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Can foreign Aid Buy Growth and The Big Push Déjà Vu: A Review of Jeffery Sachss The End of Poverty: Economic Possibilities of Our Time BY William Easterly.

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Presentation on theme: "Can foreign Aid Buy Growth and The Big Push Déjà Vu: A Review of Jeffery Sachss The End of Poverty: Economic Possibilities of Our Time BY William Easterly."— Presentation transcript:

1 Can foreign Aid Buy Growth and The Big Push Déjà Vu: A Review of Jeffery Sachss The End of Poverty: Economic Possibilities of Our Time BY William Easterly Presented by: Wisdom Ejebugha and Gilbert Mbara MADE, Dev_Workshop 2007 26th November 2007

2 Outline 1.The Big Push Déjà Vu 1.Introduction 2.Critique 2.Can Foreign Aid Buy Growth 1.Introduction 2.Critique 3.Conclusions

3 1. The Big Push Déjà Vu 1.1 Introduction 1/3 The End of Povertyby Jeffery Sachs proposes: Doubling foreign Aid to about 100 Billion USD per year. Foreign Aid will fill the financing gap – the difference between what a country needs and what it can afford on its own. Comprehensive package of interventions covering all the needs of the poor. Package to be implemented by Aid Agencies, the UN and National Governments. 1/3

4 1. The Big Push Déjà Vu 1.1 Introduction 2/3 Easterlys critique: No big solution to a big problem. Aid and Poverty Trap. Poverty Traps versus Bad Government. 1/3

5 1. The Big Push Déjà Vu 1.1 Introduction 3/3 Easterlys critique cont.: Development as a technical problem. The Piecemeal Approach. The Dangers of Hubris. 1/3

6 1.The Big Push Déjà Vu 1.2 Our Critique 1/1 Big Solutions: The Marshal Plan is an example of one a Big Push Idea that worked. Aid has been increasing while growth is falling – but this in not the whole story. Some development problems are technical. Piecemeal approach. 1/3

7 2.Can Aid Buy Growth 2.1 Introduction 1/4 Empirical evidence on the links between aid and growth Boone (1996) – Aid finance consumption rather than investment. Burnside and Dollar (2000) – Aid positively affects growth under sound policies. Easterly, Levine and Roodman (2003) – No relationship between Aid and Growth. 2/3

8 2.Can Aid Buy Growth 2.1 Introduction 2/4 The Theory of Aid and Economic Growth Chenery and Strout (1966) – Two-Gap model. Assumptions: Linear relation between investment and growth. Aid financing investment and not consumption. Easterly (2001) – tests financing gap model. No empirical support the model. Model still used to estimated aid requirements. 2/3

9 2.Can Aid Buy Growth 2.1 Introduction 3/4 Aid Institutions: Moving the Money Disbursements as output measures. 2/3

10 2.Can Aid Buy Growth 2.1 Introduction 4/4 Selectivity in Foreign Aid Conditionality Evaluation 2/3

11 2.Can Aid Buy Growth 2.2 Our Critique 1/1 Increasing aid while growth is decreasing. Lack of robustness of Burnside and Dollar (2000). Lack of differentiation between the different types of aid. (Lack of dis- aggregation of aid). Overstatement: Aid does not drive growth. 2/3

12 3.Conclusion 1.Contradictions in Easterlys arguments: Big Push can overcome the lack of evaluation capacity. 2. In spite of negative results, there are a lot of positive effects of aid. 3.There is no counter factual to determine the true effect of aid on growth. AID IS AS OLD AS THE AGES, AID SHOULD CONTINUE

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