Development Aid, FDI and environmental protection in Africa

Summary

This thesis examines three approaches to development. The first approach, Official De- velopment Aid, is analyzed with a specific focus on the distributional effects: who ends up benefitting? Next, it examines whether Foreign Direct Investments can lead to develop- ment. It examines two cases of agricultural investments, or large-scale land acquisitions. Finally, this thesis examines how the creation of protected areas can contribute to devel- opment and environmental protection.

Chapter 2 examines how social network-based approaches to technology diffusion affect the final distribution of this new technology. It does this by allocating the new technology to either a group of highly connected individuals (‘centrals’), or a group with very few connections (‘isolates’). These groups are asked to spread this technology to others within their village. We find that both groups are similarly good at transferring knowledge and inducing others to adopt the new technology. However, it also finds important distributional effects: irregardless of who was targeted, the resulting resources ended with those most central. Furthermore, there was strong attenuation of the effect as it diffused throughout the network. This implies that sufficient initial recipients should be selected.

Chapter 3 tests the relationship between interpersonal trust and social network connec- tions. Using a trust game with individuals whose social networks had been fully mapped out, we test whether individuals use their network connections as ‘social collateral’ when choosing who to trust. Individuals indeed trust more when they are directly connected through their social network, but they also trust others more if they shared a greater proportion of mutual connections with the other player. Individuals therefore choose to behave more trusting and trustworthy when faced with players with whom they have a stronger connection.

Chapter 4 examines the impact of a large-scale agricultural investment of 24’000 hectares on the local population. The investment leads to a large drop in average incomes, mainly driven by lower agricultural sales. This is hypothesized to be caused by the large labor demand shock the investment represents, which decreases access to labor and increases the labor price. Indeed, households that work for the investment greatly improve their incomes, with increased village-level inequality as a result.

Chapter 5 examines another important aspect of agricultural foreign direct investment: productive spillovers. It examines a 750-hectare cocoa plantation, created in an area with substantial small-scale cocoa producers. It finds that economic welfare is largely unaffected, but there are some productive spillovers: small-scale cocoa farmers are sub- stantially less affected by a local fungal disease. Productive spillovers might therefore be a positive externality of foreign investments.

Chapter 6 examines the environmental and developmental impact of the creation of a large protected area. The national park is very effective: over the past 20 years there has hardly been deforestation within its boundaries. However, the area around the park (the buffer zone) sees substantial deforestation. To reduce this, a program was set up to induce farmers to move to more forest-friendly cultivation, which was successful: deforestation in the buffer zone went down by 30%. At the same time, this did not make the inhabitants worse off.

Chapter 7 looks across the chapters and provides several overarching insights. The local factor markets appears to be crucial when determining the mechanism behind impacts of interventions. Also, social networks appear to have important bearing on how resources are distributed, though this depends on the context and stakes. Finally, it is possible that more efficient approaches to development might perpetuate or increase existing inequalities, which should be taken into account when designing these programs.