Reasonable Expectations and the First Millennium Development Goal: How Much Can Aid Achieve?

Carl-Johan Dalgaard and Lennart Erickson
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Lennart Erickson: International Monetary Fund

No 07-18, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: While a political consensus has emerged to increase aid flows to Sub-Saharan Africa, empirical studies of the effectiveness of aid in stimulating growth and reducing poverty have yet to yield conclusive results. The present paper takes a different approach. Using the standard neoclassical growth model, we ask how much should be expected from aid a priori. Using a range of different parameter values and model specifications, we address three questions. (i) How much growth should aid flows have produced in Sub-Saharan Africa over the last 3 decades? (ii) How much aid would be needed to attain the First Millennium Development Goal (MDG#1) of cutting poverty in half by 2015? (iii) Taking proposed aid flows as given, how much would structural characteristics, such as domestic savings rates and productivity, have to change in order to reach the MDG#1? Our analysis indicates that, even under optimistic assumptions for the effectiveness of aid, past and future expectations for aid in fostering growth and poverty reduction have been too high.

Keywords: foreign aid; economic growth; millennium development goals (search for similar items in EconPapers)
JEL-codes: F35 O11 O19 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2007-09
New Economics Papers: this item is included in nep-dev
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Journal Article: Reasonable Expectations and the First Millennium Development Goal: How Much Can Aid Achieve? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0718

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