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Reasonable Expectations and the First Millennium Development Goal: How Much Can Aid Achieve?

Author

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  • Carl-Johan Dalgaard

    (Department of Economics, University of Copenhagen)

  • Lennart Erickson

    (International Monetary Fund)

Abstract

While a political consensus has emerged to increase aid flows to Sub-Saharan Africa, empirical studies of the effectiveness of aid in stimulating growth and reducing poverty have yet to yield conclusive results. The present paper takes a different approach. Using the standard neoclassical growth model, we ask how much should be expected from aid a priori. Using a range of different parameter values and model specifications, we address three questions. (i) How much growth should aid flows have produced in Sub-Saharan Africa over the last 3 decades? (ii) How much aid would be needed to attain the First Millennium Development Goal (MDG#1) of cutting poverty in half by 2015? (iii) Taking proposed aid flows as given, how much would structural characteristics, such as domestic savings rates and productivity, have to change in order to reach the MDG#1? Our analysis indicates that, even under optimistic assumptions for the effectiveness of aid, past and future expectations for aid in fostering growth and poverty reduction have been too high.

Suggested Citation

  • Carl-Johan Dalgaard & Lennart Erickson, 2007. "Reasonable Expectations and the First Millennium Development Goal: How Much Can Aid Achieve?," Discussion Papers 07-18, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0718
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lidia Ceriani & Paolo Verme, 2014. "The Income Lever and the Allocation of Aid," Journal of Development Studies, Taylor & Francis Journals, vol. 50(11), pages 1510-1522, November.
    2. Channing Arndt & Sam Jones & Finn Tarp, 2009. "Aid and Growth: Have We Come Full Circle?," WIDER Working Paper Series WIDER Discussion Paper 20, World Institute for Development Economic Research (UNU-WIDER).
    3. Alia, Didier Yelognisse & Anago, Romuald E. Kouadio, 2014. "Foreign aid effectiveness in African economies: Evidence from a panel threshold framework," WIDER Working Paper Series 015, World Institute for Development Economic Research (UNU-WIDER).
    4. Dierk Herzer & Michael Grimm, 2012. "Does foreign aid increase private investment? Evidence from panel cointegration," Applied Economics, Taylor & Francis Journals, vol. 44(20), pages 2537-2550, July.
    5. repec:spd:journl:v:67:y:2017:i:4:p:85-99 is not listed on IDEAS
    6. Arndt Channing & Jones Sam & Tarp Finn, 2010. "Aid, Growth, and Development: Have We Come Full Circle?," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-29, December.
    7. repec:eee:wdevel:v:105:y:2018:i:c:p:70-82 is not listed on IDEAS
    8. Maria Rosaria Carillo & Valentina Chiariello & Rita De Siano, 2016. "Women in Parliaments and Aid effectiveness in Sub-Saharan African countries," Discussion Papers 5_2016, CRISEI, University of Naples "Parthenope", Italy.
    9. Channing Arndt & Sam Jones & Finn Tarp, 2016. "What Is the Aggregate Economic Rate of Return to Foreign Aid?," World Bank Economic Review, World Bank Group, vol. 30(3), pages 446-474.
    10. Carl-Johan, Dalgaard & Henrik, Hansen, 2010. "Evaluating Aid Effectiveness in the Aggregate: A critical assessment of the evidence," MPRA Paper 23026, University Library of Munich, Germany.

    More about this item

    Keywords

    foreign aid; economic growth; millennium development goals;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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