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Professor Tarp has four decades of experience in academic and applied development economics research and teaching. His field experience covers more than two decades of in-country work in 35 countries across Africa and the developing world more...
In this part of the ReCom–Research and Communication on Foreign Aid project we look at what aid can do to create more economic growth and employment . The key questions include; What are the effects of aid on growth? Through which channels does aid act best as a catalyzer for growth? How can aid help improve the livelihoods of the poorest people, improve the opportunities for women in the labour market, and provide more employment for young people?
This is part of the 'ReCom – research and communication on foreign aid' project.
Focal point: Finn Tarp
Assistant: Janis Vehmaan-Kreula
Communications: Annett Victorero
In recent years, academic studies have been converging towards the view that foreign aid promotes aggregate economic growth. We employ a simulation approach to: (i) validate the coherence of empirical aid-growth studies published since 2008; and (ii)...
We investigate the marginal productivity of investment across countries. The aim is to estimate the return on investments financed by foreign aid and by domestic resource mobilization, using aggregate data. Both returns are expected to vary across...
This is an introduction to the UNU-WIDER special issue of World Development on aid policy and the macroeconomic management of aid. We provide an overview of the 10 studies, grouping them under three sub-themes: the aid–growth relationship; the supply...
Part of Journal Special Issue Aid Policy and the Macroeconomic Management of Aid
Part of Journal Special Issue Aid Policy and the Macroeconomic Management of Aid
Part of Journal Special Issue Aid Policy and the Macroeconomic Management of Aid
Part of Journal Special Issue Aid Policy and the Macroeconomic Management of Aid
Part of Journal Special Issue Aid Policy and the Macroeconomic Management of Aid
Part of Journal Special Issue Aid Policy and the Macroeconomic Management of Aid
Part of Journal Special Issue Aid Policy and the Macroeconomic Management of Aid
Part of Journal Special Issue Aid Policy and the Macroeconomic Management of Aid
Understanding chronic poverty and its evolution is complex given the amount of information involved. This paper proposes a new approach to analysing the evolution of chronic poverty in a multivariate setting using a Shapley decomposition of a...
Economic growth has had a negative effect on unemployment and poverty reduction in Africa. The transition from low- to middle income requires within sector increases in productivity and a shift of labour resources from low productivity agriculture to...
11 September 2014 by Roger Williamson In this interview Finn Tarp, Director of UNU-WIDER, discusses the evidence uncovered in the aid and growth and...
This position paper on Aid, Growth, and Employment was prepared by UNU-WIDER under the ReCom programme of Research (Re) and Communication (Com) on foreign aid. It aims to provide a coherent up-to-date overview and guide to a complex issue in the...
Does foreign aid promote aggregate economic growth? In contrast to widespread perceptions, academic studies of this question have been rapidly converging towards a positive answer. We employ a simulation approach to (i) validate the coherence of...
China’s importance as a major donor outside the traditional Western donors has been increasing and this has helped to bridge the funding gaps in developing countries. At the same time, South-South financial assistance still comes with less...
The authors comprehensively analyse the long-run effect of foreign aid (ODA) on key macroeconomic variables in 36 sub-Saharan African countries from the mid-1960s to 2007, using a well-specified co-integrated VAR model as statistical benchmark...
28 February 2014 In this interview Sam Jones summarizes the findings of original UNU-WIDER work on the impact of aid on growth. Using data covering...
Growth and poverty reduction in Africa are weakly linked. This paper argues that the reason is that Africa has failed to create enough good jobs. Structural transformation―the relative growth of employment in high productivity sectors―has not...
This paper investigates how a development intervention which targets extremely poor households with investment capital influences relationships between those households and the landowning elite. It places this investigation in the context of the...
Agriculture plays an important role in terms of employment and its contribution to gross domestic product in many African countries. Thus, any policy initiative targeted towards poverty reduction in Africa should consider the agricultural sector as...
The research programme ReCom – Research and communication on foreign aid – is ending this year. There is a large and unique collection of research...
Foreign aid is a significant element of Uganda’s long-run fiscal system. Aid is associated with increased tax collection effort and public spending in Uganda. Development assistance is also associated with reduced domestic borrowing in Uganda. Aid is...
This paper investigates the impact of foreign aid on economic growth in member countries of the Economic Community of West African States using panel data for 1990-2009 and a three equation simultaneous-equations model. The effect of foreign aid on...
This paper seeks to (i) establish the areas in which aid from the major donors is concentrated; (ii) examine how aid has been allocated to the environmental sectors, and (iii) review the factors behind the success of environmental projects. Using...
The mixed record on the 2015 Millennium Development Goal (MDG) targets and the focus on global public goods in post-MDG debates questions the future of traditional development co-operation (official development assistance, ODA). Meanwhile...
Over the last decade there has been increasing demand to make research more useful and applicable for policy-making. And that is also very true within...
The programme did lead participating households to use improved seeds. Food consumption scores did not improve after the programme. However during the programme participating households moved to more sustainable strategies to cope with food shortages...
Strong economic growth has not turned into poverty reduction in Mozambique due to stagnation in job creation. While the country sees great growth potential from natural resources, this industry is unlikely to generate many jobs as it is not labour...
We examine aid-induced Dutch Disease—after controlling for the effects of remittances and FDI flows—in the context of two North African countries, Morocco and Tunisia. We do so by performing a multivariate time series analysis of aggregated annual...
The World Bank is uniquely positioned to identify and disseminate innovative development practices. Based on his thirty-year experience as a World Bank staff member, the author takes an institutional perspective on the innovation climate at the World...
The purpose of this paper is to capture the impact of foreign capital inflows (which include foreign aid and foreign direct investment) on economic growth in Cameroon. Using the autoregressive distributive lag approach to cointegration and time...
The foreign aid landscape has undergone a paradigm shift in the last few decades, with changes in the behaviour of ‘traditional’ donors and a new focus on selectivity in aid disbursement, as well as ‘new’ donors and South-South co-operation playing...
This paper contributes to the debate on aid effectiveness by looking at the ‘how’ of aid effectiveness. In other words it provides an assessment of whether aid only filled a financing gap or whether it, in addition, helped influence the political...
This study addresses the macroeconomic effect of foreign aid on the factors of growth. Specifically, we examine the effects of foreign aid on capital investment (human capital, physical capital) in sub-Saharan Africa. Our methodological approach...
A dynamic relationship between foreign aid and domestic fiscal variables in Uganda is analysed using a cointegrated vector autoregressive model over the period 1972-2008. Results show that aid is a significant element of long-run fiscal equilibrium...
Commodity price shocks are an important type of external shock and are often cited as a problem for economic growth in sub-Saharan Africa. This paper quantifies the impact of agricultural commodity price shocks using a near vector autoregressive...
There are over 900 million working people who earn less than US$2 a day, while 200 million people are unemployed. Unemployment is a bigger problem in high-income countries, in low-income countries unemployment is rarer as work is essential for...
A number of small, isolated countries are not experiencing the rapid economic growth of larger, more connected economies due to weak governance and isolation. Small, isolated economies require more aid to alleviate poverty than rapidly developing...
24 September 2013 Andy Sumner A series of papers since late 2010 has discussed a shift in the location or 'geography' of global poverty. The shift is...
This paper employs a cointegrated vector autoregressive model to assess the growth effect of aid in Uganda over the period 1972-2008. Results show that aid in Uganda has had both direct and indirect beneficial association with growth; that it is the...
A recent study of 36 sub-Saharan African countries found a positive impact of aid in the absolute majority of these countries. However, for Tanzania and Ghana, two major aid recipients, aid did not seem to have been equally beneficial. This paper...
Three-quarters of the world’s poor (however defined) live in countries classified as middle-income. Donors need not assume their only option is to abandon countries once they cross the arbitrary threshold in per capita income. The thresholds...
Aid co-ordination is a constant theme of discussion among national and international aid agencies in their search for more effectiveness and efficiency in delivering development assistance. This paper seeks to clarify some of the arguments currently...
This paper confirms recent evidence of a positive impact of aid on growth and widens the scope of evaluation to a range of outcomes including proximate sources of growth (e.g., physical and human capital), indicators of social welfare (e.g., poverty...
In a recent article, Nowak-Lehmann, Dreher, Herzer, Klasen, and Martínez-Zarzoso (2012) (henceforth NDHKM) conclude that foreign aid has not had a significant effect on income, based on evidence from panel data potentially covering 131 countries over...
The majority of the world’s poor, by income poverty and multi-dimensional poverty, now live in countries officially classified by the World Bank as middle-income countries. Of course nothing happens when a country crosses a (somewhat) arbitrary...
In the WIDER Working Paper ‘Aid and Investment in Statistics for Africa’ Jeffery I. Round discusses how the effectiveness of aid aimed at improving statistical capacity in Africa can be assessed. He begins by describing the reasons behind the...
It is widely recognized that entrepreneurship is of critical importance to industrial development. Despite this importance we know little about the skills of business owners and managers in developing countries. In the WIDER Working Paper ‘The Role...
Mozambique has achieved remarkable macroeconomic success over recent decades, boasting one of the world’s highest rates of GDP growth. However, absolute poverty remains persistent, spilling over into social unrest. To better understand the link...
The paper considers the experience of the European Investment Bank and addresses policy lessons for developing countries as they seek finance for development. The paper argues that the key lesson for developing countries is that the traditional role...
This paper analyses the way aid for agriculture and rural development in the global south has changed over time. It finds three key shifts. First, a change in funding priority that has seen aid commitments move to the social sectors. Second is a...
Some recent literature in the meta-analysis category where results from a range of studies are brought together throws doubt on the ability of foreign aid to foster economic growth and development. This paper assesses what meta-analysis has to say...
EU aid is complicated both by its close relationship to the EU’s foreign policy in general, and by the question of what Europe should do as a community and what should be done by individual member states. In the WIDER Working Paper ‘EU Aid: What...
I discuss how aid can support growth in small, isolated economies. Small markets frustrate scale economies and competition. Combined with high transport costs, essential inputs become prohibitively expensive. Breaking the coordination problem...
In the WIDER Working Paper 'Aid and the Fiscal and Monetary Responses to Dutch Disease' Alan Roe looks at the ways in which aid-induced, and mineral export-induced Dutch Disease (DD) are similar, and the ways in which they differ. He argues that many...
Globalization has led to a precarization of labour, which especially manifests in the unstable working conditions, a lower labour share in national income as well as in a growing income inequality, with the exception of some countries with high...
A common theme in the literature on aid effectiveness is that the character of the relationship between donors and recipients is a crucial determinant of how effective the provided aid is. One important dimension of this relationship is the extent to...
A key pledge of the Paris Deceleration of 2005 was that aid flows would be made more predictable. This is a key goal as aid shortfalls can cause a government to disproportionately cut their investments, while sudden spikes in aid can lead to a...
Tony Addison This month saw the visit of Kaushik Basu, the World Bank’s new Chief Economist and Senior Vice President for Development Economics, to...
While it has been increasingly recognized that efficient management holds the key to the development of micro and small enterprises in developing countries, we know very little about the managerial capacity of business owners and managers in these...
Aid providers frequently link supporting small firms to job creation. Small firms create about half of new jobs in Africa, but they also have higher failure rates. Ignoring firm exit exaggerates net employment growth. Using panel data for Ethiopia...
Over many past decades countries in sub-Saharan Africa have received extensive bilateral and multilateral aid in support of the production of relevant, timely, and good quality data and statistics. But assessing aid effectiveness in the statistical...
The question of whether aid is effective in promoting economic growth is a complex and controversial one. While there is a general consensus around the idea that aid can have positive effects at the micro and meso levels, recent studies, such as...
The question of whether aid is effective in promoting growth is a controversial one. Views range from those who are highly skeptical that aid has any effect on growth at all, to those who believe that aid can play a significant role in promoting...
In 2008 Doucouliagos and Paldam published a paper, hereafter known as DP08, based on a meta-analytic approach to the aid-growth question. Working with a database including 68 studies on the relationship between foreign aid and economic growth they...
In the wake of the financial crisis of 2008 and 2009 interest in the supply side of the donor equation has been rekindled. During a period where the economies of many major donors are unstable, and in some cases, shrinking, it is important to...
It is predicted that the global financial crisis will negatively affect developing countries in Sub-Saharan Africa both through a reduction in Overseas Development Assistance (ODA) caused by the shrinking (or stagnating) of the economies of many...
It has long been recognized that the creation of an adequate infrastructure is vital for creating sustainable growth and reducing poverty in Africa. However the gap between the investment that is needed and the money currently available is too big to...
The donor community is becoming increasingly focused on two goals; increasing aid supply and improving aid effectiveness. These two goals are clearly interdependent as in order for aid to be increased both politicians and the public must be convinced...
In 1959 the Netherlands discovered vast natural gas resources in the North Sea. This discovery led to a rapid increase in the country’s national wealth. However in the 1960s the Netherlands experienced an economic crisis. The natural gas reserves...
Various development objectives are worthy, but to my mind, one objective dominates all others: reducing the scourge of absolute economic misery in the world. In this paper, I focus on an important but relatively underemphasized approach to poverty...
Three global crises -finance, environment and food The global economy is currently facing three crises which threaten to undermine the welfare and prosperity of present and future generations. The first is the financial crisis which originated in the...
It is commonly acknowledged that developing economies are characterized by large differences in output per worker across sectors. For such economies the shift of resources from low productivity to high productivity is the key potential driver of...
Over the years EU aid has been much discussed—and criticized. Besides the accusations of being old fashioned, slow and bureaucratic there is also the complexity of a close neighbourship with the EU’s foreign policy in general, trade and the eternal...
The central argument of this study is that given the magnitude of the investment in infrastructure that is required, especially in Africa, the role of foreign aid in the future should be distinctly different. While aid will be required to continue to...
Phillip Michael Kargbo's UNU-WIDER working paper, 'Impact of Foreign Aid on Economic Growth in Sierra Leone: Empirical Analysis' examines the impact of foreign aid on growth in Sierra Leone using a variety of econometric approaches. The paper finds...
Historically nations have developed at their own pace without assistance or aid. This kind of self-development has its obvious upsides, namely in guaranteeing the ‘ownership’ of countries over their development process. None the less, due to the...
This paper addresses the issue of the impact of aid supply on aid effectiveness. We proceed in two steps. First, we review research works that deal with the problem of governance in donor-recipient relationships and are susceptible of highlighting...
In the wake of the current financial and economic crises, the economies of sub-Saharan Africa find themselves squeezed between likely reductions in official development assistance and the pressing challenge to eradicate poverty. Public expenditure...
The strong interdependent relationship between the developed and developing countries made itself visible again with the recent economic downturn. Due to the now truly global character of the economy, the crisis did not only affect the North, where...
As the country’s oil production shifts into gear, Ghana’s new status as a middle-income country is bound to see a reduction in official development assistance (ODA) in the medium to long term. This emerging oil industry will most likely provide a...
Robert Darko Osei As the country’s oil production shifts into gear, Ghana’s new status as a middle-income country is bound to see a reduction in...
This paper reviews both the literature on aid volatility and also adds to that literature. In general, the focus of this literature has been on the volatility of overall aid, while we focus more on the volatility of the individual aid sectors, e.g...
This paper discusses and seeks to quantify the effects of improved donor coordination on aid effectiveness. Empirical estimates are first provided of the reductions in transaction costs that can be achieved by better donor coordination via...
This paper confronts three conundrums. First, does the relationship between aid and growth fade over time when aid is successful? Second, why are aid inflows neglected in the literature on growth acceleration (or episodes). Third, why is country...
In accounting for the rather gloomy trend of the aid effectiveness literature over the last few years, one explanatory strand has been fiscal, suggesting in particular that aid flows in weak states have tended to erode the tax base and the structure...
International aid has an ambiguous effect on the macroeconomy of the recipient country. To the extent that aid raises consumer expenditure, there will be some real exchange rate appreciation and a shift of resources away from traded goods production...
The strong interdependence between the developed and developing worlds surfaced with the recent economic downturn. Due to the global character of the economy, the downturn affected not only the North but also the South. In addition, the Official...
Most rich countries developed without aid, and this ‘self-development’ has some intrinsic advantages. In today’s massively unequal world, however, such an approach would imply very low levels of human development for several generations for many poor...
This study provides an analysis of the aid-private capital flows-growth nexus for Ghana. It is premised on the argument that Ghana’s new status as a middle income country plus the start of oil production is bound to result in a reduction in ODA...
This paper argues that official development assistance (foreign aid) is partly responsible for the lack of structural change in Africa. Africa’s development partners have devoted too few resources and too little attention to two critical constraints...
This paper examines the impact of foreign aid on economic growth in Sierra Leone, a country where an empirical econometric study on aid effectiveness is yet to exist. Using a triangulation of approaches involving the ARDL bounds test approach and the...
As aid diminishes in importance, donors need a capacity that enables governments to improve the quality of their public spending. In this study I suggest three such organizational innovations: independent ratings of spending systems, Independent...
Donors are concerned about how their aid is used, especially how it affects fiscal behaviour by recipient governments. This study reviews the recent evidence on the effects of aid on government spending and tax effort in recipient countries...
The global economy is passing through a period of profound change. The immediate concern is with the financial crisis, originating in the North. The South is affected via reduced demand and lower prices for their exports, reduced private financial...
This study assesses the fiscal and monetary management challenges that can be associated with large inflows of foreign aid. It provides a brief overview of the literature on Dutch Disease (DD) as applied to mineral wealth and then assesses the...
After sixtyyears of foreign aid efforts and dramatic change in the world of aid recipients, many concerns are being raised about the effectiveness of current aid programmes to developing countries. The appropriateness of aid is particularly...
This paper provides an historical overview of aid flows to North Africa. It assesses the aid allocation process and argues that past aid flows to the region have been heavily influenced by donor political interests. This has reduced the effectiveness...
Many concerns can be raised about the effectiveness of current aid programmes to developing countries. The appropriateness of aid is particularly questionable when one considers the likely character of the challenges that the global economy will...
Studies of aid effectiveness abound in the literature, often with opposing conclusions. Since most time-series studies use data from the exact same publicly available data bases, our claim here is that such differences in results must be due to the...
Controversy over the aggregate impact of foreign aid has focused on reduced form estimates of the aid-growth link. The causal chain, through which aid affects developmental outcomes including growth, has received much less attention. We address this...
Some recent literature in the meta-analysis category where results from a range of studies are brought together throws doubt on the ability of foreign aid to foster economic growth and development. This paper assesses what meta-analysis has to say...
A Book Chapter in Joona Pietarila (ed.) Kambodza kriisien jälkeen. Kirjoituksia yhteiskunnan kehityksestä ja tulevaisuuden haasteista.
The recent financial crisis has rekindled interest in the foreign aid supply behaviour of bilateral donors. Using the latest data covering the period 1960-2009, this paper examines how such behaviour is related to domestic factors. Based on a simple...
The micro-macro paradox has been revived. Despite broadly positive evaluations at the micro- and meso-levels, recent literature doubts the ability of foreign aid to foster economic growth and development. This paper assesses the aid-growth literature...
The micro-macro paradox has been revived. Despite broadly positive evaluations at the micro and meso-levels, recent literature doubts the ability of foreign aid to foster economic growth and development. This paper assesses the aid-growth literature...
The global economy is passing through a period of profound change. The immediate concern is with the financial crisis, originating in the North. The South is affected via reduced demand and lower prices for their exports, reduced private financial...
The micro-macro paradox has been revived. Despite broadly positive evaluations at the micro and meso-levels, recent literature has turned decidedly pessimistic with respect to the ability of foreign aid to foster economic growth. Policy implications...
Theme: Past, 2010-11