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Thresholds in Aid Effectiveness

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  • Laurent WAGNER

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Abstract

Is the big push hypothesis consistent with capacity constraints in the study of aid effectiveness? Big push hypothesis suggests the existence of a minimum threshold below which aid is not effective, while the constraints referred to by the concept of absorptive capacity suggests the existence of another threshold above which aid is no longer effective. This paper addresses the issue of multiple thresholds characterizing the aid/growth relationship. Using a semiparametric econometric method we do find that aid become effective only above a critical level but also become detrimental to growth for higher value of aid flows. We also investigate how the quality of economic policies and vulnerability modifies the level of those two thresholds. We finally propose a dynamic explanation of the aid/growth relationship.

Suggested Citation

  • Laurent WAGNER, 2008. "Thresholds in Aid Effectiveness," Working Papers 200822, CERDI.
  • Handle: RePEc:cdi:wpaper:1028
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    References listed on IDEAS

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    1. Guillaumont, Patrick & Laajaj, Rachid, 2006. "When instability increases the effectiveness of aid projects," Policy Research Working Paper Series 4034, The World Bank.
    2. Martin Mühleisen & Dhaneshwar Ghura & Roger Nord & Michael T. Hadjimichael & E. Murat Ucer, 1995. "Sub-Saharan Africa; Growth, Savings, and Investment, 1986-93," IMF Occasional Papers 118, International Monetary Fund.
    3. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    4. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, vol. 79(1), pages 99-106, April.
    5. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
    6. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    7. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    8. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
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    Cited by:

    1. Guillaumont, Patrick & Guillaumont Jeanneney, Sylviane & Wagner, Laurent, 2017. "How to Take into Account Vulnerability in Aid Allocation Criteria and Lack of Human Capital as Well: Improving the Performance Based Allocation," World Development, Elsevier, vol. 90(C), pages 27-40.
    2. Patrick GUILLAUMONT, 2009. "Aid effectiveness for poverty reduction: macroeconomic overview and emerging issues," Working Papers P05, FERDI.
    3. Sosso FEINDOUNO & Michaël GOUJON, 2016. "Human Assets Index retrospective series: 2016 update," Working Papers P179, FERDI.
    4. Patrick Guillaumont & Laurent Wagner, 2014. "Aid Effectiveness for Poverty Reduction: Lessons from Cross‑country Analyses, with a Special Focus on Vulnerable Countries," Revue d’économie du développement, De Boeck Université, vol. 22(HS01), pages 217-261.
    5. Michaël GOUJON & Mathilde CLOSSET & Sosso FEINDOUNO, 2014. "Human Assets Index Retrospective series: 2013 update," Working Papers P110, FERDI.
    6. Patrick Guillaumont & Laurent Wagner, 2012. "Aid and Growth Accelerations: Vulnerability Matters," Post-Print halshs-00692388, HAL.
    7. repec:unu:wpaper:wp2012-31 is not listed on IDEAS
    8. Bah, El-hadj M. & Ward, Jeremy, 2011. "Effectiveness of foreign aid in Small Island Developing States," MPRA Paper 32062, University Library of Munich, Germany.
    9. Ronald Kumar, 2014. "Exploring the nexus between capital inflows and growth in Latin America and the Caribbean: a study of clusters led by Brazil and Mexico," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(5), pages 2537-2552, September.

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