The papers in this volume were presented at the international conference on "New Approaches to the Design of Development Policies" organized by the Arab Planning Institute (API) in Beirut, Lebanon . In addition to these papers, two invited papers were prepared for, and presented in, the conference by Ibrahim El-Issawy and Mehdi Shafaeddin. The paper by El-Issawy is on "Self-Reliant Development: An Alternative Model to the Washington Consensus and the Possibility of its Implementation in the Globalization Era"; while that by Shafaeddin is on "Is Industrial Policy Relevant to the 21st Century?". These two papers are not included in this volume, but are published as special papers.

In the call for papers for the conference it is noted that the motivation for holding the conference under the above title is the observation that over the period since 1980, and up to the recent past, the design of development policies in developing countries was dominated by Structural Adjustment Programmes (SAPs) of various vintages. This general approach has come to be termed the Washington consensus. Under this approach, and according to the World Bank a “country with poor policies would be one with high inflation, large fiscal imbalances, and a closed trade regime” (World Bank (1998)).

A more comprehensive definition of good policy would be one that takes into account the various elements of the Washington consensus. According to Fischer (2003: 2) “the policy consensus consists of four elements: policies to ensure macroeconomic stability; market-oriented microeconomic policies; integration into the global economy, particularly on the trade side; and a positive role for the government in establishing, monitoring, and developing the institutional framework of the economy, providing public goods including especially social expenditures, and conducting stabilization policies”. The overall development policy orientation of the consensus have recently been “summarized under the triple commandments: stabilize, liberalize, and privatize” .

Though dissatisfaction with the developmental content of the Washington consensus was expressed as early as the mid-1980s it is only after 1995 that steps were taken to fundamentally reorient the policies emanating from the international financial institutions in a development-sensitive direction. Thus, for example, in 1999 a call for the adoption of a Comprehensive Development Framework (CDF) by developing countries was initiated by the World Bank President (Mr. James Wolfenson). Similarly, since 1999 the Board of Directors of the IMF and the World Bank required that Heavily Indebted Poor Countries (HIPC) prepare Poverty Reduction Strategy Papers (PRSPs) before they can access concessional lending. By September 2000, in the context of the UN Millennium Summit, poverty reduction became widely recognized as the overarching objective of development. Such a wide recognition is embodied in the Millennium Development Goals (MDGs) of the United Nations.

The need for reorienting the design of development policy is predicated on the proposition that the so-called “reforms of the 1980s and 1990s have produced disappointing results, especially in terms of growth performance”; and that the “most successful growth performers have followed heterodox policies”.

The major objective of the conference is to debate the existence of new approaches to the design of development policies in the developing countries. Currently there are at least two approaches under discussion. The first approach argues for augmenting the original Washington consensus along several dimensions with emphasis on institutional reforms. To what extent is such an approach feasible? Does it embody a blue print that needs to be applied to each country?

A second approach is informed by the empirical finding that “the vast majority of growth take-offs are not produced by significant economic reforms, and the vast majority of significant economic reforms do not produce growth take-offs”. As a result there is a need for adopting a diagnostic approach to the design of development policy (some express it as a need for a “clinical” approach”). Under this approach each country is invited to get involved in an analysis of what it considers as the most binding constraint of its development performance.

On the basis of the above observations the conference themes were identified to include: the evaluation of development performance (using appropriate development performance indicators) of developing countries over the period 1980-2000 with emphasis on the causal relationship between policies (appropriately defined) and development performance; country case studies on relevant development policies for the 21st century; the relevance of industrial policies for the 21st century; institutional requirements for development; the scope of non-price policies for agricultural development; the set of development policies appropriate for achieving the MDGs and how do they compare with the Washington consensus policies; and, the possible trade-off between growth-enhancing policies and inequality reducing policies, if any .

The conference was organized on the basis of plenary and parallel sessions. Two plenary sessions featured the presentation of the two special papers while in a third one two of the papers in this volume were presented. The rest of the papers were presented in parallel sessions where they were grouped, in a rough and ready manner, as papers dealing with structural issues, and those dealing with macroeconomic issues. In the remainder of this chapter the content of the volume is briefly reviewed on the above categorization of the papers. Thus, section (II) highlights the content of the papers on structural issues while section (III) highlights that of the papers dealing with macroeconomic issues. Section (IV) offers a few concluding remarks.

II. Structural Issues:

Chapter (II) is a version of a paper prepared by the author as background to the conference under the title "Rediscovering Development Policies". Essentially the chapter deals with the question of whether "good economic policy", as defined under the Washington consensus, is relevant for effecting development? It is argued that under "poverty reduction" as the overarching objective of development the definition of "good economic policy" needs to be revisited, and that what is needed is "good development policy". The chapter provides evidence to show that "good economic policy", does not affect the spread of poverty as measured by the head-count ratio, nor does it affect the welfare of the poor as measured by the per capita consumption of the poor. Given the fundamental factors that govern changes in poverty over time both growth enhancing policies (e.g. industrial policies), and redistributive policies (e.g. government employment and fiscal subsidies) are required. It is asserted that this amounts to rediscovering development policies of the 1940s and 1950s.

Chapter (III) on "Globalization, Economic Development and Poverty in South Asia: An Institutional Perspective" is by Syed M. Ahsan, Melania Nica and Jaideep Oberoi, is in the nature of an exploratory analysis of selected elements of a plausible contour of how globalization may affect poverty in South Asia. By globalization is meant both a deeper interpretation involving the “global convergence of institutions” as well as the more traditional concept of economic integration as proxied by measures of openness of the foreign trade regime and long-term international capital flows. The authors address issues both of income and non-income poverty reduction in Bangladesh, India and Pakistan, three of the most populous nations in South Asia. The most important results of the chapter are that globalization, in the sense of convergence of institutions, and after controlling for growth performance, does reduce poverty for the world sample, but it does not affect poverty for the countries of South Asia.

Chapter (IV), by V. Nirmala, is on "The Role of Self Help Group in Income Generation and Poverty Alleviation in Rural India: A Case Study". The chapter analyses the impact of self-help group (SHG) credit on production efficiency, employment, income generation rate and poverty alleviation among rural women in India. Data for the purpose were collected from a random sample of 300 female beneficiaries during September 2003. The results of the paper reveal that the SHG programme have had a favorable effect on all the examined aspects. The regression analysis indicates that greater experience, credit, number of gainful days of employment per annum and regular marketing facilities significantly raised the income generation rate of the sample beneficiaries, while their skill significantly reduced it. This is because the respondents were already trained under earlier intervention schemes. The study recommends investment on female entrepreneurial skill development and provisions of supportive infrastructural facilities, besides constant monitoring by the implementing authorities for sustained empowerment of women and poverty alleviation in the country.

Chapter (V) is on "Structural Change and Poverty: Dynamic Analysis of Bolivian Millennium Trajectories" by Jorge Buzaglo and Alvaro Calzadilla. The chapter claims that in view of the fact that several poor countries are currently implementing poverty reduction strategies, aiming to halve extreme poverty by 2015, due recognition should be given to the effect of output structure. The chapter uses dynamic input–output simulation to explore the effects of different strategies on the structure of output growth and income distribution in Bolivia. The results indicate that the current Bolivian poverty reduction strategy may not achieve the Millennium Goal of halving extreme poverty. Model optimisation is used to find feasible output trajectories minimising extreme poverty. It is shown that growth and changes in output composition are not sufficient to halve extreme poverty by 2015, and a simple income redistribution policy is simulated that achieves that goal.

Chapter (VI), by Mohamed Aslam, is on "Foreign Direct Investment and Industrialization in Malaysia: A Lesson to Middles East Countries". The chapter notes the role of foreign direct investment (FDI) in the Malaysian economy since prior to independence. It is shown that FDI played a crucial role in the Malaysian economy prior to 1957 in the primary and services sectors and since 1958 in developing the manufacturing sector. The design of industrial policy included a long-term manufacturing development plan, institutional development related to manufacturing sector development, creation of attractive incentives, business council establishment with main trade partners and other policies related to investment and international trade. The author concludes that even with a highly globalized world economy, and despite the tough competition in attracting FDI, and in view of the early stage of industrial transformation of Middle East Countries, the experience of Malaysia provides useful lessons for these countries on how to deal with FDI and industrialization.

Chapter (VII) on the "Resource Curse Spillovers in the Middle East" is by Marcus Marktanner and Joanna Nasr. The chapter uses a path-analytical approach to examine the distortionary channels that the primary resource curse takes directly and indirectly on economic, social, and political variables. The channels are manifold. The oil curse increases income inequality, undermines industrial development, reduces capital formation, slows demographic transition, and favors oppressive governance. The authors verify the channels not only for economies based on resource rent extraction operating in a resource rent extraction region, but also for economies not based on resource rent extraction. It is found that the strongest spillover effect of the resource curse is channeled through oppressive governance.

Chapter (VIII), by Ibrahim Elbadawi and John Randa, is on "Assessing the Development Impact of CDF-like Experiences". The CDF is the 1999 World Bank's “Comprehensive Development Framework" initiative. The chapter explains that the CDF vision is articulated around four major principles: long-term, holistic development framework; country ownership of development programs and policies; country-led partnership among various stakeholders; and, results orientation. The chapter argues that though the CDF is of recent origin, its principles are not new and that they suggest some explicit processes that can be approximated by quantitative indicators using available cross-country data. The chapter develops quantitative indexes of CDF-like experiences and analyzes their development impact. Three main findings, and some policy implications, are reported. First, development strategies adopted by countries or the type of institutions they develop are endogenous to country-specific socio-political characteristics and initial conditions. Second, sustaining CDF-like development strategies is more challenging in countries with fractionalized societies and non-inclusive political regimes, especially when their economies are susceptible to external shocks. Third, CDF-like development is associated with superior development outcomes, including that they promote aid effectiveness. However, when accounting for the CDF-like development effect institutions do not appear to have an independent effect on growth and aid effectiveness. The implication of this finding is that, whenever possible, directly promoting the right types of “deep” development processes is more effective than attempting to influence intermediate outcomes, such as institutions of development policy.

III. Macroeconomic Issues:

Chapter (IX), by Imad Moosa, is on " Domestic Saving and the Financing of Arab Economic Development: A Reconsideration of the Feldstein-Horioka Puzzle". The chapter deals with the implication of the high correlation between domestic saving and domestic investment. It starts off by noting that a critical implication of such high correlation is that capital is so immobile that economic development cannot be financed by resorting to foreign capital. The chapter tests the Feldstein-Horioka puzzle, using time series data from eleven Arab countries, by circumventing two of the problems associated with previous studies: the use of averages and missing variables. The results show that the strong correlation between saving and investment is likely to be the product of missing variables. It is concluded that while the countries considered are not necessarily constrained by the availability of domestic savings, their ability to attract foreign capital is an entirely different matter.

Chapter (X), by Brahim Mansouri, is on "Speed of Adjustment, Sequencing and Outcomes of Macroeconomic Stabilization and Structural Reforms in Morocco: A Political Economy Analysis". The author argues that the design of economic reform policies need to take into account the political and institutional contexts in which they are to be applied. A detailed account of the case of Morocco is presented. It is concluded that, in addition to the speed of adjustment and sequencing, reform outcomes in Morocco may be due the economic reforms had not been accompanied by political and institutional reforms (e.g. democratic governance, state capacity and civil society).
Chapter (XI), by Rodolphe Desbordes and Vincent Vicard, is on "Being Nice Makes you Attractive: the FDI - International Political Relations Nexus". The chapter investigates whether the quality of diplomatic relations between a developing country and the rest of the world influence the volume of foreign direct investment (FDI) that it receives. An indicator of the quality of diplomatic relations is constructed based on the use of a new political events dataset. The authors carefully choose an econometric specification which not only takes into account the self-reinforcing effect of FDI but also deals with the possible endogeneity between diplomatic relations and FDI. Econometric results confirm that FDI and diplomatic relations are endogenous and indicate that the quality of diplomatic relations and the existence of an armed conflict on a host country territory strongly influence the location choices of multinational enterprises. Furthermore, it is shown that the signature of bilateral investment treaties is important channel through which diplomatic relations exert an impact on FDI.

Chapter (XI), by Ghassan Omet, is on "Does the Private Sector Reciprocate the Good Intentions of Government Fiscal Policy? The Jordanian Banking Sector Case 1990-2003". The chapter with the response of Jordanian banks to the fiscal reform measure of 1996 that reduced the corporate tax rate on the banking sector’s profits from 55 percent to 35 percent. Such a measure, the chapter notes, is expected to increase the efficiency of financial intermediation as reflected in reduced interest rate spreads. The chapter uses bank-level data to examines whether or not the 1996 tax reduction led to a decrease in interest rate spread in the Jordanian banking sector. The econometric results, and contrary to expectations, show that following the 1996 reduction in the tax rate, net interest margins increased in a statistically significant manner. The implication of such a result is that the economic benefits of any economic reform measure would be curtailed unless the private sector reciprocates the good intentions behind such policy reforms. It is concluded that the results of this chapter calls into question the view which argues that governments must only create enabling economic environments conducive to private investment and growth.