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Foreign aid, human capital accumulation and the potential implications for growth

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  • Jamelia Harris

    (University of Warwick)

Abstract

Previous research has explored various channels in the aid-growth relationship such as the real exchange rate, changes in manufacturing output, institutional capacity, and governance. This paper puts forward a new mechanism: human capital accumulation. International organizations financially support and/or directly collaborate with educational institutions to establish courses. The development sector, borne out of aid, demands skilled workers. The workforce in turn develops human capital to meet this demand. There is a consequent change in the skills composition in the host country, and thus the types of skills available to employers in the labor market. This may have implications for long-run growth. These mechanisms are explored through mixed-methods analysis of human capital accumulation at the tertiary level in Sierra Leone, a small low-income, aid-dependent country. The data show that post-war interventions have given rise to courses that develop skills that are demanded by local and international non-governmental organizations, but not the formal private sector. This shift toward development-type qualifications has led to excess supply of these graduates, alongside a shortage of graduates with training in science, technology, engineering, and mathematics. The latter are highly demanded by the private sector.

Suggested Citation

  • Jamelia Harris, 2021. "Foreign aid, human capital accumulation and the potential implications for growth," The Review of International Organizations, Springer, vol. 16(3), pages 549-579, July.
    • Handle: RePEc:spr:revint:v:16:y:2021:i:3:d:10.1007_s11558-020-09408-8
    DOI: 10.1007/s11558-020-09408-8
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    1. Philip Keefer & Christopher Kilby, 2021. "Introduction to the special issue: In memoriam Stephen Knack," The Review of International Organizations, Springer, vol. 16(3), pages 473-493, July.
    2. Haldar, Anasuya & Sethi, Narayan, 2022. "Effect of sectoral foreign aid allocation on growth and structural transformation in sub-Saharan Africa—Analysing the roles of institutional quality and human capital," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 1010-1026.

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