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Macroeconomic Determinants of Exit from Aid-Dependence

Author

Listed:
  • Degol Hailu

    () (UNDP SURF)

  • Admasu Shiferaw

    () (College of William and Mary)

Abstract

This paper analyses macroeconomic aspects of exit from aid-dependence. By ?exit from aid?, we mean substantial and enduring decline over time in Official Development Assistance (ODA) as a share of Gross Domestic Product (GDP). The relevant macroeconomic variables are identified by systematically comparing two groups of countries. These are countries that initially had similar and very high degrees of dependence on international aid but followed dramatically different trajectories of aid-dependence afterwards. This comparison was carried out over five decades since the 1960s using both non-parametric and parametric approaches. We find that the likelihood of exit from aid increases significantly with macroeconomic stability in the sense of maintaining moderate inflation, the rate of investment; aggressive effort at domestic resource mobilisation; and structural change in favour of a growing industrial sector, particularly manufacturing. We conclude that if donors and recipients were to coordinate their aid efforts to support the above-mentioned policy objectives, aid could still be a development tool with diminishing importance. (?)

Suggested Citation

  • Degol Hailu & Admasu Shiferaw, 2012. "Macroeconomic Determinants of Exit from Aid-Dependence," Working Papers 90, International Policy Centre for Inclusive Growth.
  • Handle: RePEc:ipc:wpaper:90
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    File URL: http://www.ipc-undp.org/pub/IPCWorkingPaper90.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
    1. Todd Moss & Gunilla Pettersson & Nicolas van de Walle, 2006. "An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa," Working Papers 74, Center for Global Development.
    2. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc.
    3. Admasu Shiferaw, 2009. "Which Firms Invest Less Under Uncertainty? Evidence from Ethiopian Manufacturing," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 2, Courant Research Centre PEG, revised 30 Jun 2013.
    4. Nancy Birdsall & Owen Barder, 2006. "Payments for Progress: A Hands-Off Approach to Foreign Aid," Working Papers 102, Center for Global Development.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Degol Hailu & Admasu Shiferaw, 2012. "What Determines Exit from Aid-dependence?," One Pager 139, International Policy Centre for Inclusive Growth.

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    Keywords

    Macroeconomic Determinants of Exit from Aid-Dependence;

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