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Aid, Spending Strategies and Productivity Effects – A Multi-sectoral CGE Analysis for Zambia

  • Volker Clausen
  • Hannah Schürenberg-Frosch

    ()

Numerous econometric studies fail to detect a signicant and robust relationship between international aid and economic growth in the recipient countries. Dutch Disease effects might be responsible for this result.This paper examines the relation between aid and its effectiveness in a multi-sector multihousehold Computable General Equilibrium (CGE)-framework. Given that international transfers to African countries increasingly take the form of general financial support to the government, different spending strategies and their macroeconomic, sectoral and distributional effects are evaluated in a two-stage simulation making a distinction between immediate direct effects and possible long-run effects from increased productivity. While the model simulates the effects of additional aid in Zambia it can be used as a blueprint for other African countries.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0127.

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Length: 33 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:rwi:repape:0127
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  1. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  2. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
  3. Hristos Doucouliagos & Martin Paldam, 2009. "The Aid Effectiveness Literature: The Sad Results Of 40 Years Of Research," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 433-461, 07.
  4. Hansen, Henrik & Tarp, Finn, 1999. "Aid Effectiveness Disputed," MPRA Paper 62290, University Library of Munich, Germany.
  5. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
  6. Christopher S Adam & Stephen A O'Connell, 2004. "Aid versus Trade Revisited: Donor and Recipient Policies in the Presence of Learning-by-Doing," Economic Journal, Royal Economic Society, vol. 114(492), pages 150-173, 01.
  7. Christopher Adam & David Bevan, 2003. "Aid, Public Expenditure and Dutch Disease," Economics Series Working Papers WPS/2003-02, University of Oxford, Department of Economics.
  8. Pierre Richard AGÉNOR & Nihal BAYRAKTAR & Karim EL AYNAOUI, . "Roads out of Poverty? Assessing the Link between Aid, Public Investment, Growth and Poverty Reduction," EcoMod2004 330600003, EcoMod.
  9. Arvind Subramanian & Raghuram Rajan, 2005. "What Undermines Aid's Impacton Growth?," IMF Working Papers 05/126, International Monetary Fund.
  10. Christopher Adam & David Bevan, 2004. "Aid and the Supply Side: Public Investment, Export Performance and Dutch Disease in Low Income Countries," Economics Series Working Papers 201, University of Oxford, Department of Economics.
  11. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
  12. Rutherford, Thomas F. & Tarr, David G., 2008. "Poverty effects of Russia's WTO accession: Modeling "real" households with endogenous productivity effects," Journal of International Economics, Elsevier, vol. 75(1), pages 131-150, May.
  13. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Growth. A Meta Study," Economics Working Papers 2005-13, School of Economics and Management, University of Aarhus.
  14. Hristos Doucouliagos & Martin Paldam, 2010. "Conditional aid effectiveness: A meta-study," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 391-410.
  15. Elbadawi, Ibrahim A, 1999. "External Aid: Help or Hindrance to Export Orientation in Africa?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 8(4), pages 578-616, December.
  16. Vos, Rob, 1998. "Aid Flows and "Dutch Disease" in a General Equilibrium Framework for Pakistan," Journal of Policy Modeling, Elsevier, vol. 20(1), pages 77-109, February.
  17. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
  18. Marcus Böhme & Clemens Breisinger & Rainer Schweickert & Manfred Wiebelt, 2010. "Oil revenues for public investment in Africa: targeting urban or rural areas?," Kiel Working Papers 1623, Kiel Institute for the World Economy.
  19. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
  20. David Fielding, 2010. "Aid and Dutch Disease in the South Pacific and in Other Small Island States," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 918-940.
  21. Peter S. Heller, 2005. "Pity the Finance Minister; Issues in Managing a Substantial Scaling-Up of Aid Flows," IMF Working Papers 05/180, International Monetary Fund.
  22. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 42-65.
  23. Owen Barder, 2006. "A Policymakers' Guide to Dutch Disease," Working Papers 91, Center for Global Development.
  24. Charles R. Hulten, 1996. "Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have," NBER Working Papers 5847, National Bureau of Economic Research, Inc.
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