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This paper uses a new database on foreign aid to examine the relationships among foreign aid, economic policies, and growth of per capita GDP. We find that aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies but has little effect in the presence of poor policies. Good policies are ones that are themselves important for growth. The quality of policy has only a small impact on the allocation of aid. Our results suggest that aid would be more effective if it were more systematically conditioned on good policy.

China’s increased trade with, and investment in, Africa have boosted the continent’s economic growth but have also generated considerable controversy. The aggregate data on China’s overseas direct investment (ODI) in African countries reveal that China’s share of the stock of foreign investment is small, though growing rapidly. China’s attraction to resource-rich countries is no different from Western investment. China’s overall ODI is uncorrelated with a measure of rule of law, whereas Western investment favors the better governance environments. As a result, Chinese investment in strong and weak governance environments is about the same, but its share of foreign investment is higher in the weak governance states. Micro data from MOFCOM’s database on registered Chinese firms investing in Africa between 1998 and 2012 provide a different perspective. Key words in project descriptions are used to code the investments into 25 sectors. This database captures the small and medium private firms investing in Africa. Contrary to common perceptions, there are few projects in natural resource sectors. Most projects are in services, with a significant number in manufacturing as well. Country-sector-level regressions based on firms’ transaction-level data find that Chinese ODI, both horizontal and vertical, is profit-driven, like investment from other countries. In particular, regressions show that Chinese ODI is relatively more concentrated in skill-intensive sectors in skill-abundant countries but in capital-intensive sectors in capital-scarce countries. These patterns are mostly observed in politically unstable countries, suggesting stronger incentives to seek profits in tougher environments.

Four points are made about globalization and health. First, economic integration is a powerful force for raising the incomes of poor countries. In the past 20 years several large developing countries have opened up to trade and investment, and they are growing well--faster than the rich countries. Second, there is no tendency for income inequality to increase in countries that open up. The higher growth that accompanies globalization in developing countries generally benefits poor people. Since there is a large literature linking income of the poor to health status, we can be reasonably confident that globalization has indirect positive effects on nutrition, infant mortality and other health issues related to income. Third, economic integration can obviously have adverse health effects as well: the transmission of AIDS through migration and travel is a dramatic recent example. However, both relatively closed and relatively open developing countries have severe AIDS problems. The practical solution lies in health policies, not in policies on economic integration. Likewise, free trade in tobacco will lead to increased smoking unless health-motivated disincentives are put in place. Global integration requires supporting institutions and policies. Fourth, the international architecture can be improved so that it is more beneficial to poor countries. For example, with regard to intellectual property rights, it may be practical for pharmaceutical innovators to choose to have intellectual property rights in either rich country markets or poor country ones, but not both. In this way incentives could be strong for research on diseases in both rich and poor countries.

The global pandemic and recession, compounded by the pre-existing US-China trade war, have caused speculation about the future of foreign investment and global value chains (GVCs). The two are closely related because it is multinational enterprises (MNEs) from advanced economies that largely organise and manage the complex supply chains that cut across countries to create an efficient division of labour and make quality products at the lowest possible cost. There is likely to be some permanent change in GVCs as a result of the pandemic and trade war, but probably not as much as politicians and some in the policy community expect.

A technique is developed for estimating a cross-country index of real exchange rate distortion, and the procedure is implemented for 117 countries over the 1976-1985 period. The measures of real exchange rate distortion and variability are then used to address the question of whether outward-oriented economies grow more rapidly than inward-oriented economies. The findings indicate that Asian developing economies are more outward-oriented than their counterparts in Africa and Latin America and that outward orientation is highly correlated with per capita gross domestic product growth in the sample of 95 less developed countries (LDC). The results strongly imply that trade liberalization, devaluation of the real exchange rate, and maintenance of a stable real exchange rate could dramatically improve the growth performance in many poor countries. The estimated gains of adopting an Asian level of outward orientation and real exchange rate stability are 1.5% in per capita growth in Latin America and 2.1% in growth in Africa.

The internationalization of China's currency, the Renminbi (RMB) or yuan, has accelerated since the global financial crisis. On the one hand, the rate at which China is overtaking the United States as the largest economy in the world sped up because of the lingering effects of the crisis on U.S. growth and the fact that China weathered the crisis very well. On the other hand, global and Chinese confidence in the dollar and U.S. financial institutions was seriously undermined by the crisis. China's central bank governor, Zhou Xiaochuan, wrote an article in 2009 criticizing the dependence of the world on the dollar and launching a period in which China actively promoted the internationalization of its currency (Zhou 2009).Initially there was steady and rapid increase in measures of internationalization, such as the RMB's share in global payments (Figure 1). However, the growth came to an end in the middle of 2015, and since then China's share has declined modestly. There was also an expectation that China's growing role as a source of development finance would enhance the importance of the RMB. China in the period 2012-14 lent about $40 billion per year to developing countries for infrastructure projects, including along the Belt and Road, according to updated AidData (Dreher et al. 2017). Curiously, most of this lending is in dollars and only 2.6 percent was denominated in RMB.How do we understand the stalled progress in the emergence of the yuan as a major currency? China's prospects to be the largest economy in the world in about 10 years have not changed. But other factors that are relevant for reserve currency status are coming increasingly into play. Prasad (2015) identifies several factors that are relevant to reserve currency status, in addition to market size: open capital account, flexible exchange rate, macroeconomic policies, and financial market development.In addition, there is a significant literature relating financial market development and macroeconomic policies to underlying institutions such as property rights and rule of law and open political institutions. At the moment, China has institutional weaknesses that hamper its emergence as a major reserve currency country. It also has limitations on capital account openness and exchange rate flexibility that are more in the nature of short-term impediments.The next two sections focus on (1) the institutional weaknesses that are long-term impediments and (2) the current situation with macroeconomic policies, the capital account, and the exchange rate. It is not surprising that the initial enthusiasm over RMB internationalization has waned to some extent: China is a long way from meeting the conditions to be a major reserve currency country.

A key issue today is the effect of globalisation on inequality and poverty. Well over half the developing world lives in globalising economies that have seen large increases in trade and significant declines in tariffs. They are catching up the rich countries while the rest of the developing world is falling farther behind. Second, we examine the effects on the poor. The increase in growth rates leads on average to proportionate increases in incomes of the poor. The evidence from individual cases and cross-country analysis supports the view that globalisation leads to faster growth and poverty reduction in poor countries.

Average incomes of the poorest quintile rise proportionately with average incomes in a sample of 92 countries spanning the last four decades. This is because the share of income of the poorest quintile does not vary systematically with average income. It also does not vary with many of the policies and institutions that explain growth rates of average incomes, nor does it vary with measures of policies intended to benefit the poorest in society. This evidence emphasizes the importance of economic growth for poverty reduction.