|Ken Novak's Weblog
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Friday, March 23, 2007
Reverse Foreign Aid:
Important issues with incomplete explanation. "According to the United Nations, in 2006 the net transfer of capital from poorer countries to rich ones was $784 billion
, up from $229 billion in 2002. (In 1997, the balance was even.)" Reasons:
- Since 1990, the world’s nonrich nations have increased their reserves, on average, from around three months’ worth of imports to more than eight months’ worth — or the equivalent of about 30 percent of their G.D.P. China and other countries maintain those reserves mainly in the form of supersecure U.S. Treasury bills.. But the problem is that T-bills earn low returns. All the money spent on T-bills — a very substantial sum — could be earning far better returns invested elsewhere, or could be used to pay teachers and build highways at home, activities that bring returns of a different type. Dani Rodrik, an economist at Harvard’s Kennedy School of Government, estimates conservatively that maintaining reserves in excess of the three-month standard costs poor countries 1 percent of their economies annually — some $110 billion every year. Joseph Stiglitz, the Columbia University economist, says he thinks the real cost could be double that.
- As poorer countries enter the W.T.O., they must agree to pay royalties on [intellectual property] — and a result is a net obligation of more than $40 billion annually that poorer countries owe to American and European corporations.
- The hypercompetition for global investment has produced another important reverse subsidy: the tax holidays poor countries offer foreign investors... Since deals between corporations and governments are usually secret, it is hard to know how much investment incentives cost poorer countries — certainly tens of billions of dollars. Whatever the cost, it is growing, as country after country has passed laws enabling the offer of such incentives.
- The migration of highly educated people from poor nations is increasing. A small brain drain can benefit the South, as emigrants send money home and may return with new skills and capital. But in places where educated people are few and emigrants don’t go home again, the brain drain devastates. .. The financial consequences for the poorer nations can be severe. A doctor who moves from Johannesburg to North Dakota costs the South African government as much as $100,000, the price of training him there. ..
- Most costly to poor countries, they have been drafted into paying for rich nations’ energy use. On a per capita basis, Americans .. create more global warming — than anyone else. .. American energy use is being subsidized by tropical coastal nations, who appear to be global warming’s first victims."
Reasons 1-3 add up to less than $300B of today's $784B. Reason 4 has been happening ever since decolonization, and is substantially offset by remittances from the migrant home. Reason 5 is not monetized today. So the substantial majority of the amount is unexplained -- esp by comparison to 2002, when it was one third the size. What changed so drastically? Does this figure include China's net exports, and their policy of incredibly high foreign exchange holdings, inflating the entire issue? 7:33:20 AM