Growth Strategies to Reach the Millennium Development Goals (MDGs) in Ethiopia

Since the Gleneagles promises, least developed countries have been encouraged to plan growth strategies to reach the Millennium Development Goals (MDGs) with the expectation that per capita Oversees Development Assistance (ODA) will grow dramatically above current levels. Such growth strategies pose grave dangers for those countries that follow them. First, although many poor countries may receive higher per capita ODA, it is highly unlikely that they will increase by multiples of current levels. Second, there are several inter-related issues including absorptive capacity and Dutch Disease effect that can undermine the intended gains for recipient countries, even if major increases in ODA are realized. Given these realities, most poor countries need to plan their growth strategies to take into account a resource-constrained environment in which there will be tradeoffs, as well as to manage absorptive capacity and Dutch Disease effects. Using a dynamic Computable General Equilibrium (CGE) Model, this paper analyzes quantitatively the tradeoffs involved for Ethiopia. The dynamic CGE model, the MAMS model, has been developed at the World Bank by Hans Lofgren and is closely related to the standard, static, single-country CGE model developed earlier by Hans Lofgren, Sherman Robinson, and Rebecca Harris.