The allocation of volatile aid and economic growth: Theory and evidence

We analyse, both theoretically and empirically, the growth effects associated with two components of volatile foreign financial assistance: ‘directly productive’ (or ‘tied’) aid and ‘pure’ aid. We find that scenarios in which aid can hurt the recipient's growth rate emerge only in cases where foreign aid is volatile. As a result, we conclude that it is only in conjunction with the presence of aid variability that aid allocation determines whether foreign aid hurts or promotes long-run growth.     

Aid,policies and growth: a nonlinear reassessment

ABSTRACT

The association between foreign aid and growth has been controversial for decades and the evidence is quite mixed with results sensitive to data samples and modelling approaches. We reassess the relationship between aid, policy and growth implementing a novel semiparametric estimation method that allows for nonlinearities and controls for endogeneity. The results show that the aid-policy-growth relationship is complex. Aid inflows do not seem growth-enhancing, except at very high levels (above 7% of Aid/GDP), whereas the effect may arrive with a lag at lower levels. Policy improvements are positively correlated with growth at high policy levels (above the median value) but better policies do not increase aid effectiveness.     

日元贷款对中国经济增长的作用研究(1980～2003)

1980～2003年,日本向中国提供了累计达3.3万亿日元的贷款,占所有双边贷款总和的比重约50～60%,是中国最大也最重要的援助提供国.这些日元贷款对中国经济增长的影响如何,这方面的研究十分少见.本文以发展经济学的援助评价理论为基础建立了计量模型,利用1980年以来的数据,对上述问题作了一个尝试性的评价.我们的计量分析结果表明,在1990年前,日元贷款对中国经济增长的贡献不显著,在1990年之后的作用则积极显著,这表明不同的政策环境与援助性贷款的相互作用导致不同的结果.     

1981-2002年间国际金融组织贷款对中国经济增长的贡献研究

改革开放以来,国际金融组织贷款一直是我国对外借款的重要来源,其所占比例始终维持在40%左右,累计金额已达数百亿美元.这些贷款对中国经济增长的影响如何,这方面的研究十分少见.本文以柯布-道格拉斯生产函数的派生模型为基础建立了修正模型,分别利用1978年以来的国家和省级两层数据,对上述问题作了一个尝试性的评价.我们的计量分析结果表明,在1990年前后,国际金融组织贷款对中国经济增长的贡献存在差异.对不同地区的增长贡献也差异较大,表明不同的政策环境与援助性贷款的相互作用结果是不同的.     

Transitional dynamics and the distribution of assets

Summary. We study the evolution of the distribution of assets in a discrete time, deterministic growth model with log-utility, a minimum consumption requirement, Cobb-Douglas technology, and agents differing in initial assets. We prove that the coefficient of variation in assets across agents decreases monotonically in a transition to the steady state from below, if (i) the consumption requirement is zero, or (ii) the consumption requirement is not too big and the initial capital stock is large enough. We also show how a positive consumption requirement or a small elasticity of substitution between capital and labor can generate non-monotonic paths for inequality.JEL Classification Numbers: D31, E21, O41.We would like to thank S. Chatterjee, M. Huggett, T. Keister, P. Krusell, M. Santos, S. Williamson, and an anonymous referee, for their valuable comments and suggestions. All remaining errors are ours. Urrutia aknowledges the support of Universidad Carlos III de Madrid, to which he was affiliated during early phases of this project.     

Reliving the 1950s: the big push, poverty traps, and takeoffs in economic development

The classic narrative of economic development—poor countries are caught in poverty traps, out of which they need a Big Push involving increased investment, leading to a takeoff in per capita income—has been very influential in foreign aid debates since the 1950s. This was the original justification for foreign aid. The narrative lost credibility for a while but has made a big comeback in the new millennium. Once again it is invoked as a rationale for large foreign aid programs. This paper applies very simple tests to the various elements of the narrative. Evidence to support the narrative is scarce. Poverty traps in the sense of zero growth for low-income countries are rejected by the data in the whole period 1950–2001 and for most sub-periods. The poorest quintile also does not have significant negative growth of the relative income ratio to the world’s richest country over 1950–2001, nor is relative growth for the lowest quintile significantly different than other quintiles. The claim that “well-governed poor nations” are caught in poverty traps is rejected by simple regressions that control for both initial income and quality of government (instrumenting for the latter). The idea of the takeoff also does not garner much support in the data. Takeoffs are rare in the data, most plausibly limited to the Asian success stories. Even then, the takeoffs are not associated with aid, investment, or education spending as the standard narrative would imply.     

Aid allocation and poverty reduction

This paper derives a poverty-efficient allocation of aid and compares it with actual aid allocations. The allocation of aid that has the maximum effect on poverty depends on the level of poverty and the quality of policies. Using the headcount, poverty-gap, and squared poverty gap measures of poverty, alternatively, all yield similar poverty-efficient allocations. Finally, we find that the actual allocation of aid is radically different from the poverty-efficient allocation. With the present allocation, aid lifts around 10 million people annually out of poverty in our sample of countries. With a poverty-efficient allocation, the productivity of aid would nearly double.     

Structural shifts in aid dependency and fiscal policy in developing countries

Foreign aid is a sizable source of government financing for several developing countries and its allocation matters for the conduct of fiscal policy. This article revisits the fiscal effects of shifts in aid dependency in 59 developing countries from 1960 to 2010. It identifies structural shifts in aid dependency and uses treatment effect methods to assess the fiscal effects of aid. It finds that shifts in aid dependency are frequent and have significant fiscal effects in developing countries. In addition to the traditional evidences of tax and investment displacement and ‘aid illusion,’ we show that upward shifts and downward shifts in aid dependency have asymmetric effects on fiscal accounts in developing countries. Large aid inflows undermine tax capacity and public investment while large reductions in aid inflows tend to keep recipients’ fiscal behaviour intact. Moreover, the tax displacement effect tends to be temporary while the impacts on expenditure items tend to last. Finally, we find that the undesirable fiscal effects of aid are more pronounced in countries with low governance score and low absorptive capacity.     

Optimal fiscal policy in the neoclassical growth model revisited

This paper studies optimal taxation in a version of the neoclassical growth model in which investment becomes productive within the period, thereby making the supply of capital elastic in the short run. Because taxing capital is distortionary in the short run, the government׳s ability/desire to raise revenues through capital income taxation in the initial period or when the economy is hit with a bad shock is greatly curtailed. Our timing assumption also leads to a tractable Ramsey problem without state-contingent debt, which can give rise to debt-financed budget deficits during recessions.     

Darlings and Orphans: Interactions across Donors in International Aid

We examine how the bilateral aid flows from an individual donor to a recipient depend on the aid flows from all other bilateral and multilateral donors to that recipient. Thereby, we assess to what extent issues including donor coordination, free‐riding, selectivity, specialization, and common donor interests drive bilateral aid allocations. We find that others’ bilateral flows lead to a significant increase in aid flows from a particular donor, but primarily within a given year. The effects are particularly pronounced for large donors and so‐called “darling” recipients. Overall, the results suggest that herding is a dominant feature of aid inter‐relationships.     

Fair allocation in networks with externalities

I prove existence and uniqueness of a component efficient and fair allocation rule when the value of the network is allowed to exhibit any type of externalities across its components. This is done by means of a new specification of the value function, generalizing partial results appearing in Myerson [Myerson, R.B., 1977a. Graphs and cooperation in games. Math. Operations Res. 2, 225–229], Feldman [Feldman, B.E., 1996. Bargaining, coalition formation and value. PhD dissertation. State University of New York at Stony Brook] and Jackson and Wolinsky [Jackson, M.O., Wolinsky, A., 1996. A strategic model of social and economic networks. J. Econ. Theory 71, 44–74]. This component efficient and fair allocation rule is found closely related to an extension of the Shapley value to TU-games in partition function form proposed by Myerson [Myerson, R.B., 1977b. Values of games in partition function form. Int. J. Game Theory 6 (1), 23–31].     

The ghost of financing gap: testing the growth model used in the international financial institutions

The Harrod–Domar growth model supposedly died long ago. Still today, economists in the international financial institutions (IFIs) apply the Harrod–Domar model to calculate short-run investment requirements for a target growth rate. They then calculate a “financing gap” between the required investment and available resources and often fill the “financing gap” with foreign aid. The financing gap model has two simple predictions: (1) aid will go into investment one for one, and (2) there will be a fixed linear relationship between growth and investment in the short run. The data soundly reject these two predictions of the financing gap model.     

跨国公司海外子公司的人员配置问题研究

跨国公司对海外子公司的有效控制是通过调整外国分支机构中的外聘人员与当地人之间的比例,以及界定外聘人员在分支机构控制结构中的作用.虽然组织性需求会导致跨国公司雇佣外聘人员,但是由环境差异产生的制度压力也许会迫使跨国公司聘用当地人作经理.顺应不同的情况,跨国公司的海外子公司人员配置方式也应是不同的.     

Vickrey allocation rule with income effect

We consider situations in which a society tries to efficiently allocate several homogeneous and indivisible goods among agents. Each agent receives at most one unit of the good. In this paper, we establish that on domains that include nonquasi-linear preferences—preferences exhibiting income effects—an allocation rule that satisfies Pareto-efficiency, strategy-proofness, individual rationality, and nonnegative payment uniquely exists, which is the Vickrey allocation rule. H. Saitoh is a JSPS Research Fellow.     

Extraction rights allocation with liquidity constraints

We study the optimal allocation of a resource in a second-best world in which parties may be liquidity-constrained due to credit frictions and capital market imperfections. In this setting, common to various natural resource industries, agents are unable to bid more than their budget regardless of their valuation. While auction markets are widely used mechanisms for allocating natural resource extraction rights and conservation contracts, we show that in these circumstances the competitive market –which allocates items based on rank order of bids– fails to achieve the first-best allocation. The market outcome is welfare-dominated by a hybrid mechanism consisting of random assignment followed by resale in a secondary market. Via the initial lottery, the hybrid-mechanism allocates the items with positive probability to high-valuation low-wealth individuals who would not have been able to afford them in a competitive market. High-valuation high-wealth agents, on the other hand, acquire the items in the secondary market if they do not receive them in the initial lottery. Therefore, equity in the allocation of access to the resource may be justified not only by distributional concerns but also by economic efficiency. We illustrate our model using data from buybacks of harvesting rights in the seafood industry.     

When is Foreign Aid Effective in Fighting Terrorism? Threshold Evidence

Building on the previous literature, we assess when foreign aid is effective in fighting terrorism using quantile regressions on a panel of 78 developing countries for the period 1984–2008. Bilateral, multilateral and total aid indicators are used whereas terrorism includes: domestic, transnational, unclear and total terrorism dynamics. We consistently establish that foreign aid (bilateral, multilateral and total) is effective at fighting terrorism exclusively in countries where existing levels of transnational terrorism are highest. This finding is consistent with our theoretical underpinnings because donors have been documented to allocate more aid towards fighting transnational terrorist activities in recipient countries because they are more likely to target their interests. Moreover, the propensity of donor interest at stake is likely to increase with initial levels of transnational terrorism, such that the effect of foreign aid is most significant in recipient countries with the highest levels of transnational terrorism. Policy implications and future research directions are discussed.     

Migration,community networks and welfare in neoclassical growth models

This paper proposes a Ramsey-Like model of growth with endogenous migration to study the effects of migration networks on the macroeconomy and welfare of hosting economies. In the model, migration is assumed to be made of two different components: a first, forward-looking component in which the rate of net migration depends on the wage gap between countries; a second, backward-looking component in which in-migration depends on the immigration history of the destination country through the formation of immigrant networking. We find that the model exhibits a unique saddle-path steady-state equilibrium and that introducing pro-immigration policies aimed at enhancing community networks have asymmetric impacts on the welfare level of natives and immigrants that hinge on the relative size of immigrant communities.     

Risk sharing role of foreign aid in developing countries

The effects of foreign aid on economic growth have been extensively investigated over the past 40 years. However, even though foreign aid can be a significant source of insurance against domestic output shocks for developing countries, its risk-sharing role has not been well explored. Using a sample of 22 developing countries over the period 2003–2013, we estimate the degree of income smoothing generated by foreign aid serving as an effective channel of international income smoothing. In particular, for the period 2003–2008, we estimate that foreign aid offset about 4% of the domestic output shocks. Furthermore, we investigate the determinants of the extent of risk sharing via foreign aid, recognizing the diversification of the originating countries as a key factor. Surprisingly, humanitarian aid seems to have a negative effect, which might be explained by its predominant role in the short run.     

Occupational Segregation and the (Mis)allocation of Talent

In this paper, I study how occupational segregation affects the allocation of talent in a competitive labour market. I propose a model of occupational choice in which heterogeneous workers must rely on their social contacts to acquire job‐vacancy information. While occupational segregation implies benefits in terms of job‐finding probability, it also leads to allocative inefficiencies. Efficient and equilibrium outcomes differ due to a network externality that leads workers to segregate too little, and a pecuniary externality that leads workers to segregate too much. Which effect dominates depends on the elasticity of wages to changes in the degree of occupational segregation.     

A modeling framework for enhancing aid effectiveness

ABSTRACT

The development literature lacks consensus about the link between aid effectiveness and governance improvement. A basic rational actor model is introduced to clarify how donors can influence recipient behaviors and more broadly how foreign aid can support or impede governance quality improvement. Adopting the underutilized perspective of donor behavior, this study identifies mechanisms through which aid hinders governance improvement and offers substantive recommendations about how donors can enhance aid effectiveness, including strategies for donors to raise the level of effort recipients devote to project success.