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Reasonable Expectations and the First Millennium Development Goal: How Much Can Aid Achieve?

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  • Carl-Johan Dalgaard

    (Department of Economics, University of Copenhagen)

  • Lennart Erickson

    (International Monetary Fund)

Abstract

While a political consensus has emerged to increase aid flows to Sub-Saharan Africa, empirical studies of the effectiveness of aid in stimulating growth and reducing poverty have yet to yield conclusive results. The present paper takes a different approach. Using the standard neoclassical growth model, we ask how much should be expected from aid a priori. Using a range of different parameter values and model specifications, we address three questions. (i) How much growth should aid flows have produced in Sub-Saharan Africa over the last 3 decades? (ii) How much aid would be needed to attain the First Millennium Development Goal (MDG#1) of cutting poverty in half by 2015? (iii) Taking proposed aid flows as given, how much would structural characteristics, such as domestic savings rates and productivity, have to change in order to reach the MDG#1? Our analysis indicates that, even under optimistic assumptions for the effectiveness of aid, past and future expectations for aid in fostering growth and poverty reduction have been too high.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 07-18.

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Length: 25 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:kud:kuiedp:0718

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Keywords: foreign aid; economic growth; millennium development goals;

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Cited by:
  1. Channing Arndt & Sam Jones & Finn Tarp, 2009. "Aid and Growth: Have We Come Full Circle?," Working Paper Series WIDER Discussion Paper 20, World Institute for Development Economic Research (UNU-WIDER).
  2. Carl-Johan, Dalgaard & Henrik, Hansen, 2010. "Evaluating Aid Effectiveness in the Aggregate: A critical assessment of the evidence," MPRA Paper 23026, University Library of Munich, Germany.

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