Africa: Is Aid an Answer?

Elizabeth M Caucutt, Krishna B. Kumar
2008 The B.E. Journal of Macroeconomics  
We address the poverty trap rationale for aid to Africa. We calibrate models that embody typical explanations for stagnation: coordination failures, ineffective mix of occupational choices and imperfect capital markets, and insufficient human capital accumulation coupled with high fertility. Calibration is ideally suited for this evaluation given the paucity of high-quality data, the high degree of model nonlinearity, and the need for conducting counterfactual policy experiments. We find that
more » ... librations that yield multiple equilibria -one prosperity and the other stagnation -are not particularly robust in capturing the African situation. This tempers optimism about foreign aid typically prescribed based on models of multiplicity. Moreover, conditional on multiplicity, the calibrated models indicate that the cost of policy interventions needed to trigger development in stagnant economies is small. The lack of reforms in Africa, despite the low estimated costs, suggests political hurdles to reform. It is not clear that foreign aid would be able to circumvent these. Taken together, we conclude that the case for foreign aid to Africa is weak. , and participants at various seminars and conferences for their comments and suggestions. by such countries makes the relationship between population and technology less relevant. Moav (2005) , Azariadis and Drazen (1990) and Durlauf (1993) are other models that feature multiplicity.
doi:10.2202/1935-1690.1761 fatcat:lezy3pc2rvgjznzm6kjs63gpmq