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Theoretical Analysis Of Foreign Aid, Policies And State Institutions

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  • Xayavong, Vilaphonh
  • Gounder, Rukmani
  • Obben, James

Abstract

This paper re-examines the theoretical aid-growth nexus by expounding on the issues relating to policies designed for aid delivery and the lack of aid recipient's state institutional capability to enforce policy conditionality. Two propositions have been demonstrated to explain why policy conditionality attached to aid might not always promote sustainable economic growth in Least Developed Countries. First, the model has simulated that a stable aid flow contributes to economic growth even when aid is fungible. Second, the model has also simulated that unstable aid inflow impairs the favourable effect of stable aid inflow. It is suggested that the contribution of aid to economic growth depends not only on the ability of aid to increase investment in the recipient country but also the quality of policy conditionality and the state and institutional capability of the recipient country to implement policy conditionality.

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File URL: http://purl.umn.edu/23704
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Bibliographic Info

Paper provided by Massey University, Department of Applied and International Economics in its series Discussion Papers with number 23704.

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Date of creation: 2005
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Handle: RePEc:ags:masddp:23704

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Related research

Keywords: Foreign Aid; Economic Growth; Policies; State Institutions; Food Security and Poverty; D72; D9; F35; H30;

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References

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  1. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
  2. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages F191-F216, 06.
  3. Jeff Dayton-Johnson & John Hoddinott, 2003. "Aid, policies and growth, redux," Department of Economics at Dalhousie University working papers archive redux2, Dalhousie, Department of Economics.
  4. Lensink, Robert & Morrissey, Oliver, 1999. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," CDS Research Reports 199906, University of Groningen, Centre for Development Studies (CDS).
  5. Gong, Liutang & Zou, Heng-fu, 2001. "Foreign Aid Reduces Labor Supply and Capital Accumulation," Review of Development Economics, Wiley Blackwell, vol. 5(1), pages 105-18, February.
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  8. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  9. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
  10. Alvey, James E., 2004. "Context And Its Relevance For Adam Smith'S Theological And Teleological Views, The Foundation Of His System Of Thought," Discussion Papers 23715, Massey University, Department of Applied and International Economics.
  11. David Roodman, 2007. "The Anarchy of Numbers: Aid, Development, and Cross-Country Empirics," World Bank Economic Review, World Bank Group, vol. 21(2), pages 255-277, May.
  12. Griffin, Keith, 1970. "Foreign Capital, Domestic Savings and Economic Development," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 32(2), pages 99-112, May.
  13. Robert Lensink & Howard White, 2000. "Assessing Aid: A Manifesto for Aid in the 21st Century?," Oxford Development Studies, Taylor & Francis Journals, vol. 28(1), pages 5-18.
  14. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September.
  15. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
  16. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
  17. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  18. Griffin, Keith B & Enos, J L, 1970. "Foreign Assistance: Objectives and Consequences," Economic Development and Cultural Change, University of Chicago Press, vol. 18(3), pages 313-27, April.
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