What has been the impact of World Bank upon development in the south - Essay Example

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The SAPs have failed because they have always overlooked the microeconomic factors of risk in the adjustment.In Ghana the macroeconomic reforms designed to save the economies of the countries were not backed by specific measures for removal of the constraints…
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What has been the impact of World Bank upon development in the south
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Download file to see previous pages According to the neo-classical economic theory, the financially weak countries should borrow money abroad to finance their investments and requirement. According to CIA (2009), United States has got the highest level of outstanding external debt, which is approximately $13,450 million. United Kingdom being the second and there are few other countries too. So it can be understood that neither the developing nor the developed countries are immune to the finance deficit problems. This context can be better explained through the dual-gap model, which highlights the aspect of motivation for introducing debt in growth model. This model states that there are two gaps, mainly foreign exchange gaps and saving gaps. These two factors might be scarce to support the growth of the developing countries (Daud, and Podivinsky, 2011, p. 2-4).
High levels of debt could also adversely affect the economic growth of any country. It can be also related to the debt-overhang theory. According to debt-overhang theory, the expected return of external debt is inadequate compared to the contractual value of debt. The heavy burden of debt on the developing countries drains their investments too and returns get taxed away. Apart from this high debt also negatively affect the investment rates and growth of the country because of huge cash flow and has effects of moral hazards. However, on the opposite side, if external debt is considered at the level of foreign borrowings, then it could have a positive impact on growth and investment of the country. The Laffer curve represents the relation between the investment and the face value of the debt. The expected amount for repayment falls when the level of outstanding debt increases beyond the specified mark. So according to the Laffer curve, the expected payment would reduce with the increase in the face value of debt (Zawalinska, 2004, p. 5-6). Since the past decades, policymakers and also academicians have taken keen interest in studying, and investigating theories to develop a link between debt and the economic growth of the global economy, but we would consider a few empirical studies to understand the concepts in this study. Abdelmawla-Mohammed (2005) supports the fact that external debt has a negative effect on the economic growth and development. Studies in about 61 developing countries have been conducted and results reveal that high debt can also create negative effects on the physical capital and productivity growth of the country. This study aims at focusing on the Structural Adjustment Programs (SAPs) of the World Bank and the impact of such strategies on the south. We would follow a well-defined framework to evaluate each dimension of external debt, its effects on economic growth, and effect of SAPs on the economic condition of the developing countries. Also a critical analysis of the negative aspect of SAP of World Bank would be done in this study. World Bank and its Initiative towards Poverty Reduction Richard Peet in his "Unholy ...Download file to see next pagesRead More
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