Economic lessons from recent research.

Author:Addison, Tony

30 September 2015

This article is part of UNU's "17 Days, 17 Goals" series, featuring research and commentary in support of the United Nations Sustainable Development Summit, 25-27 September 2015 in New York City.

Sustainable Development Goal #8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

Sustainable Development Goal #8 is a large topic--one covered extensively by the new UNU-WIDER programme on transformation, inclusion, and sustainability. In this article I'll look briefly at each of the three areas mentioned in SDG #8--growth, work, and jobs--and consider how recent research has challenged popular thinking on these topics.

Growth: Aid is a useful tool for achieving SDG #8

The question of whether foreign aid effectively promotes growth and development has been hotly contested for years. Many view aid as, at best, a waste of money, and at worst a source of corruption and dependency. UNU-WIDER's Research and Communication on Foreign Aid (ReCom) project provides a clear answer to this charge: When aid is delivered effectively it can, and does, have a positive impact on the economies of developing countries.

In particular, a paper by Channing Arndt, Sam Jones, and Finn Tarp showed that aid effectively promotes intermediate drivers of development, and through these drivers has a positive effect on growth. An average annual inflow of US$25 aid per capita over the period 1970-2007 cut poverty by around 6.5 percentage points (ppts), raised investments by 1.5 ppts of GDP, augmented average schooling by 0.4 years, boosted life expectancy by 1.3 years, and reduced infant mortality by 7 in every 1,000 births.

Under these circumstances, the effect of aid could also be expected to produce an increase in the rate of economic growth of around 0.5 ppts. This implies a reasonable return on aid over the 37-year period between 1970 and 2007; the estimated annual internal rate of return is well above 7%. It is clear, then, that aid can play an important role in achieving SDG #8.

Employment: Small isn't always beautiful

At the end of 2010, the total commitments of multilateral development banks, bilateral donor agencies, and development finance institutions to support small and medium-sized enterprises (SMEs) totalled around US$24.5 billion. This attention is seen as warranted both because SMEs are responsible for a high percentage of jobs in low-income countries, and because they generate a large number...

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