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AID and GROWTH

AID and GROWTH. Ichiro Uehara and Zaza Akhvediani Development Economics UW/MADE 25-Jan-2010. CONTENT. Summery of papers Conclusion of papers Critique of papers From perspective of AID receiving country From perspective of AID sending country Conclusion of presentation.

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AID and GROWTH

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  1. AID and GROWTH Ichiro Uehara and Zaza Akhvediani Development Economics UW/MADE 25-Jan-2010

  2. CONTENT • Summery of papers • Conclusion of papers • Critique of papers • From perspective of AID receiving country • From perspective of AID sending country • Conclusion of presentation

  3. Good policies • Fiscal – Budget surplus • Monetary – Low inflation • Trade – Opennes • AID can fill the financial GAP (Saving), there for it will be investment, then economic growth. • Sachs and Warner 1995

  4. Summary of papers Aid, Policies and Growth Does Aid has an impact on growth? Do donors favor good policy? • On average AID has little impact on growth Positive impact on countries with good fiscal, monetary and trade policies • No significant tendancy for favor of good policy • Trend towards better policy among poor countries Craig Burnside and David Dollar

  5. On the Empirics of the Foreign Aid and Growth • Significant growth in aid per capita • Positive impact on countries with good policies Carl-Johan Dalgaard, Henrik Hansen and Finn Tarp

  6. AID instability as measure of the uncertainty and the positive impact of AID on growth Is uncertainty of Aid inflow important? • Stability of Aid flow is important • Effects the level of investment • Could constrain policy • Effects fiscal behavior Robert Lensink and Oliver Morrissey

  7. Can Foreign Aid Buy Growth • Good policy is insignificant factor • Introduction of Alternative good policy Black market premium M2/GDP • Insignificant William Easterly

  8. Conclusion • Aid investment growth theory is in fact important and sound very good. • But empirically there is a little proof.

  9. Critique • Good Policy? • Normative Statement v.s. Positive Statement • Aid is positively correlated to economic growth. • Positive Statement • Budget surplus, low inflation, and openness are good policies. • Normative Statement

  10. Critique • Is a policy same in different countries? • Japan v.s. Costa Rica Japan Constitution: no military 7th “military” expenditure Costa Rica Constitution: no military “0” expenditure for military Border Guards (Police?) Source: Stockholm International Peace Research Institute

  11. Critique • Development of Nation = Nation Building? • Marshall Plan (Europe) • George Marshall, U.S. Secretary of State 1. Long-term support from outside • Steadily, Politically and financially 2. Strong leadership from inside

  12. Haiti Haiti’s development • Jeffery Sachs, Special Adviser to S.G. of U.N. • Haiti’s recovery has to start now. • Reconstruction: Big money!! • Dominique Strauss-Kahn, IMF Managing Director • 1. “Nation has to be on driver’s seat.” • 2. “need long-term commitment from outside.”

  13. Critique • How do we know aid receiving countries are doing their best? • Four possible scenarios (Game Theory?)

  14. Critique • In summary… • Good policies are not universal for everyone. • Policy effects differ from country to country. • Cultural factor? • If the country actually grow, it will lose aid (free money?). Aid addiction?

  15. AID to GeorgiaReceiving

  16. Help to Georgia from 94 to 2003as Loan/Grant • USAID projects in Geogia – 2.3 Billion USD • EU – 800 Million USD • Other Countries - 940 Million USD Georgian department of Statistics • USAID projects in Geogia – 1.2 Billion USD • EU – 1,4 Billion USD • Other Countries - 760 Million USD

  17. JUST in 2008-2010 Georgia received and will receive (main aim of AID is to help Georgia rebuild infrastructure and reserves, destroyer after war with Russia in August 2008) 750 Million (IMF) 500 Million (EU) 1 Billion (US) TOTAL: 2,25 Billion USD Georgian department of Statistics

  18. Georgian department of Statistics

  19. Small Conclusion about Georgia • Financial AID received by the country in 90s and 00s is significant but the effectivness of the AID is very different. • The main reason of Economic grow supported by international AID in last years was good management (even tho it is not the best one) we have significant changes in standarts of living and economic growth in whole country. • Georig is very good example of

  20. Aid Receiving Country • Which country is this? • Two US officials on an aid mission, in 1950, said this country would have trouble competing on world market. • The US Secretary of State, in 1954, held up a cheap shirt from this country as evidence how far they were behind. • An Australian expert said workers in this country were easygoing and impossible to change. • The World Bank’s largest single borrower from 1953 to 1966. Source: Gurrerro

  21. Aid Receiving Country • The Answer is… • Japan!!

  22. Aid Receiving Country • Why and how Japan grow? • Aid? • Cultural factor?

  23. Once upon a time… • After the World War II in Japan…

  24. Once upon a time… • School started…

  25. Japan’s Saving Rate Source: Gurrerro

  26. Aid Receiving Country (Japan) • In case of Japan… • Cultural factor • Education • Work ethics (?) • Social Goals • Three Things you have to have (三種の神器) • TV, refrigerator, washing machine (1950’s) • 3C: Color TV, Air Conditioner, Car (1960’s) • Digital camera, DVD recorder, flat-screen TV • Personal computer, cell phone, Play Station

  27. Tokyo Now…

  28. Aid Receiving Country (Japan) • Can you measure cultural factor? • Can you model cultural factor? • May predict no education because no facility • What you receive v.s. How you receive

  29. Aid Sending Country (Japan) • ODA to Poland… • Ended in 2007 due to out of Development Assistance Committee (DAC) list in 2005 • Loan: Total $ 213 million • Grant: Total $ 40 million • Technological Support: Total $ 90 million • Last grant made in 2003 was for… Source: Minister of Foreign Affairs

  30. Aid Sending Country • Official Development Aid (ODA) in 2007 • U.S. $ 22 billion • Japan $ 13 billion • Germany $12 billion • Poland $ 363 million • China (People’s Republic of)… $0 million • China (Republic of)… $ 516 million Source: OECD 2008; adjusted to 2006 price and exchange rate

  31. Aid Sending Country (Japan) • ODA to China… • Built Beijing Airport ($ 300 million) • Built Shanghai Airport ($ 400 million) • Loan: Total $ 21 billion • Paid back: only $ 9 billion • Grant: Total $ 1.4 billion • Tech. Support: Total $ 1.4 billion Source: Minister of Foreign Affairs

  32. Aid Sending Country • World Bank Contributors • U.S. $39 billion (22%) • Japan $34 billion (20%) • Germany $20 billion (11%) • Poland $86 million (0.05%) • China $0 million (0.00%) Source: World Bank

  33. World Bank Loan • China • Lend: $37 billion • Repaid: $16 billion • Obligation: $22 billion • Africa • Lend: $31 billion • Repaid: $0 • Obligation: $10 billion Source: World Bank

  34. Conclusion • There is something you can measure by numbers; there is also you cannot measure by numbers. • Aid from outside can help economic growth of developing countries in certain extent. • But, economic growth is depending on people inside of the countries.

  35. Lastly… “If you give a person a fish, he can eat a day. But, if you teach the person how to fish, he can eat forever.” unknown

  36. Thank you • More question?

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