Foreign Aid Policy and Sources of Poverty: A Quantitative Framework

January 1, 2006

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Alex Mourmouras, and Peter Rangazas. Foreign Aid Policy and Sources of Poverty: A Quantitative Framework, (USA: International Monetary Fund, 2006) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Capital productivity, Education, Fiscal policy, Poverty, Production, Productivity, Wages

Keywords: Africa, Anti-growth fiscal policy, B. worker productivity difference, Capital mobility, Capital productivity, Fertility, Fiscal policy difference, Fiscal policy reform, Foreign aid policy, Global, Growth, Open economy, Physical capital accumulation, Physical capital difference, Poverty, Poverty trap, Productivity, Productivity gap, Productivity variable, Saving flow, Schooling, Spreads saving, Worker productivity, Worker productivity difference, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/014
Stock No:

WPIEA2006014
ISBN:

9781451862744
ISSN:

1018-5941

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