Economics - Business in Emerging Markets, Sub-Saharan African Economy vs East Asian Economy
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Course
Business In Emerging Markets (5T6Z0041_2021_9Z5F)
Institution
Manchester Metropolitan University (MMU)
Book
Economic Development
This introduction to the module Business in Emerging markets includes notes derived directly from lecture material produced by Dr Stuart Barrett, Dr Stephen R. Buzdugan and Dr Yontem Sonmez.
Includes notes on the following key thinkers: Acemoglu and Robinson and Nancy Birdsall.
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Economics - Business in Emerging Markets discussing China's economy.
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Business In Emerging Markets (5T6Z0041_2021_9Z5F)
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Week 5 Lecture Notes
5.1 Context and demographics (Africa) 12:50
Africa is referenced as a weak state, a warlord state, a hopeless continent
Between 1970-2018 the average sub Saharan citizen would have seen an increase in income of 30%
compared to 464% of citizens in East Asia
Demographic – they will see the fastest global growth in population, Africa alone will add 3 billion
people, it accounts for 17% of the population and in 30 years’ time they will account for a quarter of
the world’s population. Low growth rates, fast rising population. 1 in 3 people living in SSA are under
10 years of age – a very young population.
5.2 Why is Africa poor? 12:35
In 1945 there was a push by many African leaders for independence from colonial powers &
resolutions decried racial discrimination and imperialism. Most states gained independence from
colonial powers in 1960s-19070
Poverty is a result of weak economic and political institutions
Few incentives for citizens to save and invest
Few incentives for politicians to provide public goods
Primary reason = the shocks: Institutional change has been slow, and set back by ‘shocks’ –
slave trade & colonialism (which they argued prevented endogenous institutional reform)
Centralised political institutions emerged later than in Eurasia and when they did emerge
they were absolute and patrimonial
Issues with colonialism on growth according to Acemoglu and Robinson:
Reinforced authoritarian type rule
Much colonialism was to plunder resources
Little institution building by colonial powers
On independence, many Africa states had weaker institutions than before colonialism
5.3 Why is Africa poor? (2) 11:40
Nancy Birdsall: Aid, weak institutions, the missing middle of Africa
Aid
Historically SSA states aid account for over 10% GDP, in some cases over 30% of GDP (Nancy)
Aid works against the idea that it should be used to encourage entrepreneurship but instead
its being used for crises. (Nancy)
, Week 5 Lecture Notes
Aid can often be a barrier to sustainable development rather than helping it. Aid is more
likely to work in the correct dosage but is ineffective at too high or too low levels. (Sunnie
and Glennie)
Aid will likely have diminishing returns & may potentially have little effect on growth (Sunnie
and Glennie)
Aid effectiveness is affected by domestic political institutions such as political stability and
the level of decentralisation, also the volatility of the aid and how fragmented it is effects
effectiveness (Sunnie and Glennie)
Weak institutions
Many SSA states are trapped with weak institutions due to heavy dependence on mineral
and oil exports – resource curse – how having heavy dependence on natural resources can
have a negative influence on institutions
Low natural openness – high transportation cost due to landlocked, limited access to
sea/rivers
Problematic borders combined with ethnic heterogeneity which together undermine the
legitimacy of the state – ethnic conflicts
Commodity dependence and the volatility that comes with depending on commodities and
the volatility of the GDP as a result
Conflict with neighbouring countries and civil wars – difficult for the state to control its own
country and build institutions
Low non-trade tax revenues – there;s not a connection between citizens and government
because there’s not much to pay tax for in SSA
Prevalent corruption and lack of leadership
The missing middle
Missing middle class, as middle class rises there’s more pressure on the leadership to reform
and provide goods
Middle class are also consumers and entrepreneurs – having a high middle class means there
is a large and important segment concerned with saving, spending and investing which
means they can demand improved institutional arrangements
In the SSA much of the middle class received a smaller share of income from other
developing regions and therefore the middle class is not powerful enough to push for
economic change
Some evidence that there’s a relationship between a powerful middle class and
improvement in various institutional measures such as democracy and government
effectiveness etc.
5.4 Why is Africa poor? (3) 9:15
Dependency theory – developed for post-colonial nations (SSA), to pursue policies of independence
in the sense they should be self sufficient and rely on their own production so restrict imports etc
Part of a wider view/rejection of the western dominated liberal free market democrat view of how
markets should be run
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