I am from Dayton, Ohio, and I am in the Class of 2017. I enjoy a variety of hobbies including playing basketball and football, watching the University of Kentucky basketball team, travelling, snowboarding, hiking, and spending time with family and friends. I am very excited about the upcoming trip to Nepal for numerous reasons. I believe it will be a huge opportunity for me to learn about their culture as well as observe how other countries are different than the US economically, socially, and environmentally. Additionally, I am looking forward to working with the people and local businesses of Nepal to make a difference and provide ideas that will have a positive effect on the lives of others.
· First Challenge: Remittances reach 4 Billion Dollars a year
o ¼ of Nepal’s GDP
o 70% of the population rely on remittances to survive
o 1,500 leave each day to work abroad
o 2.2 Million currently work abroad out of 31 Million total population
§ Despite terrible working conditions abroad, Nepalese citizens can potentially make 3 times more than doctors by being a cook in Afghanistan
§ On average, it takes a year in Nepal to make 1500 Dollars, whereas working internationally it can take a month to earn the same amount
o “Double edge sword” – Earn money abroad, buy imported goods
o “Dutch Disease” – Other industry do not develop as they rely on this one source
· Second Challenge: Government Involvement with Remittances
o Government running a surplus because of tax revenue on imported goods, but they do not invest in infrastructure leading to no foreign investment
§ Kathmandu is extremely vulnerable to seismic activity
§ With lack of infrastructure in place and no regulations on development, an earthquake could potentially kill hundreds of thousands
o Remittances create “rent-seekers” within the government
§ No motivation to develop their own economy as they are making money from taxing remittances and imports
· Third Challenge: A lack of law enforcement coupled with a non-transparent government
o Businesses and governments are wary to invest in Nepal due to corruption and lack of transparency
§ Potentially have to pay heavy insurance fees for building in Nepal due to lack of law enforcement activity
o Local NGO’s have to pay up to 50% commission for building permits
o Estimated that 60%-90% of funds are misappropriated at the national level
o Court system is plagued by corruption, leading to inefficient dispute settlement mechanisms (bribes)
o Police corruption, especially lower level authority, do not get paid enough
§ Take bribes to make up for lack of legal pay
o No effective reporting due to fear of government backlash (lack of transparency)
o General public unaware of where funds are misappropriated
§ No authority or inquiry of government actions
In preparing for the poverty alleviation trip to Nepal, I recently read the book titled “The Elusive Quest for Growth” written by famed economist William Easterly. This book focuses on how various poverty alleviation attempts have failed due to Easterly’s belief that the aid provided lacked the proper incentives to individuals, businesses, and governments. I found this book to be enlightening on many aspects of poverty and poverty aid including topics such as government corruption, the different models of “filling the finance gap”, and knowledge matching, which is the idea that knowledge is worth more when it is matched with others with parallel proficiency. However, there were two ideas that garnered my attention more than the other relevant topics Easterly wrote about. These ideas were that investing in education and capital resources is problematic, which is contrary to what I have learned about thus far in my short education span.
Starting with my first economics class in high school, I can recall many of my teachers feeding me the idea that investing in and accumulating capital resources would lead to long term growth. The teachers each drew the same production possibilities frontier (Figure 1) on the whiteboards and explained that at certain points on the curve, reasonable amounts of growth would ensue should a country invest their money and resources into capital machinery. However, Easterly finds this assumption to be false as he believes that investment in machinery is not the key to growth, but rather the investment in ever-improving machinery and technological process would lead to improvements in worker productivity in the long run. Additionally, Easterly states that investment in machinery needs to be motivated by a concern for investing in the future if it is to truly contribute to economic growth in the long run. Finally, in regards to capital accumulation and long term growth, I found it interesting that Easterly challenged academia by stating capital accumulation can only benefit a country in the short run and during a time of transition, as any other situation would simply diminish factor returns.
William Easterly also surprisingly surmises that educational expansion does not guarantee economic growth as he believes there is little incentive for students in poor countries to value and invest in their education if there is little or no future return on that investment. In order for an education to provide a future return on the investment, the countries society must first have efficiently functioning institutions, markets, and businesses in place that foster, incentivize, and provide a demand for skilled workers. Finally, Easterly states that most poor countries education systems, both compulsory or not, provide a bad quality of education. This is possibly because most teachers in such countries are severely underpaid and thus lack the motivation to work hard combined with student’s lack of basic educational material such as books and pencils. Coincidentally, Easterly in fact gives Nepal as an example of a country that drastically increased the primary education rate from 10% to 80% in the span of 30 years; however, Nepal has lacked sustained economic growth and continues to ask for foreign economic aid.