Ch 16 - International aid

Question 1

What do aid proponents argue?

Answer 1

Aid helps countries escape poverty if enough resources are spent on building infrastructure, public institutions and enhancing physical and human capital

Question 2

What do aid pessimists argue?

Answer 2

Aid is wasted and does not contribute to improving the situation of the poor in developing countries. It increases the likelihood of conflict, rent seeking, corruption, power struggles and crowds out home production

Question 3

Explain the over identification test

Answer 3

Using predicted values of the error term and seeing whether they’re correlated with the instruments

Question 4

What are some unintended consequences of aid?

Answer 4

Eroding incentives for home production, aid may be diverted to armed groups