The countrywide effects of aid
There are three main approaches to analyzing the effects of aid money and aid-supported reform: before-and-after comparison; control group (simple and modified) studies; and modeling. All three approaches have been used to carry out macroeconomic analysis of policy reform. But before-and-after and simple control group approaches are not valid explanatory techniques, say the authors; the results may be used to describe what happened, but not why it happened. Theoretically, the modified control group is the strongest approach. In practice, it has many shortcomings - in particular, its failure to allow for the effects of aid and other capital flows as an explanatory variable. The macroeconomic impact of aid inflows is best understood within the context of an accounting framework, say the authors. The literature on the macroeconomic effects of aid funds has relied almost entirely on modeling. But much work has used only single equations, so that many potentially important relationships - notably aid's effects on output and income - are excluded from the analysis. Even the simultaneous models used are mostly partial, not general, equilibrium models - which makes the findings doubtful. And much of the empirical work suffers from methodological shortcomings. Much research is needed on how aid affects the private sector macroeconomically; more is known about how to analyze the public sector's response to aid inflows. The analysis of aidmoney and aid-supported policy reform can be incorporated into a single framework - but with the effects of each clearly separable. The authors favor a country-specific modeling approach because it allows the separate analysis of policies and money as well as the separate analysis of different policies. Country-specific analysis can capture local factors that may be omitted from cross-country analyses. They argue that counterfactual analysis using econometric or general equilibrium models may be the most legitimate approach to analyzing the relationship between poverty and economic reform. Modeling has yielded results quite different from the common view about the social impact of reform policies, they say, but existing models fail to incorporate aid as an important macroeconomic variable. Project aid, program aid, commodity (mainly food) aid, and technical assistance are the four main types of aid. One problem in much of the literature is that an aggregate aid figure is used, even though the macroeconomic repercussions of these different types of aid will differ. Much analysis is also flawed by considering the effects of a program (despite different intensities and compliance rates) rather than the policies implemented.
|Date of creation:||31 Aug 1994|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
- Younger, Stephen D., 1992. "Aid and the Dutch disease: Macroeconomic management when everybody loves you," World Development, Elsevier, vol. 20(11), pages 1587-1597, November.
- Francois Bourguignon & William H. Branson & Jaime de Melo, 1989.
"Adjustment and Income Distribution: A Counterfactual Analysis,"
NBER Working Papers
2943, National Bureau of Economic Research, Inc.
- Bourguinon, Francois & Branson, William H. & De Melo, Jaime, 1989. "Adjustment and income distribution : a counterfactual analysis," Policy Research Working Paper Series 215, The World Bank.
- Maxwell, S. J. & Singer, H. W., 1979. "Food aid to developing countries: A survey," World Development, Elsevier, vol. 7(3), pages 225-246, March.
- Morisset, Jacques, 1991.
"Does financial liberalization really improve private investment in developing countries?,"
Policy Research Working Paper Series
717, The World Bank.
- Morisset, Jacques, 1993. "Does financial liberalization really improve private investment in developing countries?," Journal of Development Economics, Elsevier, vol. 40(1), pages 133-150, February.
- Leontief, Wassily, 1977. "The future of the world economy+," Socio-Economic Planning Sciences, Elsevier, vol. 11(3), pages 171-182.
- Glewwe, P. & De Tray, D., 1988. "The Poor During Adjustment - A Case Study Of Cote D'Ivoire," Papers 47, World Bank - Living Standards Measurement.
- Benjamin, Nancy C., 1992. "What happens to investment under structural adjustment: Results from a simulation model," World Development, Elsevier, vol. 20(9), pages 1335-1344, September.
- Mesfin Bezuneh & Brady J. Deaton & George W. Norton, 1988. "Food Aid Impacts in Rural Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(1), pages 181-191.
- Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November.
- Ravallion, M., 1992. "Poverty Comparisons - A Guide to Concepts and Methods," Papers 88, World Bank - Living Standards Measurement.
- Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September.
- Berhman, J.R., 1990. "The action of human resources and poverty on one another: what we have yet to learn," Papers 74, World Bank - Living Standards Measurement.
- Levy, Victor, 1987. "Anticipated Development Assistance, Temporary Relief Aid, and," Economic Journal, Royal Economic Society, vol. 97(386), pages 446-58, June.
- Stein Hansen, 1990. "Macroeconomic policies and sustainable development in the third World," Journal of International Development, John Wiley & Sons, Ltd., vol. 2(4), pages 533-557, October.
- White, Howard, 1992. "Aid, the Public Sector and the Market in Less Developed Countries: A Comment," Economic Journal, Royal Economic Society, vol. 102(410), pages 161-62, January.
- Mink, S.D., 1993. "Poverty, Population, and the Environment," World Bank - Discussion Papers 189, World Bank.
- White, H., 1992. "Should we expect aid to increase economic growth?," ISS Working Papers - General Series 18827, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
- Mosley, Paul, 1980. "Aid, Savings and Growth Revisited," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 42(2), pages 79-95, May.
- Levine, Ross & Renelt, David, 1991.
"A sensitivity analysis of cross-country growth regressions,"
Policy Research Working Paper Series
609, The World Bank.
- Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
- Kanbur, Ravi, 1986.
"Structural Adjustment, Macroeconomic Adjustment and Poverty: A Methodology for Analysis,"
CEPR Discussion Papers
132, C.E.P.R. Discussion Papers.
- Ravi Kanbur, S. M., 1987. "Structural adjustment, macroeconomic adjustment and poverty: A methodology for analysis," World Development, Elsevier, vol. 15(12), pages 1515-1526, December.
- Howard White, 1992. "What do we know about aid's macroeconomic impact? An overview of the aid effectiveness debate," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(2), pages 121-137, 03.
- Ravallion, Martin & Huppi, Monika, 1991. "Measuring Changes in Poverty: A Methodological Case Study of Indonesia during an Adjustment Period," World Bank Economic Review, World Bank Group, vol. 5(1), pages 57-82, January.
- White, Howard, 1994. "Foreign aid, taxes and public investment: A further comment," Journal of Development Economics, Elsevier, vol. 45(1), pages 155-163, October.
- J. T. Winpenny, 1990. "Introduction: National environmental policies: The scope for government intervention," Journal of International Development, John Wiley & Sons, Ltd., vol. 2(4), pages 441-448, October.
- Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 120-30, Jan.-Feb..
- Bourguignon, Francois & De Melo, Jaime & Suwa, Akiko, 1991. "Modeling the effects of adjustment programs on income distribution," World Development, Elsevier, vol. 19(11), pages 1527-1544, November.
- Grinols, Earl & Bhagwati, Jagdish N, 1976. "Foreign Capital, Savings and Dependence," The Review of Economics and Statistics, MIT Press, vol. 58(4), pages 416-24, November.
- White, H. & Woestman, L., 1993. "quality of aid : measuring trends in donor performance," ISS Working Papers - General Series 18943, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
- Berhman, J.R. & Deolaikar, A.B., 1990. "The Poor And The Social Sectors During A Period Of Macroeconomic Adjustment: Empirical Evidence For Jamaica," Department of Economics Working Papers 152, Department of Economics, Williams College.
- Binh, Tran-Nam & McGillivray, Mark, 1993. "Foreign aid, taxes and public investment A comment," Journal of Development Economics, Elsevier, vol. 41(1), pages 173-176, June.
- Morisset, Jacques, 1989. "The impact of foreign capital inflows on domestic savings reexamined: The case of Argentina," World Development, Elsevier, vol. 17(11), pages 1709-1715, November.
- Collier, Paul & Gunning, Jan Willem, 1992. "Aid and Exchange Rate Adjustment in African Trade Liberalisations," Economic Journal, Royal Economic Society, vol. 102(413), pages 925-39, July.
- van Wijnbergen, Sweder, 1985. "Aid, Export Promotion and the Real Exchange Rate: An African Dilemma?," CEPR Discussion Papers 88, C.E.P.R. Discussion Papers.
- Odd Per Brekk & Ronald P Hicks, 1991. "Assessing the Impact of Structural Adjustmenton the Poor; The Case of Malawi," IMF Working Papers 91/112, International Monetary Fund.
- Levy, Victor, 1988. "Aid and growth in Sub-Saharan Africa: The recent experience," European Economic Review, Elsevier, vol. 32(9), pages 1777-1795, November.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1337. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.