Aid, the Public Sector and the Market in Less Developed Countries

Mosley, Paul; Hudson, John; Horrell, Sara

doi:10.2307/2232927

Cited by 303 publications

(205 citation statements)

References 8 publications

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“…dent variable, while P OL is a measure of ethnic and linguistic fractionalization taken from Taylor & Hudson (1972). 25 Because time-series data are not available for the whole period, averaged 1970-89 data is used. As shown in table 4 the results improve considerably.…”

Section: Resultsmentioning

confidence: 99%

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When is foreign aid policy credible? Aid dependence and conditionality

Svensson

2000

Journal of Development Economics

297

210

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In spite a vast amount of both theoretical and empirical work on foreign assistance and development, little is known about the incentive e®ects of aid. In fact, recent surveys of aid only brie°y mention the possibility of moral hazard situations in the recipient-donor relation, but conclude that conditionality is a way to deal with the problem. However, in this paper we show that an aid contract, as proposed in the literature, is not time-consistent. This may be one explanation for the poor results of the vast amount of foreign aid disbursed to the developing world. Moreover, we show that tied aid, or delegation to a donor agency with less aversion to poverty may improve the equilibrium for all parties in the discretionary environment. Finally, we provide some evidence supporting the basic idea of the paper, namely that aid induces weak¯scal discipline and that increased¯scal di±culties lead to higher in°ow of aid.¤ I am grateful for many useful comments and suggestions by Torsten Persson. I also thank

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Section: Resultsmentioning

confidence: 99%

“…For instance, the possibility of simultaneous causality between aid and the¯scal variable was not taken into account. Boone (1994a,b), and to some extent Mosley et al (1987), are exceptions. Conditionality, and particularly macroeconomic conditionality, has emerged as an important component in foreign aid in the 1980s and 1990s.…”

Section: Introductionmentioning

confidence: 99%

When is foreign aid policy credible? Aid dependence and conditionality

Svensson

2000

Journal of Development Economics

297

210

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“…In the decades that followed, a determined research effort was made to demonstrate the effectiveness of oda in driving growth. Some studies obtained positive results (Levy, 1988), but in others the results were clearly negative (Mosley, Hudson and Horrel, 1987;Mosley, 1980;Boone, 1996). Many of these studies did not treat the endogeneity of oda, which may account for their contradictory results (Arndt, Jones and Tarp, 2010).…”

Section: Official Development Assistance and Economic Growthmentioning

confidence: 99%

Official development assistance, social capital and growth in Latin America

Neira¹,

Lacalle-Calderón²,

Portela³

2016

CEPAL Review

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This study focuses on the relationship among official development assistance (oda), social capital and economic growth in Latin American countries, attempting to determine whether the impact of such assistance on growth is conditional on the receiving country's stock of social capital. To this end, we use "trust" to measure social capital in an unbalanced panel of 18 Latin American countries over the period [2001][2002][2003][2004][2005][2006][2007][2008][2009][2010]. After accounting for country and time effects in a dynamic panel data model, our results show that the impact of oda on growth is indeed conditional on the level of trust that exists. This suggests that this assistance will be more effective when used in a trust-rich environment. The effectiveness of official development assistance (oda) has been the subject of numerous empirical studies. However, the impact it is expected to have on growth in receiving countries continues to be an object of debate (Easterly, 2008;Gibson and others, 2009). Several of these studies have also looked at other factors, such as institutions or social relationships, that may have an impact on the effectiveness of oda and hence could indirectly promote or hinder the growth process. For example, Burnside and Dollar (2000) find that the potential for oda to have a positive impact on growth depends on the presence of sound fiscal, monetary and trade policies. Kaufmann, Kraay and Zoido-Lobatón (1999) propose six indicators of governance that they believe can function as important oda selection criteria. Rivera-Batiz (2002) notes that governance-improving democracy increases growth by reducing corruption. Choritz (2002), Simon and McGillivray (2003) and Knack (2001) find that a better understanding of the region's existing social capital and other drivers of growth needs to be achieved prior to the implementation of development policies and projects. Baliamoune-Lutz and Mavrotas (2009) study whether social capital and institutions enhance the effectiveness of oda. Apart from this last paper, which suffers from some limitations, the literature does not provide any other empirical evidence regarding the macroeconomic effect of social capital on the effectiveness of oda. 1 An application of the basic two-gap model (Chenery and Strout, 1966) indicates that oda is required in order to close the savings-investment gap in poor countries. Therefore, when aid is used to finance productive investment, it can be expected to have a positive impact on growth. However, the decision to use oda for productive investment, along with its subsequent effect on growth, may be influenced by the levels or quality of a given country's social capital. KEYWORDSFollowing Burnside and Dollar (2000) and Baliamoune-Lutz and Mavrotas (2009), this study looks at 1 Other authors, such as Knowles (2007), have studied the effect of social capital on the allocation of aid; this area of inquiry is beyond the scope of this paper, however.whether the impact of oda on growth is conditional on the receivi...

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“…However, in the mid-1980s, one of the first large-scale empirical studies showed that the data seemed to support Bauer's most unpopular hypothesis (Mosley et al, 1987). Since then, most studies have shown that foreign aid is not robustly associated with economic growth rates as the beneficial effects are either counteracted by adverse political and economic effects or do not arise when foreign aid is used to finance idle government consumption (cf.…”

Section: Introductionmentioning

confidence: 99%

Growth, debt burdens and alleviating effects of foreign aid in least developed countries

Bjerg¹,

Bjørnskov

Holm

2011

European Journal of Political Economy

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Abstract:In this paper, we explore the potential growth effects of foreign aid when in conjunction with severe debt problems. We first argue that aid, when used to finance debt repayments, does not lead to Dutch Disease while still alleviating an economic problem. A set of empirical estimates show that while inflows of foreign aid in general are not associated with growth in a sample of 38 Least Developed Countries, an interaction term with the level of external debt is significant. We take this as suggestive evidence of an alleviating effect of aid in these countries and offer some tentative thoughts on the implications for future aid policies.

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Aid, the Public Sector and the Market in Less Developed Countries

Cited by 303 publications

References 8 publications

When is foreign aid policy credible? Aid dependence and conditionality

When is foreign aid policy credible? Aid dependence and conditionality

Official development assistance, social capital and growth in Latin America

Growth, debt burdens and alleviating effects of foreign aid in least developed countries

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