Live 8 was a series of benefit concerts in 2005 organized by Bono and
Bob Geldof that made the right music for getting aid to Africa. Jeffrey
Sachs, a prominent economist at Columbia University, has argued that
the developed countries should give more aid to the poorer countries.
Leaders of African countries are asking for more. After African colonies
gained independence, most got a lot of aid from their ex-colonizers.
Yet, after close to $600 billion of assistance, most of Africa is at the
same income level as it was in 1970. Why has it lagged behind other
developing countries? Why has aid not helped Africa grow as fast as
other countries?
One way to check whether aid had an effect on growth is to run instrumented regressions. Instrumented regressions allow us to get a better picture after controlling for the effect that growth would have on the likelihood of getting aid and other factors that may be affecting growth and are correlated with aid. If we run such a regression, we find that aid seems to have no effect on growth. Even more startling is the result that this ineffectiveness remains even if the government follows good policies such as low inflation, more trade and low fiscal deficits.
After 1990, UK declared that it would only give aid to countries who make their political systems more open, tighten constraints on the executive and have regular (and fair) elections. Even after repressive dictatorships turned into repressive pseudo-democracies, conditional aid increased but growth remained elusive.
William Easterly, an economist at New York University, believes that aid should not be given to the governments directly because there is no accountability. Most of this money ends up in the pockets of politicians and developed countries are led to believe that they are uplifting poverty. He says that aid should only be given to countries conditional on them giving the money to an independent institution that supervises and reports how it is being used. Moreover, aid should be project-specific so that we can assess the exact quantitative effect of aid. This may not result in growth (in the short term at least) but would result in human capital development. For example, in Mexico aid was transferred to an independent health research institution that gave cash grants to mothers in return for them sending their kids to school, bringing them for health check ups and giving them nutritional supplements. Comparing attendance and health results showed significant gains. A similar programme was carried out for deworming in Kenya and that too showed an increase in class attendance though not an increase in the marks obtained.
Thus, aid should only be given where its effects can be evaluated against a control group. If it is found to be effective, it could be implemented at a larger scale.
Another view on aid (that is still very much in the minority) is that simple giving aid to the governments might actually be bad for growth. This may be because it may generate incentives for coup attempts and civil wars as there is a bigger pie at stake. A prolonged civil war results in poverty, which means more aid, and this trap between conflict, poverty and aid might just be the reason why we see these three recurring states in Africa.
One way to check whether aid had an effect on growth is to run instrumented regressions. Instrumented regressions allow us to get a better picture after controlling for the effect that growth would have on the likelihood of getting aid and other factors that may be affecting growth and are correlated with aid. If we run such a regression, we find that aid seems to have no effect on growth. Even more startling is the result that this ineffectiveness remains even if the government follows good policies such as low inflation, more trade and low fiscal deficits.
After 1990, UK declared that it would only give aid to countries who make their political systems more open, tighten constraints on the executive and have regular (and fair) elections. Even after repressive dictatorships turned into repressive pseudo-democracies, conditional aid increased but growth remained elusive.
William Easterly, an economist at New York University, believes that aid should not be given to the governments directly because there is no accountability. Most of this money ends up in the pockets of politicians and developed countries are led to believe that they are uplifting poverty. He says that aid should only be given to countries conditional on them giving the money to an independent institution that supervises and reports how it is being used. Moreover, aid should be project-specific so that we can assess the exact quantitative effect of aid. This may not result in growth (in the short term at least) but would result in human capital development. For example, in Mexico aid was transferred to an independent health research institution that gave cash grants to mothers in return for them sending their kids to school, bringing them for health check ups and giving them nutritional supplements. Comparing attendance and health results showed significant gains. A similar programme was carried out for deworming in Kenya and that too showed an increase in class attendance though not an increase in the marks obtained.
Thus, aid should only be given where its effects can be evaluated against a control group. If it is found to be effective, it could be implemented at a larger scale.
Another view on aid (that is still very much in the minority) is that simple giving aid to the governments might actually be bad for growth. This may be because it may generate incentives for coup attempts and civil wars as there is a bigger pie at stake. A prolonged civil war results in poverty, which means more aid, and this trap between conflict, poverty and aid might just be the reason why we see these three recurring states in Africa.
No comments:
Post a Comment