9. Conclusion
Our initial objective was to identify some conclusions about
the macroeconomic effectiveness of aid to development. Since important
implications are at stake, it has given birth to an abundant literature. Our
first statement has been that the overwhelming majority these studies focus on
the impact of foreign aid on recipient country's economic growth. After four
decades of various publications, the discussion seems, at first sight, to be
rather inconclusive. A couple of articles have already tried to clarify the
debate but they are not really compatible. So, we decided to design our own
framework of the literature.
Actually the whole aid-growth literature can be divided in two
major periods separated by a double turning-point in the second half of the
nineties. The first part has been dominated by inconclusive debate but it ended
with the pessimistic agreement around the «micro-macro paradox». At
the present time, this early literature appears not to be very reliable as it
is characterised by particularly weak theoretical basis, poor econometric
methodology and fragile databases. Then, some kind of methodological (Boone,
1996) and ideological (Burnside and Dollar, 1997) turning points took place in
the late nineties. These two influential articles really boosted the production
of new studies. Especially the innovative statement that aid works only if
sound economic policy, has given rise to numerous reactions. The related
principle of selectivity has extensively been discussed and criticized.
Nowadays, though there remain a few pessimistic resistances, the large majority
of recent scientific articles express the idea that foreign aid does globally
work in enhancing economic growth.
Nevertheless, intense discussions remain about the extent of this
efficiency as well as about the factors that could improve it.
More fundamentally, there are also some disagreements about
the opportuneness to restrict the essential of the discussion on development
effectiveness and economic growth. First, there exist many kind of aid to
development. Only a limited part of the entire assistance targets investment
that could have an impact on growth in the short run. Using the aid-growth
relationship as a macroeconomic evaluation tool does give little indications
about the efficiency of the majority of aid flows. Secondly, although there is
an undeniable link between growth and poverty reduction, the two concepts are
not synonymous. Unfortunately, economists are often inclined to confuse both
notions or to accept the underlying assumption that growth is automatically
beneficial for the poor. This has not been verified everywhere. Therefore, we
may ask the question of the value of such an improved growth if it does not
help the poor to catch up.
Throughout all of this work, we have tried to relate many
aspects of the aid-growth literature. Actually, the contradictions we find
between similar articles are mainly due to some striking shortcomings of this
empirical approach based on cross-country growth regressions. First of all, the
results appear to be extremely sensible changes in model specification.
Concretely, the estimation of growth regressions is troubled by many technical
econometric problems such as endogeneity, error correlation, parameter
heterogeneity or influential observations. Furthermore, non-economic and
structural factors may have constraining implication on aid effectiveness. Even
if all these limitations do not prevent to recognise its global utility, aid is
definitely not equally efficient everywhere. This may be due to either aid's
characteristics or recipient country's features.
In consequence, it is particularly difficult to derive any
robust policy recommendations. In light of all these technical difficulties, it
should be wise to abandon this cross-country approach in favour of individual
in-depth studies of countries that specify a growth model appropriate to the
observed economy. In this context, we may also wonder whether it is really
useful to look for global estimations of the effectiveness of foreign aid as a
whole. We personally think of cross-country growth regressions to be quite
inappropriate to assess aid effectiveness. Despite some improvements, the
criticisms addressed to the early literature
remain mostly valid for recent studies. Doubtful theoretical
background, unreliable data and technical difficulties are still topical.
The temptation is large to look for one single answer to the
question of whether aid works or not. Whatever the conclusion, this approach is
often misleading and it could have severe detrimental effects. Indeed, few
influential aid-growth regressions have given colossal political implications
despite their poor explaining power and their weak robustness. Since
development process is not just economic growth, future investigations should
concentrate on the impact of foreign aid on other issues such as poverty or
health indicators. Provided the important contextual disparities of recipient
countries, preference should also be given to individual case analysis. In any
case, there remains much work to do and forthcoming studies should be very
careful in their conclusions as they are very likely to provoke contradicting
reactions.
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