Easterly Flashcards
1
Q
Main Idea
A
Was development assistance a mistake?
2
Q
What were the 3 main mistaken assumptions of aid providers?
A
- Experts think they know correct actions achieve development
- We think our advice and money will make actions happen
- the experts think they know who they are
3
Q
Explain the first mistaken assumption
A
- capital accumulation (think Solow) by raising rates of investment failed, tight monetary policy the 80s led to foreign debt accumulation instead and hence debt crises. This led to the ‘lost decade’ of zero growth in Africa, negative growth in Latin America
- Macro stability policies (Washington Consensus) induced the failure of free markets in developing countries and created high levels of debt that could not be repaid hence no growth
- Promotion of institutions, accountability of govt. and property rights by aid providers was not effective
- the recipe for growth is dynamic, it changes over time. something that worked in one country is not likely to be effective in other countries
4
Q
explain the second mistaken assumption
A
- £500 billion in foreign aid in Africa but near zero growth rates. Clearly money isn’t working
- causal effect of aid on growth is hard to establish (think Burnside-Dollar). Many of these studies that claimed to find causal effects were not robust to different time periods, inclusion of recent data in the sample size, concessional loans, reverse causality etc etc. STUDIES ARE ALL WRONG (Burnside Dollar)
- Incentives are the key to success, we need aid in countries with quick bureaucratic processes, low corruption => more incentive to invest. (this is the same conclusion Easterly came to in his results in topic 2)
- Aid is subject to information issues. May not have complete information when providing aid, information asymmetries may exist and lead to inefficiency in allocation . Aid agencies don’t bother finding out what works and what doesn’t, no incentive for any feedback, dutch disease effect
5
Q
explain the third mistaken assumption
A
- experts are overrated, they think they know best but they don’t realize that their methods are intrinsically flawed
- the mandate of aid giving institutions is often unclear (to themselves potentially also). This could mean that aid providers act in their own self interest instead of the interest of the aid recipents. Aid providers could want to promote neoliberal economic policies for political mean
6
Q
Potential Solutions?
A
- finance specific projects where knowledge and incentive problems are more easily and directly tackled e.g. malaria, clean water
- sack off the macro approach, fuck the neoliberals
7
Q
What are the fundamental differences between Burnside-Dollar and Easterly
A
- B-D have an optimistic view, good policy means aid has positive effects. Allocating to good policy countries can mean that top down solutions with lump sum transfers can have positive effects on investment and growth
- Easterly has a pessimistic view, aid never impacts the incentives to invest. Macro policies are not effective. We need bottom up solutions with financing specific projects
- may be a combination
8
Q
What are evaluative points to make with aid?
A
- Aid can work, think progresa, Jensen and SEED
- Burnside Dollar do their ting
- Sachs showed aid benefitted millennium development villages, poverty traps
- aid fills investment/savings gap ==> Harrod-Domar
- Easterly proved the ineffectiveness
- Recent findings suggest microfinance has had few impacts on real wage growth
- isomorphic mimicry (we impose what is best)
- Aid is too political (Egypt 1995)
-no counter examples to what happened without aid, they could be worse off
9
Q
What are his two conclusions on investment and growth?
A
investment is not necessary or sufficient - therefore investment is not the main constraint of growth and perhaps labour can substitute
admits positive correlation between investment and growth but not causal, both driven by 3rd factor incentives to invest
