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Big Push versus Absorptive Capacity: How to Reconcile the Two Approaches

  • Guillaumont, Patrick
  • Guillaumont Jeanneney, Sylviane

In this paper we examine whether absorptive capacity can constitute sufficient justification for rejecting the proposal of a large aid increase to support the ?big push?. We argue that the probability of a poverty trap exists for many countries, in particular the least developed countries (LDCs) and that an increase in aid is relevant for them. Moreover we show that the decrease in marginal aid returns is slower in vulnerable countries, which supports the rationale to include vulnerability as one of the aid allocation criteria. We examine the main obstacles to absorptive capacity, such as disbursement constraints and short-term bottlenecks, macroeconomic problems, including loss in competitiveness and macroeconomic volatility, as well as the weakening of institutions. The general conclusion that we draw for reconciling the two approaches is that absorptive capacity strongly influenced by aid itself or by its modalities. The big push and absorptive capacity approaches cannot be reconciled without aid reform supported by an aid increase. First, what is needed is to balance the utilization of aid between activities that are directly productive and those that are social ...

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2007/dp2007-05.pdf
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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper DP2007/05.

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Length: 26 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:unu:wpaper:dp2007-05
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  1. Pierre-Richard Agénor & Nihal Bayraktar & Emmanuel Pinto Moreira & Karim El Aynaoui, 2006. "Achieving the Millennium Development Goals in Sub-Saharan Africa: A Macroeconomic Monitoring Framework," The World Economy, Wiley Blackwell, vol. 29(11), pages 1519-1547, November.
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