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Foreign Aid Policy and Sources of Poverty: A Quantitative Framework

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  • Alex Mourmouras
  • Peter Rangazas

Abstract

The econometric literature has been unable to establish a robust association between foreign aid and growth and poverty reduction. In this paper, we argue that aid effectiveness must be assessed using methods that go beyond cross-country regressions. We calibrate a dynamic general equilibrium model that is capable of generating large sustained income gaps between rich and poor countries. The model quantifies three sources of poverty: (1) lack of access to international capital, (2) low schooling and high fertility (a poverty trap), and (3) an antigrowth domestic fiscal policy set by an elite. We analyze policies designed to address each source of poverty and compare the aid cost of their implementation. The policies differ dramatically in the extent and timing of their growth effects, and in the aid cost of their implementation. IMF Staff Papers (2007) 54, 59–90. doi:10.1057/palgrave.imfsp.9450005

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 54 (2007)
Issue (Month): 1 (May)
Pages: 59-90

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Handle: RePEc:pal:imfstp:v:54:y:2007:i:1:p:59-90

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Cited by:
  1. Alex Mourmouras & Peter Rangazas, 2009. "Reconciling Kuznets and Habbakuk in a unified growth theory," Journal of Economic Growth, Springer, vol. 14(2), pages 149-181, June.
  2. Alex Mourmouras & Peter Rangazas, 2007. "Wage Gaps and Development," IMF Working Papers 07/105, International Monetary Fund.

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