The classic narrative of economic development -- poor countries are caught in poverty traps, out of which they need a Big Push involving increased aid and investment, leading to a takeoff in per capita income -- has been very influential in development economics since the 1950s. This was the original justification for foreign aid. The narrative lost credibility for a while but has made a big comeback in the new millennium. Once again it is invoked as a rationale for large foreign aid programs. This paper applies very simple tests to the various elements of the narrative. Evidence to support the narrative is scarce. Poverty traps in the sense of zero growth for low income countries are rejected by the data in most time periods. There is evidence of divergence between rich and poor nations in the long run, but this does not imply zero growth for the poor countries. Moreover, this divergence is more associated with institutions rather than the disadvantages of initial income. The idea of the takeoff does not garner much support in the data. Takeoffs are rare in the data, most plausibly limited to the Asian success stories. Even then, the takeoffs are not associated with aid and investment as the standard narrative would imply.
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Paper provided by Center for Global Development in its series Working Papers with number
65.
Find related papers by JEL classification: O1 - Economic Development, Technological Change, and Growth - - Economic Development O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions F34 - International Economics - - International Finance - - - International Lending and Debt Problems F35 - International Economics - - International Finance - - - Foreign Aid
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Joshua Aizenman & Mark Spiegel, 2007.
"Takeoffs,"
NBER Working Papers
13084, National Bureau of Economic Research, Inc.
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Joshua Aizenman & Mark M. Spiegel, 2007.
"Takeoffs,"
Working Paper Series
2008-02, Federal Reserve Bank of San Francisco.
[Downloadable!]
Finn Tarp, 2006.
"Aid and Development,"
Discussion Papers
06-12, University of Copenhagen. Department of Economics.
[Downloadable!]
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