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Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa

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  • Nancy Birdsall

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Abstract

The implicit assumption of the donor community is that Africa is trapped by its poverty, and that aid is necessary if Africa is to escape the trap. In this note I suggest an alternative assumption: that Africa is caught in an institutional trap, signaled and reinforced by the small share of income of its independent middle-income population. Theory and historical experience elsewhere suggest that a robust middle-income group contributes critically to the creation and sustenance of healthy institutions, particularly healthy institutions of the state. I propose that if external aid is to be helpful for institution-building in Africa’s weak and fragile states, donors need to emphasize not providing more aid but minimizing the risks more aid poses for this group in Africa. Most middle-income households in Africa are actually poor by international standards, or at risk of becoming poor. While maintaining their concern for the “poor” as conventionally defined, donors need also to avoid harm to the fragile “middle”. Of special concern should be the implications of high and unpredictable aid inflows for small entrepreneurial activity and job creation in the private sector. In the more than 20 countries already highly dependent on aid (where aid constitutes 10 percent or more of GNP and as much as 50 percent of total government spending), donors (in collaboration with recipient governments) should be monitoring more closely than has been the case the effects of aid and of planned aid increases on the labor market, particularly for skilled workers; on interest rates and other macroeconomic variables; on domestic investor confidence (given the volatility of past aid); and on incentives for domestic revenue generation.

Suggested Citation

  • Nancy Birdsall, 2007. "Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa," Working Papers 113, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:113
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    File URL: http://www.cgdev.org/content/publications/detail/13115
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    Cited by:

    1. Ezequiel Cabezon & Tej Prakash, 2008. "Public Financial Management and Fiscal Outcomes in Sub-Saharan African Heavily-Indebted Poor Countries," IMF Working Papers 08/217, International Monetary Fund.
    2. Wim Naudé, 2010. "Africa And The Global Economic Crisis: A Risk Assessment And Action Guide," EUI-RSCAS Working Papers 27, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    3. Naudé, Wim, 2010. "Development Progress in sub-Saharan Africa: Lessons from Botswana, Ghana, Mauritius and South Africa," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
    4. Craig Johnson & Hari Bansha Dulal & Martin Prowse & Krishna Krishnamurthy & Tom Mitchell, 2013. "Social Protection and Climate Change: Emerging Issues for Research, Policy and Practice," Development Policy Review, Overseas Development Institute, vol. 31, pages 2-18, November.
    5. Léonce Ndikumana, 2013. "Applying Evaluation to Development and Aid: Can Evaluation Bridge the Micro-macro Gaps in Aid Effectiveness?," Published Studies article-leonce-ndikumana-, Political Economy Research Institute, University of Massachusetts at Amherst.
    6. Maia Green, 2012. "Co-producing ineffective states: social knowledge, social policy and social citizenship in Africa and in development," Brooks World Poverty Institute Working Paper Series esid-014-12, BWPI, The University of Manchester.
    7. Atsuko Tanaka, "undated". "Notes on Foreign Aid Selectivity Based on Human Capital," Working Papers 2015-23, Department of Economics, University of Calgary, revised 27 Sep 2015.
    8. Birdsall, Nancy, 2007. "Reflections on the Macro Foundations of the Middle Class in the Developing World," Center for Global, International and Regional Studies, Working Paper Series qt4nt1n232, Center for Global, International and Regional Studies, UC Santa Cruz.
    9. repec:taf:rsocec:v:75:y:2017:i:1:p:26-48 is not listed on IDEAS
    10. Mina Baliamoune-Lutz, 2007. "Institutions, Trade, and Social Cohesion in Fragile States," ICER Working Papers 24-2007, ICER - International Centre for Economic Research.
    11. Andy Sumner, 2012. "The Buoyant Billions: How “Middle Class†Are the New Middle Classes in Developing Countries? (And Why Does It Matter?)," Working Papers id:5169, eSocialSciences.
    12. Smith, Ransford, 2015. "The Caribbean and the post-2015 development agenda," Studies and Perspectives – ECLAC Subregional Headquarters for The Caribbean 43, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

    More about this item

    Keywords

    sub-Saharan African; institution-building; external aid; weak and fragile states; private sector; domestic investor confidence; private investment;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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