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This paper was prepared for presentation at the Plenary session of the African Economic Research Consortium held in Harare, Zimbabwe, in November 1997. The authors are grateful to Pranab Bardhan, Pierre Dhonte, Mohsin S. Khan, Peter J. Montiel, and the participants in the AERC Plenary for comments on an earlier draft of this paper. The authors remain responsible for any remaining errors.
For example, Dia (1994) notes that “in many SSA countries, development efforts are threatened by the ineffectiveness of the civil service.” The role of the state and the failure of institutions are at the heart of the analyses of other African writers like Ake (1996) and Dia (1996).
Pritchett (1997) finds no evidence to support the hypothesis that rapid rates of growth of education capital produce greater growth.
An example of the latter approach is Barro (1990), who assumes that government produces a public good which the private sector uses as an input into its production process.
In the extreme case of constant returns to scale the number of entrepreneurs will not matter. In the case of diminishing returns, considered here, ability to expand is technologically limited.
Increasing returns to ability in entrepreneurship implies that a person with double the ability earns double the income as a worker, but more than double the income as an entrepreneur for a fixed firm size.
This captures in a very simple way an attempt at a government wage structure that is motivated by considerations other than those related to the market.
Snapshots on the basis of sparse and disjointed data series are obtained from some individual efforts which demonstrate the nature of problem. It is surprising that there is no systematic effort to collect more information on this issue which is considered to be at the heart of economic development.
The information that is available is itself affected by public sector inefficiencies. For example, increasing public sector inefficiency leads to the problems of ghost workers that makes it difficult accurately to record public sector employment (see Lindauer and Nunberg (1994)).
For example, as far back as 1983, Gould and Amaro-Reyes noted that in Africa and Latin. America, salary levels at middle and low level were at times so low that officials could not even have a balanced diet.
Through a fairly comprehensive cross-country study of government wages relative to the private sector, Heller and Tait (1984) showed that during the late 1970s and the early 1980s the ratio of public wages to private wages was lower in developing countries than in industrial countries. This evidence is somewhat surprising since one would expect that in developing countries, on average, the quality of human capital would be higher in the government relative to the underdeveloped private sector (Heller and Tait, 1984).
After controlling for schooling and potential experience, survey results show that workers in new private firms earn 18 percent more than those in current or former state enterprises.
The data show that public sector wages are, in most cases, lower than private sector wages at both grade levels, particularly at the highest grade levels (see Haque and Sahay (1996)).
The number of countries varies across years according to the availability of data.
See Nunberg and Nellis (1995) and Dia (1993) for reviews of these programs. Lienert and Modi (1997) also provide a more recent survey of the civil service reform efforts.
Lienert and Modi (1997) also show that much of the reduction in the wage bill occurred owing to the CFA franc devaluation.
Compensation policies may be an important determinant of performance: Korea in Heller and Tait’s study is clearly an exception in that the relative wage in the government sector was not only higher compared to other developing countries but also in comparison with the OECD countries; Singapore has used the principle of using private sector wage rates to compensate public servants for a long time (See Lee (1959)). An important determinant in the state-centered development approach followed by the East Asian countries may have been the government’s ability to attract and retain high-quality staff.
See Lienert and Modi (1997).
The analogy with capital flight is made in Haque and Kim (1995). Perhaps because of its ease of measurement, the flight of financial capital has received more attention, though in many countries anecdotal evidence suggests that human capital may also be a major impediment to progress.
For a fuller discussion of the issue of brain drain or the human capital flight problem in the context of an intertemporal optimizing model, see Haque and Kim (1995). In that paper they show that the loss of talent from a developing country can lead to a permanently lower income level as well as a growth rate in that country.
Considerable sums are being spent to collect data on corruption, political and institutional arrangements, living standards etc. but hardly any on the assessment of whether universities have teachers of adequate quality. Such assessment may be important if domestic institution-building is a concern given that ghost workers and unqualified appointments in professional positions can create the impression of adequate staffing.
Surprisingly, little has been done to evaluate and understand the problem. The International Organization for Migration has had since 1983 a program for “Return and Reintegration of Qualified African Nationals.” Since the beginning of the program about 1200 nationals have been assisted in returning to 6 targeted countries. The IOM is targeting another 1000 by the end of 1998 (Davies (1994)).
Typically, technical assistance is made available in areas of public sector responsibility such as institutional weaknesses. In such areas, the public sector rigidly maintains an uncompetitive wage structure (see Haque and Sahay (1995) and Haque and Kim (1995)). Frequently, policy intervention of donors, especially for short term stabilization, results in a reduction of public sector wages (See Kraay and Van Rijckeghem (1995)).
According to the World Debt Tables of the World Bank, “grants” are defined as legally binding commitments that obligate a specific value of funds available for disbursement for which there is no repayment requirements. “Technical cooperation grants” include free-standing technical cooperation grants which are intended to finance the transfer of technical and managerial skills or of technology for the purpose of building up general national capacity without reference to any specific investment projects; and investment-related technical cooperation grants, which are provided to strengthen the capacity to execute specific investment projects.
The TA approach, therefore always places foreign experts in a country. By design, therefore, these experts have to spend the initial period of their stay in a country settling in and learning about the country.
The value of m, can be justified on grounds of hardship and moving to a new environment. It is empirically verifiable given the relatively generous expatriate packages that are given to those participating in the programs.
The result is fairly robust across different wage/ability profiles. See Haque and Khan (1997) for a further discussion.
Revenue generation is often considered an “enclave” activity. The generation of additional revenues without first addressing the weaknesses in expenditures, could easily lead to a further waste of resources.
Nunberg and Nellis (1995) note that interim solutions to pay and employment problems through specialized incentive schemes for topping up executive-level salaries for key government posts, or, more broadly, by widely supplementing civil service salaries through donor-financed activities are not enduring answers to the fundamental problems of civil service incentives; “indeed, they ultimately undermine the likelihood of devising a durable solution.”
For more recent discussions of the importance of rules in the development process see Douglas C North (1993), Dhonte and Kapur (1996).