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Aid as a Catalyst for Pioneer Investment

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  • Collier, Paul

Abstract

I discuss how aid can support growth in small, isolated economies. Small markets frustrate scale economies and competition. Combined with high transport costs, essential inputs become prohibitively expensive. Breaking the coordination problem requires pioneering investment. Since this generates externalities it will be undersupplied. Donors have both the finance and the long-term relationships that could offset the externalities and political risks that impede pioneers. However, there are practical difficulties of how such support is best organized. In order of ambition these run from finance of infrastructure, through subsidized capital and political risk insurance, to long-term partnerships with private firms.

Suggested Citation

  • Collier, Paul, 2013. "Aid as a Catalyst for Pioneer Investment," WIDER Working Paper Series 004, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp2013-004
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    File URL: https://www.wider.unu.edu/sites/default/files/wp2013-004.pdf
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    References listed on IDEAS

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    1. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
    2. Matthew Lowe & Chris Papageorgiou & Fidel Perez-Sebastian, 2012. "The Public and Private MPK," DEGIT Conference Papers c017_021, DEGIT, Dynamics, Economic Growth, and International Trade.
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    Cited by:

    1. Paul COLLIER, 2014. "Fragile African States: What Should Donors Do?," Working Papers P95, FERDI.
    2. Paul COLLIER, 2014. "Fragile African States: What Should Donors Do?," Working Papers P95, FERDI.

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    Keywords

    Economic assistance and foreign aid; Economic development; Investments; Macroeconomics;

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