International Public Goods

As the world becomes more integrated through trade, financial flows, and the movement of people, a new set of public policy challenges arises.¹ National policy initiatives are necessary, but insufficient. Indeed, actions taken in the national interest can sometimes make matters worse from an international perspective. Globally coordinated efforts are needed to deal with such challenges as climate change, the AIDS epidemic, and financial crises. If these threats to global stability can induce global incentives to work collectively and cooperatively, they can be turned into opportunities. Humane and equitable globalization requires a shared vision of global prosperity. This shared vision makes possible international public goods (IPGs), which include the rules that apply across borders, the institutions that supervise and enforce these rules, and the benefits that accrue without distinctions between countries. The benefits accrue, for example, in the form of a cleaner environment, the lowered prevalence of disease, a more stable global financial system, and a reduced level of international conflict.

International public goods (IPGs) achieved prominence with the United Nations Development Programme’s publication Global Public Goods (Kaul, Grunberg, and Stern 1999). That study adopted a wide-ranging definition of IPGs that encompassed a broad range of development activities. Analytically, the definition has since been narrowed by, for example, Kanbur, Sandler, and Morrison (1999). Operationally, the World Bank (2001) has further distinguished between core and complementary activities associated with the provision of IPGs (see also chapter 1 in this volume). The essential point here is that IPGs provide widely available benefits, and providing these benefits is the core activity. However, helping people or countries to actually avail themselves of the public goods (to “consume” them) may also be necessary. Such enabling expenditures are complementary to the core activities.

As discussed in chapter 2, public goods have two important characteristics: use by one party does not diminish the amount of the good available to others, and others cannot be excluded from enjoying a public good, even if they had no hand in its provision. In a national context, public goods provision thus raises two problems. The first is identifying the economically efficient level of provision, a problem of valuation. The second is designing policies and institutions able to supply this level of a good, a problem of incentives. These problems also frustrate the provision of international public goods (IPGs), but in an international context, the difficulties with valuation and the setting of incentives are compounded because, in the absence of a hierarchical command structure, the mechanisms for facilitating the supply of public goods are limited, and often fragile.

In recent years the World Bank, the United Nations (UN), and other international organizations have recognized the growing importance of international public goods (IPGs) to their missions.¹ IPGs possess benefits that spill over national borders so that their benefits extend beyond the country of origin. Provision of these goods represents a novel rationale for foreign assistance that transcends country-based motives, because the donor may also gain from the good’s benefits (Ferroni 2000; Jayaraman and Kanbur 1999; Kanbur, Sandler, and Morrison 1999; Sandler 1997). Technology continues to provide new forms of public goods whose benefits cross political and generational boundaries.² When an IPG is purely public, both payers and nonpayers receive its benefits, and one person’s consumption does not necessarily reduce the benefits available to others from the same unit of the good. In the extreme case of global public goods (GPGs), the good’s benefits disperse worldwide, for instance, efforts to curb global warming, to reduce ozone depleting chlorofluorocarbon (CFC) emissions, to map the human genome, or to preserve the earth’s biodiversity. IPGs are associated with a wide range of activities involving the environment, security, financial stability, scientific discovery, health care, infrastructure, poverty reduction, culture preservation, and research and development.

Although discussion of international public goods (IPGs) and the need to finance them is of fairly recent vintage, donors have been granting aid, or official development assistance (ODA), in substantial quantities for many decades, and have always allocated some of this aid to financing public goods. IPGs have not suddenly appeared. International agricultural research and research on disease eradication, for example, have a long history and both have been financially supported by aid from donors.

One of the roles of official development assistance is to promote the delivery of public goods not provided by the market or by recipient governments in the absence of such assistance. This includes the provision of international public goods (IPGs), a challenge that has attracted growing attention in recent years. The case for IPGs, separable into global and regional public goods, arises from the collective action problems and strong externalities that are associated with such transnational challenges as financial contagion, the spread of communicable diseases, or the degradation of shared natural resources. Transnational development challenges—and the hard edges of globalization—are becoming more visible as countries become more interdependent and are more actively pursuing integration.