Macroeconomic Challenges of Scaling Up Aid to Africa: A Checklist for Practitioners

Gupta, Sanjeev; Powell, Robert B.; Yang, Yongzheng

doi:10.5089/9781589065727.058

Cited by 81 publications

(57 citation statements)

References 26 publications

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“…1 Naturally, this led to the revival of many debates concerning the impact of 'scaling up' aid inflows. The International Monetary Fund took a decisive lead, with publications such as Isard et al (2006), Heller (2005) and Gupta et al (2006). These works revisit the main foreign aid debates and provide an overview of current knowledge.…”

Section: The Macroeconomic Management Of Aidmentioning

confidence: 99%

Aid Absorption and Spending in Africa: A Panel Cointegration Approach

Martins

2011

Journal of Development Studies

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper focuses on the macroeconomic management of large inflows of foreign aid. It investigates the extent to which African countries have coordinated fiscal and macroeconomic responses to aid surges. In practice, we construct a panel dataset to investigate the level of aid 'absorption' and 'spending'. This paper departs from the recent empirical literature by utilising better measures for aid inflows and by employing cointegration analysis. The empirical shortrun results suggest that, on average, Africa's low-income countries have absorbed two-thirds of (grant) aid receipts. This suggests that most of the foreign exchange provided by the aid inflows has been used to finance imports. The other third has been used to build up international reserves, perhaps to protect economies from future external shocks. In the long-run, absorption increases but remains below its maximum ('full absorption'). Moreover, we also show that aid resources have been fully spent, especially in support of public investment. There is only weak evidence that a share of aid flows have been 'saved', i.e. substituted domestic borrowing. Overall, these findings suggest that the macroeconomic management of aid inflows in Africa has been significantly better than often portrayed in comparable exercises. The implication is that African countries will be able to efficiently manage a gradual scaling up in aid resources.JEL Classification: C23, F35, O23, O55

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Section: The Macroeconomic Management Of Aidmentioning

confidence: 99%

Aid Absorption and Spending in Africa: A Panel Cointegration Approach

Martins

2011

Journal of Development Studies

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“…Gupta, Powell and Yang (2005) 7 present a sample of econometric studies which illustrate the contradiction among the results. Some authors find a positive link between aid inflows and real exchange rate (e.g., Kasekende and Atingi-Ego 1999 for Ghana), while others observe a negative link.…”

Section: Real Exchange Rate Concern: Will Aid Increase Induce a Loss mentioning

confidence: 99%

13 ‘Big Push’ versus Absorptive Capacity: How to Reconcile the Two Approaches

Guillaumont¹,

Jeanneney²

2010

Foreign Aid for Development

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In this paper we examine whether absorptive capacity can constitute sufficient justification for rejecting the proposal of a large aid increase to support the 'big push'. We argue that the probability of a poverty trap exists for many countries, in particular the least developed countries (LDCs) and that an increase in aid is relevant for them. Moreover we show that the decrease in marginal aid returns is slower in vulnerable countries, which supports the rationale to include vulnerability as one of the aid-allocation criteria. We examine the main obstacles to absorptive capacity, such as disbursement constraints and short-term bottlenecks, macroeconomic problems, including loss in competitiveness and macroeconomic volatility, as well as the weakening of institutions. The general conclusion that we draw for reconciling the two approaches is that absorptive capacity strongly influenced by aid itself or by its modalities. The big push and absorptive capacity approaches cannot be reconciled without aid reform supported by an aid increase. First, what is needed is to balance the utilization of aid between activities that are directly productive and those that are social …/. in nature in order to avoid transitory loss of competitiveness. Second, schemes that facilitate the use of aid as insurance against exogenous shocks are to be enhanced because they lower the risk of Dutch disease, and contribute to faster and more equitable growth over the long term. Finally a performance-based conditionality should replace the traditional policy-based one in order to cope with several absorptive capacity limitations, particularly the sociopolitical one. An aid-supported big push will not be effective without new ownership of policy by the recipient countries.

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“…16 See Clemens, Radelet, and Bhavnani (2004), as well as Gupta, Powell, and Yang (2006). 17 For a more detailed discussion, see IMF (2006b).…”

Section: Spending Efficiencymentioning

confidence: 99%

“…For instance, estimates of the response of growth to higher public investment range from no impact at all to an increase of 0.7 percentage points in cross-country econometric studies (Gupta, Powell, and Yang, 2006;and IMF, 2005a). However, these studies might not shed adequate light on the short-term impact of higher public investment or capture the potential impact of a substantial scaling up of public investment.…”

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confidence: 99%

Fiscal Management of Scaled-Up Aid

Fletcher¹,

Gupta²,

Schwartz³

et al. 2008

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This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper discusses the role of fiscal policy and fiscal institutions in managing scaled-up aid. In an environment of volatile scaled-up aid, fiscal policy formulation should be anchored in medium-term frameworks, incorporating a longer-term view of potential resource availability and spending plans. There is merit in smoothing expenditures over time so that all programs are adequately funded. The paper argues that wage-bill ceilings should be used in Fund-supported programs only in exceptional cases. The paper also discusses basic reforms for strengthening public financial management systems for effective utilization of scaled-up aid flows. JEL Classification Numbers: F35, H50, H61,O10

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Macroeconomic Challenges of Scaling Up Aid to Africa: A Checklist for Practitioners

Cited by 81 publications

References 26 publications

Aid Absorption and Spending in Africa: A Panel Cointegration Approach

Aid Absorption and Spending in Africa: A Panel Cointegration Approach

13 ‘Big Push’ versus Absorptive Capacity: How to Reconcile the Two Approaches

Fiscal Management of Scaled-Up Aid

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