3 Responses

  1. Nik Soni
    Nik Soni November 8, 2010 at 11:40 am

    How can aid support growth?

    The article ties very well with a couple of IMF papers in 2005 that looked at different types of aid and their contribution to growth.

    http://www.imf.org/external/pubs/ft/fandd/2005/09/radelet.htm#author%23author
    http://www.imf.org/external/pubs/ft/wp/2005/wp05126.pdf.

    These papers (correctly) broke aid down in a few categories, emergency, economic, institutional and then ran some regressions. They found that institutional support had a long term positive effect, economic support a medium term economic effect and humanitarian was negatively correlated (only because you apply it during times of crisis – I guess lagged dummies did not work out).

    So I think that is one argument I would like to see teased out a little – view your aid basket like an investment portfolio. Don’t put all your eggs in one basket but have a mix of support. Or maybe like a balanced meal – little bit of institutional support, seasoned with economic aid (wharfs roads etc) and a side dish of humanitarian help – now that’s a proper meal ticket to growth!

    I think the second point which I find interesting is the assertion (correctly) that economic growth is ultimately a domestic issue. I believe competitiveness has so long been confused with openness that it has become a part of the problem. So for example for small islands if you simply open your markets you end up with an external monopoly (the market is only big enough for one player). So you have openness but less competition. However, if you had policies that encouraged domestic competition then you would improve matters. The two are not mutually exclusive – obviously – but I am glad that the emphasis is not on simply opening markets – as that often reduces competition if it is not done after or at the same time as the necessary domestic reforms.

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