Foreign Aid

Question 1

foreign aid consists of an explicit transfer of real resources to less developed countries on concessional terms

Answer 1

Bhagwati (1970)

Question 2

make extensive use of a modified Solow model to provide theoretical support for increasing the flow of foreign aid to sub-Saharan Africa (SSA).

Answer 2

Sachs et al (2004)

Question 3

identifies four significant “traps” that ensnare the “bottom billion” of the world’s population, namely, “internal conflict traps,” “natural resource traps”. “landlocked by bad neighbour traps,” and “bad governance traps.”

Answer 3

Collier (2007)

Question 4

uses malaria as an example of how foreign aid when properly designed and delivered, works, saving the lives of the poor and helping to promote economic growth

Answer 4

Sachs (2014)

Question 5

that free nets “are often diverted to the black market, become out of stock in health clinics, or wind up being used as fishing nets or wedding veils
• nets in Zambia to people … found that 70 percent of the recipients didn’t use the nets

Answer 5

Easterly (2006)

Question 6

argue that the allocation of aid has been dominated by strategic and political considerations.

Answer 6

Alesina and Dollar (2000)

Question 7

• The empirical literature on aid effectiveness has yielded unclear and ambiguous results, has become a “black box”

Answer 7

Bourguignon and Sundberg (2007)

Question 8

Aid is not associated with growth

Answer 8

Easterly (2006)

Question 9

In absence of aid it would be a lot worse

Answer 9

Collier (2006)

Question 10

show that there is no evidence that good governments receive more foreign aid than corrupt governments.

Answer 10

Alesina and Wedder (2002)

Question 11

The whole issue that arises is that when the conditions for development are present, aid is not required, when they are not it is not useful

Answer 11

Deaton (2015)

Question 12

we have 300 years of evidence on aid, it is not that complicated no one has escaped poverty by relying on foreign aid.

Answer 12

Moyo (2009)

Question 13

Year of marshall plan

Answer 13

1948

Question 14

model of growth where investment will lead to a “take off” into self-sustaining growth

Answer 14

Rostow (1956)

Question 15

used the HD model to determine the allocation of foreign aid in underdeveloped countries to make the transition from stagnation to self-sustaining economic growth

Answer 15

Rosenstein-Rodan (1961)

Question 16

• Chenery and Strout (1966)

Answer 16

s=g v = 16%, so A=s*-s

Question 17

found an inverse relationship between aid and growth using South America data, arguing the Chenery and Strout model was based on the unrealistic assumption that foreign aid goes to saving as opposed to consumption

Answer 17

Griffin and Enos (1970)

Question 18

Who was the first poverty trap used by?

Answer 18

Nelson (1956)

Question 19

find little evidence supporting the existence of poverty traps in their extensive survey of the literature

Answer 19

Kraay and Raddatz (2007)

Question 20

examines the effect of aid on a variety of macroeconomic variables and several development indicators, his study is one of the most cited proofs that there is no significant, positive influence of aid inflows on investment and growth in recipient countries

Answer 20

Boone (1996)

Question 21

argue that aid is dangerous because it increases the power of the elite in the recipient governments, leading to corruption and hindering economic growth & development

Answer 21

Friedman (1958)

Question 22

provides evidence that inflows of foreign aid are associated with increased corruption and rent seeking behaviour especially in countries where there are competing social groups

Answer 22

o Svensson (2000)

Question 23

aid leads to moral hazard problem
 Recipients lose incentive to produce and be innovative
 E.g. Cuba became aid dependent from USSR, Venezuela and Brazil
 Had no incentive to reform economy

Answer 23

Buchanan (1975)

Question 24

the most cited aid and growth study in the literature
 In a panel cross section study, they found foreign aid can play positive role in a country with good macroeconomic policies
 A country has good policy environment if there is low inflation, low budget deficit, and no protectionism meaning trade is relatively open
o This study gained favour from aid regime supporters because it explains why aid has supported growth in several countries (Korea, Botswana, Indonesia, Mozambique and Uganda) while at the same time not influencing growth in others (Haiti, Liberia, Zaire and the Philippines).

Answer 24

Burnside and Dollar (2000)

Question 25

Aid works best in conjunction with good economic policies

Answer 25

Sachs et al (2004

Question 26

criticised Burnside-Dollar study for lack of robustness of the aid-policy interaction term of the OLS regression

Answer 26

Easterly et al (2006)

Question 27

The only places where aid is likely to be effective are the places where aid is not needed! Where aid is needed it is ineffective!

Answer 27

Baurer (1971)