The big picture: aid, growth, and macroeconomic management.

Author:Scott, Lucy
Position:Conference at the University of Copenhagen, Denmark - Conference notes

The ReCom--Research and Communication on Foreign Aid programme held its first results meeting on the topic of 'Aid, Growth and Macroeconomic Management' at the University of Copenhagen on 27 January 2012. Implemented by UNU-WIDER and funded by the governments of Denmark and Sweden, ReCom is motivated by a desire to improve understanding of four key questions about aid. What works? What could work? What is transferrable? And what is scalable? This results meeting focused on the overarching story of whether aid supports or impairs economic growth and development.

The debate

Debates about whether aid works rage on. Popular literature frequently expresses the view that aid does not work, it is a futile endeavour, and should be ended. UNU-WIDER aims to move the discussion beyond ideology through rigorous analysis of the existing data to assess whether aid works or not. Clearly there are situations where aid has not worked, but this should not be used to attack the premise and principles behind aid. Rather, it should encourage researchers, practitioners and policy makers to redouble their efforts to investigate further the reasons why aid has not worked in some contexts, as well as the situations where aid does work and why.

Economists talk about a micro-macro paradox with respect to the impact of development aid. That is, at the micro level ex-post project evaluations by and large show positive impacts of aid, while sector interventions are also generally assessed to have positive impacts, for instance on educational enrolment. In contrast, there is frequently said to be no detectable impact of aid on economic growth in the econometric literature which investigates the issue at the aggregate level across countries. The macro literature has long been the outlier.

Does development aid help achieve economic growth?


UNU-WIDER ReCom research on the relationship between aid and growth takes as its starting point the existing body of econometric work on the topic. An influential subset of this work claims that, as no statistically significant positive relationship has been uncovered between aid and growth, a relationship does not exist or is negative. It is interesting that different conclusions have been drawn in the aid-growth debate, taking into account that all the studies are based on the use of the same publically available data. These differences are due to the choice of econometric methods, particularly how the...

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