Big Push versus Absorptive Capacity: How to Reconcile the Two Approaches
AbstractWe examine whether absorptive capacity represents a compulsory reason to reject the proposal of a large aid increase to support a big push. We argue that poverty trap is a probability for many countries, in particular the Least Developed Countries and that an aid increase is relevant for them. Moreover we show that the decrease in marginal aid returns is slower in vulnerable countries, what enhances the rationale to take vulnerability as one of the aid allocation criteria. We then examine the main limits to absorptive capacity, such as disbursement constraints and short term bottlenecks, macro economic troubles, including loss of competitiveness and macroeconomic volatility, as well as institution weakening. The general conclusion we draw to reconcile the two approaches is that absorptive capacity strongly depends on aid itself or on its very modalities. Big push and absorptive capacity approaches cannot be reconciled without an aid reform coming with an aid increase. First, needed is to balance the utilisation of aid between directly productive and social activities, in order to avoid transitory loss of competitiveness. Second, schemes helping to use aid as insurance against exogeneous shocks are to be enhanced because they lower the risk of Dutch disease and contribute to a faster and more equitable long term growth. Finally a performance-based conditionality should be substituted to the traditional policy-based one in order to cope with several absorptive capacity limitations, most importantly the socio-political one. An aid supported big push will not be effective without a new ownership of policy by the recipient countries.
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Date of creation: 09 Feb 2011
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Other versions of this item:
- Patrick Guillaumont & Sylviane Guillaumont Jeanneney, 2010. "Big Push versus Absorptive Capacity: How to Reconcile the Two Approaches," Working Papers id:3000, eSocialSciences.
- Sylviane GUILLAUMONT JEANNENEY & Patrick GUILLAUMONT, 2006. "Big Push versus Absorptive Capacity: How to Reconcile the Two Approaches," Working Papers 200614, CERDI.
- Guillaumont, Patrick & Guillaumont Jeanneney, Sylviane, 2007. "Big Push versus Absorptive Capacity: How to Reconcile the Two Approaches," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-19 (All new papers)
- NEP-CIS-2011-02-19 (Confederation of Independent States)
- NEP-PKE-2011-02-19 (Post Keynesian Economics)
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