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Foreign Aid Policy and Sources of Poverty: A Quantitative Framework
Author:
Mr. Alex Mourmouras
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Mr. Peter Rangazas
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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 014
Language:
English
Publication Date:
01 Jan 2006
DOI:
https://doi.org/10.5089/9781451862744.001
ISBN:
9781451862744
ISSN:
1018-5941
Pages:
32
Keywords:
WP; open economy; poverty trap; foreign aid policy; growth; poverty; schooling; fertility; capital mobility; worker productivity; fiscal policy difference; productivity variable; physical capital difference; B. worker productivity difference; worker productivity difference; physical capital accumulation; productivity gap; anti-growth fiscal policy; spreads saving; fiscal policy reform; saving flow; Capital productivity; Productivity; Africa; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The econometric literature has been unable to establish a robust association between foreign aid and growth and poverty reduction. In this paper we argue that aid effectiveness must be assessed using methods that go beyond cross-country regressions. We calibrate a dynamic general equilibrium model that is capable of generating large income gaps between rich and poor countries. The model quantifies three sources of poverty: (i) lack of access to international capital, (ii) low schooling and high fertility (a poverty trap), and (iii) antigrowth domestic fiscal policy. We analyze policies designed to address each source of poverty and estimate and compare the aid cost of implementing the different policies. The policies differ dramatically in the extent and timing of their growth effects, and in the aid cost of their implementation.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2006: Issue 014