Stabilization for sustainable economic growth in fragile states : the case for an Afghanistan trade-based regional economic integration “Silk Road” strategy

Abstract

The goal of this study is to determine how best to stabilize and grow Afghanistan’s economy. Afghanistan is considered to be the quintessential failed state even after thirteen years of development efforts post-September 11. Despite billions of dollars in foreign aid, the population suffers from mass unemployment and meagre living standards and thus remains vulnerable to the eruption of new conflicts. In purely economic terms, international donors’ use of the traditional development aid model in Afghanistan has failed. Afghanistan’s landlocked geography affects the economic initiatives that are meant to spur sustainable development there. This study investigates why the traditional model for supporting fragile and conflict-affected states has failed to stabilize Afghanistan and asks whether there is a more viable approach to economic development that can stabilize and develop a sustainable economy for Afghanistan, as well as for fragile and conflict-affected states in general. Specifically, this study investigates two hypotheses: (1) whether political and security factors affect the implementation and viability of economic interventions in Afghanistan, and (2) whether projects in the transportation, energy, and mining sectors are the most expedient for facilitating regional economic integration by boosting Afghan exports and overall trade. This study’s theoretical framework is a hybrid of fragile state theory and the new economic geography theory. The fragile state theory adopted herein incorporates not only political factors and their programmatic policy objectives, but also economic policy prescriptions stemming from the belief that real world economic relief is equally as important in catalyzing political reform. New economic geography theory requires that landlocked countries such a Afghanistan must devote significantly more resources to the transportation sector, and take advantage of telecommunications and information technology advances to circumvent the additional burden on the transportation sector. This hybrid theory provides the framework for assessing this study’s empirical evidence as to how regional economic integration can sustainably grow an economy. The hybrid theory was tested via an econometric analysis of specific development programs tailored to landlocked geography-based economies like that of Afghanistan. To determine the effectiveness of various economic interventions, the researcher employed a case study approach, focusing on original field research to yield both quantitative and qualitative data. The original field research and econometric analysis resulted in an array of evidence confirmed by various economic indicators. These results demonstrated that the application of the traditional development aid model in Afghanistan had failed; they also aided in the identification of specific “hardware” infrastructure projects and “software” reform interventions that are integral to the establishment of a new development approach and to the re-establishment of Afghanistan as a regional trade and transit hub. In order to introduce evidence capable of testing the hypotheses that underlie the argument, the infrastructure projects were subjected to econometric analysis to determine their cost-benefit and impact on macroeconomic indicators. In addition, the effects of political and security variables upon the economic viability of these hardware infrastructure projects was analyzed using political economy cost-benefit analysis, which combines traditional cost-benefit analysis with the predictive Senturion Predictive Simulation Model. The findings of this study support a novel policy approach that is expressed in the concept of the “Silk Road Strategy”. The strategy situates Afghanistan as a regional trade and transit hub in the “Heart of Asia”. That is to say, the wellbeing of Afghanistan depends upon its implementation of key economic policy reforms in the transport, energy, and mining sectors in order to facilitate trade and become more fully integrated into the regional and global economies. The selected hardware infrastructure projects have significantly increased Afghanistan’s per capita gross domestic product, government revenues, and employment. The study further finds that, in certain politically fractious and unstable regions of the country, implementation of the hardware infrastructure projects may result in increased risk of failure. Furthermore, if regional economic integration is to succeed, Afghanistan must (1) remove the barriers to efficient trade by building its transport and energy infrastructure and (2) implement key economic policy reforms focused on trade facilitation, legal and regulatory reforms. As such, it addresses the challenges encountered by the nexus of economic development, governance, and security in Afghanistan. This study contributes substantially to aid policy by demonstrating the characteristics that are essential to a successful strategy for the development of a failed state that is landlocked, fragile, and conflict-affected. Moreover, this study expands the use of econometric techniques such as cost-benefit analysis to the design of an economic development strategy for a landlocked, fragile, and conflict-affected state. Thus, from both theoretical and applied perspectives, this study will contribute to the emerging bodies of academic research on fragile states; post-conflict reconstruction and stabilization; landlocked least development countries; and applied and theoretical economic growth models.

Date of Award	2014
Original language	English
Supervisor	Mark Evans (Supervisor) & Chris Sadleir (Supervisor)