Economics and Management Notes > Oxford University Economics and Management Notes > Development Economics-1 Notes

Can Foreign Aid Contribute To Economic Development Handout Notes

This is a sample of our (approximately) 3 page long Can Foreign Aid Contribute To Economic Development Handout notes, which we sell as part of the Development Economics-1 Notes collection, a 1st Class package written at Oxford University in 2011 that contains (approximately) 365 pages of notes across 19 different documents.

Learn more about our Development Economics-1 Notes

The original file is a 'Word (Docx)' whilst this sample is a 'PDF' representation of said file. This means that the formatting here may have errors. The original document you'll receive on purchase should have more polished formatting.

Can Foreign Aid Contribute To Economic Development Handout Revision

The following is a plain text extract of the PDF sample above, taken from our Development Economics-1 Notes. This text version has had its formatting removed so pay attention to its contents alone rather than its presentation. The version you download will have its original formatting intact and so will be much prettier to look at.

Can foreign aid contribute to economic development?
In general

"On average aid has had little impact on growth, although a robust finding was that aid has had a more positive impact on growth in good policy environments." This effect goes beyond the direct impact that the policies themselves have on growth. No significant tendency for total aid or bilateral aid to favour good policy. On the other hand, aid that is managed multilaterally (about one-third of the total) is allocated in favour of good policy. "These findings, combined with a separate finding that bilateral aid is strongly positively correlated with government consumption, may help to explain why the impact of foreign aid on growth is not more broadly positive." There is a marked trend toward better policy among poor countries, which means that the climate for effective aid is improving.

More Specifically

"Where we find good environments for households and firms to save and invest, we generally observe poverty reduction." Foreign aid can assist the government and the society to provide public services, including critical ones needed by poor households to participate in the market economy. It is assumed that policy is determined by developing country political processes and is independent of aid; however, the fact that aid increases the benefits of reform suggests that a high level of aid to strong reformers may increase the likelihood that good policy is sustained (an idea ratified in a number of recent case studies of low income reformers); to the extent that this is the case, current estimates of the benefit of aid to good policy countries are too low. The main conclusions of Collier and Dollar's work can be shown in a simple diagram, which could represent an individual country or a whole region such as Africa, and is shown below. On the vertical axis is a measure of developing country policy, and on the horizontal, a measure of first world "concern" (marginal utility of poverty reduction). The isoquant traces out combinations of policy and concern that would achieve a certain level of poverty reduction (for example, 50% by 2015). Their first finding is that we are not operating on this efficiency frontier. With the same level of concern, we could achieve much more poverty reduction by allocating aid on the basis of how poor countries are and the quality of their policies. That change alone would double the projected poverty reduction for Sub-Saharan Africa; it would put us at a point such as "A" on the poverty reduction = 30% by 2015 isoquant. The curvature of the isoquant results from diminishing returns to aid. Given the current level of policies in Africa, simply increasing first world concern is not going to have much impact. Intuitively, once aid is allocated efficiently, there remain no great opportunities for effective aid, given the current state of policies.

****************************End Of Sample*****************************

Buy the full version of these notes or essay plans and more in our Development Economics-1 Notes.