acts as a subject of monetary regulation. It controls money turnover not directly but through monetary and credit systems. By influencing credit institutions, it creates specific conditions for their functioning. In the course of the evolution of the world economy, the central bank has become the prevailing type of monetary authority worldwide. It is the monetary authority with discretionary powers in the area of ​​monetary and exchange rate policy and is also responsible for overseeing the banking sector.

Central banks of developed and developing countries function differently due to their distinctive economic capabilities, availability of free funds, interaction with active market participants, and other criteria. At the same time, some similarities may be observed, for instance, courses to maintain price stability. This work aims to identify the similarities and differences between central banks in developed and developing countries by analyzing relevant data and specific conditions that determine the success and sustainability of their operations.

Reasons for Differentiating the Opportunities of Central Banks

The degree of openness and transparency of central banks depends on each state’s level of economic development and the strategy of monetary policy, and this is politically true for political institutions. Reality shows that developed economies have a higher level of openness and transparency than developing economies (Hughes Hallett and Proske, 2017). Central banks pursue monetary inflation targeting policies with greater transparency than central banks pursuing exchange rate targeting policies. In Figure 1, the main functions of these boards are reflected (Functions of a central bank, 2020). These peculiarities of work are crucial aspects determining the sustainability and effectiveness of central banks.

Central banks occupy a special position in the economy and, for this reason, become the centers of the credit system. They have close ties with governments, advise them, and implement in practice the monetary policies of states. According to the United Nations Environment Programme (2017), this board acts as the banker of the government in the broadest sense of the word. The central bank performs the function of the body of state regulation of the economy. It is empowered to regulate the monetary sphere, keeps official gold and foreign currency reserves, and manage them on behalf of the state (Martínez-Hernández, 2017). However, central banks of different countries solve their tasks distinctively. The fields of control that differ are the emission of money, the implementation of monetary settlements, performing the role of a financial agent of the treasury, providing loans to the national banking system, and other functions (Vernengo, 2016). The relations between the government and the Ministry of Finance are distinctive. The set of administrative and market methods of regulation in the conduct of credit policy is individual, and the scales and forms of refinancing of commercial banks are unique.

The capital of central banks can have a different form of ownership – state, private (joint-stock), and mixed when the state owns only a part of the bank’s capital. Today, according to Martínez-Hernández (2017), in most countries, this capital is wholly owned by the state. In some states, its shareholders are commercial banks and other financial institutions. Whether the state owns the capital of the central bank or not, there are always close ties between the central bank and the government due to the interests of both sides. Thus, there is a need to compare how such board functions in distinctive economies to find common and distinctive features and highlight the unique peculiarities of the relationship between central banks and financial institutions.

Peculiarities of Central Banks in Developed Countries

In almost all economically developed countries, there are several laws in which the tasks and functions of the central bank, as well as the tools and methods for their implementation, are formulated and fixed. In some states, as Bodea and Hicks (2018) argue, the main task of the central bank is reflected in the constitution. As a rule, the main legal act governing the activities of the national bank is a specific law regulating this board. It determines the bank’s organizational and legal status, the procedure for appointing or electing its senior staff, and its status in relationships with the state and the national banking system. This law establishes the powers of the central bank as the emission center of the country.

Although there are many common points in the banking legislation of different countries, one can find significant differences in the relevant legal acts even among states that are at the same level of economic development. According to Vernengo (2016), the laws on central banks can be differentiated based on the degree of the regulation of this board’s functions. In particular, the topics are raised on how specifically its tasks and the instruments at its disposal are defined. German and Austria can be cited as examples of countries where the legislation on the central bank is most clearly defined (Martínez-Hernández, 2017). For instance, foreign currency reserves that largely shape the stability of economies are also regulated by these bodies. In Figure 2, the comparison shows how foreign currency reserves are allocated by using the example of advanced and emerging economies, with the Chinese economy as an individual industry (Chiţu, Gomes, and Pauli, 2019). As a result, one of the features of the central banks of developed countries is the presence of a solid legislative framework dictating the functions and powers of this body.

An important condition for the functioning of the central bank in the country’s economy is the degree of consistency of its policy with the economic policy of the government. This implies the principles of interaction of the central bank with the national banking system (United Nations Environment Programme, 2017). The central bank’s policy should be in line with the policy pursued by the government of the country. At the same time, the state cannot have unlimited power. Whether the central bank’s capital is owned by the government or not, this financial board is a legally distinct entity (United Nations Environment Programme, 2017). It disposes of one’s capital as an owner, and its property is separated from the property of the state. A strong economy can allow such independence, and in developed countries, this principle of interaction is clearly expressed in the separation of assets and functions.

As a result, the degree of independence of central banks differs from country to country. According to Martínez-Hernández (2017), in a number of states with strong economies, for instance, the USA, Germany, Switzerland, Sweden, and the Netherlands, central banks are legally accountable to the parliament. It is believed that such banks are more independent and have individual powers. At the same time, the legislation of these countries provides for the reporting of the central bank to the government. Thus, the US Federal Reserve System, which is the central bank of the country, submits to the US Congress a report on its activities twice a year (Jaremski and Wheelock, 2017). According to the European Parliament (2020), the central banks of Germany and Japan send reports to the parliaments of their countries annually. As a result, the considered financial boards in developed countries may be characterized as those with a high degree of reporting.

The banking laws of individual countries also differ in the regulation of the relationship between the central bank and the executive bodies of the government. For instance, in the Law on the German Federal Bank, the provision on the independence of the central bank from the government finds a clear expression (European Parliament, 2020). The independence from the executive branch is characterized by the possibilities of appointing and dismissing the governor, appointing and defining the limits of powers of the Board of Directors, and some other control functions. Therefore, when summarizing the characteristics of central banks in developed countries, one can highlight such distinctive aspects as clear legislative frameworks regarding their work, a high degree of independence, and stable and regular reporting.

Differences between Central Banks in Developing Countries

The economies of developing countries, with all the variety of their features, are characterized by a high dependence on the world market situation and the need to use monetary policy measures to regulate currency rates. According to Dafe (2017), interest rates need to remain high to offset holders of risky currencies, and lower interest rates may lead to capital outflows. Internal vulnerability, high inflation, and an underdeveloped financial market are also the reasons for the low flexibility of interest rate policy, and developing countries may feel “the IMF’s criticism” (Dafe, 2017, p. 321). Low-interest rates can provoke an escape from the national currency and a spike in the volatility of prices and currency rates in the domestic market. On the one hand, the limited possibilities of applying the interest rate policy presuppose an appeal to non-standard measures. On the other hand, the need for currency targeting in any form reduces central banks’ opportunities to pursue the unconventional monetary policy. As a result, developing countries do not have the same capabilities as developed ones and are forced to adapt to specific conditions, which complicates the free growth of economies.

Given this dependence on stronger participants in the global financial market, central banks in developing countries are much less independent. In particular, Masciandaro and Volpicella (2016) note that this criterion correlates directly with the inflation rate and shows that the fewer opportunities central banks have, the higher the risk of inflation. As a result, the distribution of assets is not the prerogative of this body, and the state controls all foreign currency reserve operations, thereby excluding the adoption of non-standard or individual decisions by central banks. Global agencies sometimes offer support for these banks to maintain performance, and in Figure 3, a graph shows how the level of central bank independence (CBI) has evolved over recent years across countries (Garriga and Rodriguez, 2020). However, based on this graph, one can observe that the CBI of non-OECD countries has a tendency to decline, which confirms the idea of ​​insufficient independence of developing countries’ central banks.

The methods of managing the existing assets are a factor that largely distinguishes the central banks of developed countries from those of developing states. While taking into account the fact that in countries with strong economies, special laws exist that determine the measures of operation and control, the gap becomes even wider. The absence of such legislative frameworks in countries with weaker economies makes the management process less regularized. For instance, developed economies actively use balance sheet policies, including quantitative easing, credit easing, and the extended maturity of the central bank’s portfolio (Martínez-Hernández, 2017). Developing economies, in turn, focus on direct instruments, such as lowering reserve requirements, which limits their capabilities and does not allow adopting flexible measures to coordinate development paths.

The intensity of unconventional monetary policy measures in developing countries is significantly lower than in developed countries. In a sustainable financial market, leading central banks are able to apply credit and quantitative easing extensively without fear of inflationary consequences (Dafe, 2017). Developing countries are wary of pursuing loose monetary policies due to potential capital outflows and inflationary implications. The balance sheets of the central banks of developed countries grow much faster and more successfully than those of the central banks of emerging markets. According to Bodea and Hicks (2018), in developed states, this is due to an increase in credit support measures, quantitative easing, and growth in the reserves of financial institutions. In developing economies, the central banks operate less effectively due to the almost complete absence of credit and quantitative easing. Moreover, in some cases, a decrease in their size is observed due to the depletion of international reserves. As a result, the central banks of developing countries do not feel the need to report regularly since no substantial transactions or operations are conducted. Therefore, in terms of stability, these boards in developed states are more sustainable.

Similarities Between Central Banks in Developed and Developing Countries

Whether the central bank’s capital is owned by the government or not, there should be a clear interaction between them in the conduct of economic policy. The authorities should be interested in the reliability of the bank since it plays a significant role in the implementation of economic policy. In general, Sims and Wu (2021) note that any central bank performs a similar set of functions to its foreign counterparts. The range of tasks and procedures includes issuing banknotes, conducting monetary policy, foreign currency policy, refinancing credit institutions, regulating their activities, that is, banking supervision, acting as a government agent, and many other tasks. Central banks manage the entire credit system of the country, thereby creating a background for cash flows and budget allocation. Therefore, regardless of the stability of the economy or the country’s status, its central bank carries out a certain set of procedures that are invariable and mandatory in any state.

Another similarity between the central banks of developed and developing countries is approximately the same results of policy interventions, which, nonetheless, differ in their scale. As Sims and Wu (2021) argue, the macroeconomic effects of specific optimization measures, for example, strengthening accountability, are directly proportional to the resilience of current banking systems. In other words, the central bank of a developing country can optimize certain aspects of work in the same way as that of a developed country if the right algorithms are applied. For instance, reassigning the bank’s management can bring powerful results and positive implications om the sustainability of current financial policies. Therefore, from the standpoint of organizational aspects, many central banks of different states can operate in a similar way, although the parameters of accountability and independence are distinctive.

The gradual renewal of the software and technical components of central banks’ work worldwide is a characteristic feature of both developed and developing countries. Despite distinctive performance indicators, the technical optimization of the resource base and operational capabilities is carried out in financial systems globally. For instance, in Figure 4, a graph is presented that reflects the use of fast payments as a technology that has evolved over time (Carstens, 2019). The involvement of countries with growing economies in this process is natural since the dynamics of the world financial market are high. To address the interests of stakeholders, including governments, appropriate innovation is needed. Thus, the gradual optimization of the resource and technical base is a factor that brings the central banks of states with distinctive economies closer and reflects similar trends in the financial market.

In terms of narrower operational specifics, the central banks of developed and developing countries may also share similarities. Despite the distinctive performance and resilience factors, these boards strive to maintain similar goals in their work. According to Bodea and Hicks (2018, p. 362), “credit rating agencies have also explicitly stated that they value the transparency of policies, data reporting, and institutions”. The gradual transition to more advanced management algorithms, the introduction of modern technological innovations, and other interventions bring developed and developing economies closer together and reflect their interests in creating sustainable financial control systems. Thus, the basic transactional and oversight functions, the transition to advanced asset management principles, and the work to optimize internal policies to ensure sustainability are the similarities between central banks in developed and developing countries.

Conclusion

The assessment of the characteristics of central banks in developed and developing countries allows highlighting the common and distinctive features between them and citing specific factors that influence the distinctive management, operational and other practices. High accountability, independence from most oversight bodies, and robust legislation are the features that distinguish the central banks of developed countries from those of developing ones. However, individual factors may be cited as the similarities between these boards. The pursuit of optimization through innovation, promoting identical financial activities, and similar macroeconomic outcomes of interventions are the features that bring central banks of developed and undeveloped countries closer together. Increasing productivity, achieving independence, and strengthening positions in the domestic market are valuable objectives to realize.

References

Bodea, C. and Hicks, R. (2018) ‘Sovereign credit ratings and central banks: why do analysts pay attention to institutions?’, Economics & Politics, 30(3), pp. 340-365.

Carstens, A. (2019)The future of money and the payment system: what role for central banks? Web.

Chiţu, L., Gomes J. and Pauli, R. (2019) Trends in central banks’ foreign currency reserves and the case of the ECB. Web.

Dafe, F. (2017) ‘The politics of finance: how capital sways African central banks’, The Journal of Development Studies, 55(2), pp. 311-327.

European Parliament (2020) Accountability mechanisms of major central banks and possible avenues to improve the ECB’s accountability. Web.

Functions of a central bank (2020). Web.

Garriga, A. C. and Rodriguez, C. M. (2020) ‘More effective than we thought: central bank independence and inflation in developing countries’, Economic Modelling, 85, pp. 87-105.

Hughes Hallett, A. and Proske, L. D. (2017) ‘Conservative central banks: how conservative should a central bank be?’, Scottish Journal of Political Economy, 65(1), pp. 97-104.

Jaremski, M., & Wheelock, D. C. (2017) ‘Banker preferences, interbank connections, and the enduring structure of the Federal Reserve System’, Explorations in Economic History, 66, pp. 21-43.

Martínez-Hernández, F. A. (2017) ‘The political economy of real exchange rate behavior: theory and empirical evidence for developed and developing countries, 1960-2010’, Review of Political Economy, 29(4), pp. 566-596.

Masciandaro, D. and Volpicella, A. (2016) ‘Macro prudential governance and central banks: facts and drivers’, Journal of International Money and Finance, 61, pp. 101-119.

Sims, E. and Wu, J. C. (2021) ‘Evaluating central banks’ tool kit: past, present, and future’, Journal of Monetary Economics, 118, pp. 135-160.

United Nations Environment Programme (2017) On the role of central banks in enhancing green finance. Web.

Vernengo, M. (2016) ‘Kicking away the ladder, too: inside central banks’, Journal of Economic Issues, 50(2), pp. 452-460.