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the_elusive_quest_for_growth [2015/03/27 13:17]
will [The Loans that Were, the Growth that Wasn't] |
the_elusive_quest_for_growth [2019/11/08 10:39] (current)
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| ====== Panaceas that Failed ====== | ====== Panaceas that Failed ====== |
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| | [[http://abridgeme/lib/exe/fetch.php?media=epub:dan:2015_july_24_11-38-46.epub|Download epub version]] (This is still a beta feature -- the epub version may be out of date, ugly, or just not work at all. Sorry!) |
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| * The connection of loans to policy change encourages recipients to 'zigzag' their policy. | * The connection of loans to policy change encourages recipients to 'zigzag' their policy. |
| * Non-performance of old loans is embarrassing to donors, as an admission that their policy reform programmes have failed catastrophically. There is therefore a strong incentive to provide loans to ensure that a poorly performing recipient can continue to meet interest payments on existing loans. | * Non-performance of old loans is embarrassing to donors, as an admission that their policy reform programmes have failed catastrophically. There is therefore a strong incentive to provide loans to ensure that a poorly performing recipient can continue to meet interest payments on existing loans. |
| One study claims that 1 per cent in GDP of aid in a good policy environment leads to 0.6 per cent growth in GDP, implying that this failure of structural adjustment loans to achieve an improvement in policy has cost the developing world a great deal of growth. | |
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| Easterly's recommendations are simple. Firstly, the amount of aid offered should be conditional primarily on past performance, ie proven track record: on key indicators of policy (inflation, black market exchange rate premium) and growth. Secondly, aid should increase as countries become richer and as the numbers in poverty decline. This is absolutely necessary to avoid providing perverse disincentives to growth and poverty reduction. | One study claims that aid equivalent to 1 per cent in GDP in a good policy environment leads to 0.6 per cent growth in GDP, implying that this failure of structural adjustment loans to achieve any improvement in policy has cost the developing world a great deal of growth. |
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| | Easterly's recommendations are simple. Firstly, the amount of aid offered should be conditional primarily on past performance, i.e. proven track record: on key indicators of policy (inflation, black market exchange rate premium) and growth. Secondly, aid should increase as countries become richer and as the numbers in poverty decline. This is absolutely necessary to avoid providing perverse disincentives to growth and poverty reduction. |
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| Clearly, the obvious objection to Easterly's proposals is that he argues that most aid should be given to those who need it least, and no aid should be given to those in desperate need. His assumption appears to be that the really crucial determinant of growth is policy, not aid, and that growth and poverty reduction can be achieved with good policy and no (or very little) aid. He believes that the empirical evidence bears him out: that aid is only beneficial in a good policy environment, so it is better to have good policy and little aid than lots of aid being wasted by bad policy. | Clearly, the obvious objection to Easterly's proposals is that he argues that most aid should be given to those who need it least, and no aid should be given to those in desperate need. His assumption appears to be that the really crucial determinant of growth is policy, not aid, and that growth and poverty reduction can be achieved with good policy and no (or very little) aid. He believes that the empirical evidence bears him out: that aid is only beneficial in a good policy environment, so it is better to have good policy and little aid than lots of aid being wasted by bad policy. |
