Measuring Level of Economic Development Attained in Haiti since 1980 - Case Study Example

MEASURING LEVEL OF ECONOMIC DEVELOPMENT ATTAINED IN HAITI SINCE 1980 Name of Student Name of Institution Name of Professor Date of Submission Measuring level of economic development attained in Haiti since 1980 Introduction Over the last three decades, many countries across the globe have experienced exponential economic growth that has propelled them to not only social and economic prominence but they have also earned global political clout. With the adoption of scientific knowledge in the production and manufacturing processes in various industries in these countries especially information communication technology, production and manufacturing industries which are the key drivers of economic success have shot to astronomical levels. This has been further enhanced by the implementation of globalization policies which have sought to transform the globe into one big village with mutual interdependencies. Countries such as China which have fully taken advantage of these new developments in the global marketplace have become influential economic powerhouses. However, economic growth is not driven exclusively by technological progression and globalization of the marketplace; it is also driven by the productive efficiency of labor. A more productive labor marked by high levels of skills in key areas of development has become important factors when it comes to driving these economies in the emerging and established marketplaces. However, the number of the skilled labor must grow relative to economic development of the country. Skilled labor provides the much needed creativity and innovativeness and high productivity required to drive the country forward economically. Therefore, the social and political conditions must be right for skills to thrive, technology to progress and population to grow relative to economic growth. Haiti: A brief introduction Haiti, located at the tip of the Hispaniola Island in the Greater Antillean archipelago, is the most populous nation in the Caribbean. The country is ranked number one in the poverty index of the Western Hemisphere. The country has 54% of its population living in abject poverty while over half of the country’s wealth controlled by a paltry 1% of the population who are mostly the ruling class. 80% of the country’s population lingers below the poverty line while a further 75% of the population living on a maximum of $2 dollars a day (The Economist, 2013; Goldberg, 2012). The education sector in Haiti is virtually under the control of the private sector especially non-governmental organizations (NGOs). Illiteracy levels among the adult population stands at 62%. According to a report released by United States Agency for International Development in 2007, Haiti has over 15,000 schools with over 90% of them being run by non-governmental organizations including churches (United States Agency for International Development, 2007). Much of the social and economic predicaments that have plagued Haiti are closely tied to the volatile political situation in the country that dates back to 1804. From dictators and tyrants like Jean Claude Duvalier to the political and economic dominion by the minority yet educated and rich mulattoes over the blacks who make up 95% of the population, Haiti has had to contend with a widening gap between the rich and the poor. The country has also had its fair share of natural disasters including the devastating January 2010 earthquake measuring 7.0 on the Richter scale (CIA, 2014). The earthquake ravaged the country with the capital, Port-au-Prince, almost decimated. Hundreds of thousands of people lost their lives and the country is yet to recover politically, socially and economically from this disaster. Measuring economic development of Haiti since 1980 Robert M. Solow and Trevor Swan while proposing an exogenous model for economic development made four key assumptions that have revolutionized understanding of differential economic development across many states. The Solow-Swan Model makes four fundamental assumptions which are imperative for its use as an exogenous economic growth model. The model assumes that exogenous economic growth is continuous over time. In other words, the capital stock of the country accumulates over time as the population continues to save. This is because labor input also increases correspondingly with the technological progress. As the government and the population’s income increases as a result of their increased output resulting from increased use of technology, their savings also increases as they set a faction of the income for savings. That is, the gross domestic product increases as a result of an increase in per capita income as the country experiences a technological progress which increases its productive efficiency. This is because such increase in productive efficiency increases capital and labor consumption. The second assumption is that the government does not engage in any trade as this will influence policy and change it into endogenous trade rather than exogenous trade. In addition, there should be no international trade (Agénor, 2004; Barro & Sala-i-Martin, 2004; Barro, 2008). It is also based on the assumption that a constant technology is continually being used to produce a single product. However, all other factors of production are being fully utilized in the production process. The fifth and last assumption of this model states that, labor force, one of the factors of production, continuously grow at uniform rate. However, to calculate economic growth using this model, the values of capital and labor must be definite and well. Generally, this model assumes that the growth of the GDP of any country and hence its aggregate economic growth is determined by technological progress. Therefore, if there is no growth in the productivity of the country (no technological progress or population growth and hence no capital stock growth), the economy enters into a steady where the labor-ratio remains at a constant. The output per worker also remains constant as well as the consumption per worker also remains constant relatively to their income (Barro & Sala-i-Martin, 2004; Barro, 2008). Therefore, with other factors at ceteris paribus, the gross domestic product (GDP) which is a measure of a country’s productivity over a given period of time will increase with increasing technological progression and population. The population’s purchasing power (PPP) increases as their income and savings increases. For many years, Haiti has been plunged into political turmoil which virtually grounded economic development in the country to a halt. Jean-Claude Duvalier who replaced his father, François Duvalier, at the helm of leadership of the country in 1971 was forced into exile by a mass protest by the citizens. Like his tyrant father, Jean-Claude Duvalier visited terror on the population. This was followed by a series of coups which culminated into the Operation Uphold Democracy in 1994 when the United States forces entered the country in a bid to restore democracy. The political upheavals saw several countries including the United States its major donor, cut financial aid to the country between 2001 and 2004. This was repeated in 2004 when a coup d’état forced the United Nations to send a mission to the country. This year marked a new era in the history of country as the international community began to take a keen interest in the politics of the country (CIA, 2014). The World Bank and other countries began offering both monetary and nonmonetary aid to the country. It is estimated that the country received a total of $4 billion from donors (Moloney, 2009). This was further heightened following a series of earthquakes and storms that would hit the countries for the next six years leaving a trail of destruction: death and destruction of property. With increased financial aid from the international community, the per capita income of the country continued to increase. The political turmoil brought the economy to its with years and after years of recession. However, the coming of the peacekeepers brought a period of stability that spurred economic growth as the country recorded a 1.5% economic growth in 2005 (Michigan State University, n.p.d.). From 2004, the country’s per capita income increased from $370 to $670 in 2008. In 2013, the CIA estimated the country’s per capita income stood at $1,300 while the economy is estimated to grow by 3.4% in 2013. Table 1: Per capita income of Haiti from 2004 to 2013 Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Per Capita Income 370 410 480 550 620 680 650 700 760 1,300 Adopted from: World Bank. (2014). “GNI per capita, Atlas method (current US$).” World Bank. Retrieved from http://data.worldbank.org/indicator/NY.GNP.PCAP.CD/countries/AU--XS?display=default The World Bank estimates that the country’s population in 2012 was 10.17 million. The CIA estimates that the population will be 9,996,731 in July 2014 with 34% of the population aged 14 years and below. Those aged between 15 to 24 years make up to 21.6% of the country’s population while 35.3% of the population aged between 25 and 54 years. The rest of the population 8.2% are aged 55 years and above. With the average population growth rate estimated at 1.08% and a life expectancy of 63.18 years, one of the leading causes of deaths in Haiti is AIDs which claims a lot of lives as a result of social and economic disparities in the country (CECOPAC, 2011). Over a half of the population (65.2%) is dependent. The political, social and economic conditions in the country has forced many of its young population to migrate to neighboring countries with almost a million of Haitians living in the United States and another over 800,000 found in Dominican Republic. Others have migrated to Canada, Cuba, France and Jamaica among other countries. With 80% of Haitian graduates having migrated to other countries, the country is suffering from a severe case of brain drain. With few skilled labor to drive its economy, Haiti not only lacks adequate financial resources to drive its economy; it also lacks enough skilled to organize and manage its resources. This has resulted in a slow rate of technological progression and drawing and implementation of visionary and effective economic policies to drive the economic forward exponentially. This is reflected in the slow growth of the country’s per capita income and the gross domestic product (GDP) which is estimated at $8.287 billion in 2013. However, 41% of the country’s GDP is comprised of trade deficit while the country’s Diaspora community contributes up to 52.7% of its GDP in the form remittances (Watkins, n.p.d.). Almost half of the government’s budget (up to 40%) is sourced from the donors which severely constraints the country’s ability to invest and create jobs for the citizens. With no employment, the purchasing and saving power of the citizens is significantly reduced. A reduction in saving power also hinders the investment capability of not only the government but also the citizens. This has reduced the country’s capital stock hence the budget deficit, high levels of dependency and per capita income (CIA, 2014). Government spending is an important driver of economic growth. It enables the government provide essential services and goods including healthcare and education. The education sector ensures that the country has a large of skilled labor by continuous churning out college and university graduates along its conveyor belts. With the education services provided primarily by the NGOs whose capacity is constrained, the country lacks a reliable and efficient platform for training its labor force. They cannot produce efficiently especially with the lack of adequate information communication infrastructures some of ought to be provided by the government. With the mostly unskilled labor dominating the labor market and a financially incapacitated government, Haiti’s spending power and productivity is severely diminished. Conclusion Haiti has a great potential for economic growth in almost all its industries including tourism and agriculture. Even the service industry which currently employs the highest number of people has untapped opportunities which can take the country t greater economic heights. Economic development is the key that can help the country its numerous social and political issues that has plagued it since it gained independent from France in 1804. With an ever increasing number of educated individuals moving abroad to seek for better opportunities, the country is confronted a serious problem of inadequate skilled labor to drive the country forward socially, politically and hence, economically. Classified as a low income country, Haiti heavily relies on donor funding to finance its budget which significantly reduces the government’s capability to provide essential services and goods and investment in income generating activities to create jobs and generate income. This has resulted in an increasing budgetary deficit, high rates of dependency and a vicious cycle of social and political unrest. Haiti’s economic problems primarily stems from social and political arrests that have marred the country for many years. Political stability, which the country has rarely enjoyed, attracts domestic and international investors while also enabling for the development of a pool of skilled labor to drive the economy forward. While its population has grown over the years and therefore increasing its talent pool most of them have migrated to other countries. The situation is further compounded by the numerous natural disasters especially tornadoes and earthquakes which has led to loss of properties and life. Most of these disasters, like the January 2010 earthquake not only cause social unrest but also affects the economic development of the country. Add to the devastating effect of AIDs and racial discrimination which is rife in the country, these factors have literary brought the country’s economy down to its knees. The country’s GDP is very low while the general incapability to spend and save have massively reduced the country’s capital stock and reduced the living standards in the country. However, Haiti has a great potential as seen in the various occasions when peace has returned to the country and donors have given financial aid and cancelled the country’s debt. With the right conditions, the country can grow in leaps and bounds like its neighbors. References Abel, A. B., Bernanke, B. & Croushore, D. (2013). 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