Main Article Content

Edmore MAHEMBE
Economics Department, University of South Africa, Pretoria, South Africa
South Africa
Nicholas M. Odhiambo
Department of Economics, University of South Africa, P.O Box 392, UNISA 0003, Pretoria, South Africa
South Africa
Vol 26 No 2 (2017), Articles, pages 113-128
DOI: https://doi.org/10.15304/rge.26.2.4456
Submitted: 03-12-2017 Accepted: 03-12-2017 Published: 03-12-2017
Copyright How to Cite

Abstract

This article explores the theoretical link and transmission mechanism through which
official development assistance (ODA) or foreign aid affects poverty. The study also
presents some major debates on the effectiveness of foreign aid on development in
general and poverty reduction in particular. The main findings from this exploratory study
suggest that there is no generally accepted economic theory upon which foreign aid
allocation is based. Several theories have been advanced, but most of them have been
heavily criticized. As a result, there are two distinct and extreme lines of thoughts: those
who believe that foreign aid can contribute to a virtuous circle of economic growth and
poverty reduction against the other group, which contends that foreign aid leads to a
vicious cycle of poverty and stunted development. Finally, a third group assumes that once
we distinguish channels through which foreign aid affects development, we may notice
several degrees of positive impact on development and diminution of poverty, depending
on the choice of channel, the recipient country features and the domestic economic
policies.
Cited by

Article Details

References

Aka, F.B., Guisan, M.C. (2017). Cutting poverty rate using basic income grant and international cooperation in Cote D’ivoire and other Western Africa countries. Applied Econometrics and International Development Vol. 17-1.1

Arndt, C., Jones, S. & Tarp, F., 2010. Aid, growth, and development: Have we come full circle?. Journal of Globalization and Development, 1(2), pp. 1-27.

Bacha, E. L., 1990. A three-gap model of foreign transfers and the GDP growth rate in developing countries.. Journal of Development Economics, Volume 32, pp. 279-296.

Bauer, P. T., 2000. From subsistence to exchange and other essays. Princeton, N.J.: Princeton University Press.

Boone, P., 1996. Politics and the effectiveness of foreign aid. European Economic Review , 40(1996), pp. 289-329.

Bourguignon, F., 2003. The growth elasticity of poverty reduction: Explaining heterogeneity across countries and time periods. In: T. S. Eicher & S. J. Turnovsky, eds. Inequality and Growth. s.l.:CES IFO Seminar Series.

Bourguignon, F., Morrison, C. (2002) Inequality among world citizens: 1820-1992. The American Economic Review, Vol. 92, No. 4.

Burnside, C. & Dollar, D., 2000. Aid, policies and growth. American Economic Review, Volume 90, pp. 847-868.

Chauvet, L. & Guillaumont, P., 2009. Aid, volatility, and growth again: When aid volatility matters and when it does not. Review of Development Economics, 13(3), p. 452–463.

Chenery , H. B. & Bruno, M., 1962. Development alternatives in an open economy: the case of Israel. Economic Journal, Volume 72, pp. 79-103.

Chenery , H. B. & Strout , A., 1966. Foreign assistance and economic development. American Economic Review , Volume 55, pp. 679-733.

Clunies-Ross, A., Forsyth, D. & Huq, M., 2009. Development Economics. 1st ed. Berkshire: McGraw-Hill Higher Education.

Collier, P., 2007. The bottom billion: Why the poorest countries are failing and what can be done about it. New York: Oxford University Press.

Collier, P. & Dollar, D., 2001. Can the world cut poverty in half? How policy reform and effective aid can meet international development goals. World Development, 29(11), pp. 1787-1802.

Collier, P. & Dollar, D., 2002. Aid allocation and poverty reduction. European Economic Review, Volume 46, pp. 1475-1500.

Collier, P. & Goderis, B., 2009. Does aid mitigate external shocks?. Review of Development Economics, 13(3), pp. 429-451.

Deaton, A., 2013. The great escape: Health, wealth, and the origins of inequality. New Jersey: Princeton University Press.

Domar, E., 1946. Capital expansion, rate of growth, and employment. Econometrica, 14(2), pp. 137-147.

Doucouliagos, H. & Paldam, M., 2006. Aid effectiveness on accumulation: A meta study. KYKLOS, 59 (2), p. 227–254.

Dreher, A., Nunnenkamp, P. & Thiele, R., 2008. Does aid for education educate children? Evidence from panel data. The World Bank Economic Review, Volume 22, p. 291.

Easterly, W., 1997. The ghost of financing gap : how the Harrod-Domar growth model still haunts development economics. , Washington, DC: Policy, Research working paper ; No. WPD 1807. World Bank.

Easterly, W., 2006. The white man's burden: Why the West's efforts to aid the Rest have done so much ill and so little good. New York: Penguin Books.

Easterly, W., 2008. Introduction: Can't take it anymore?. In: W. Easterly, ed. Reinventing foreign aid. London: The MIT Press, pp. 1-43.

Feeny, S., 2003. The impact of foreign aid on poverty and humanitarian well- being in Papua New Guinea. Asia-Pacific Development Journal, 10(2), pp. 73-93.

Feyzioglu, T., Swaroop, V. & Zhu, M., 1998. A panel data analysis of the fungibility of foreign aid. The World Bank Economic Review, 12(1), pp. 29-58.

Friedman, M., 1958. Foreign economic aid: Means and objectives. In: J. Bhagwati & R. Eckhaus, eds. Foreign Aid. Harmondsworth: Penguin.

Fujita, N., 2004. Gunnart Myrdal's theory of cumulative causation revisited, Nagoya: Economic Research Center Discussion Paper No. 147, Nagoya University.

Galor, O. & Zeira, J., 1993. Income distribution and macroeconomics. The Review of Economics Studies, 60(1), pp. 35-52.

Gates, B. & Gates, M., 2014. Three myths on the world's poor. Wall Street Journal, 17 January.

Glennie, J. & Sumner, A., 2014. The $138.5 billion question: When does foreign aid work (and when doesn’t it)?, Washington DC: Center for Global Develoment, CGD Policy Paper No. 049.

Gomanee, K., Girma, S. & Morrissey, O., 2005b. Aid, public spending and human welfare: Evidence from quantile regressions. Journal of International Development, Volume 17, pp. 299-309.

Gomanee, K., Morrissey, O., Mosley, P. & Verschoor, A., 2003. Aid, pro-poor government spending and welfare, Nottingham: University of Nottingham, CREDIT Research Paper, No. 03/03.

Gomanee, K., Morrissey, O., Mosley, P. & Verschoor, A., 2005a. Aid, government expenditure, and aggregate welfare. World Development, 33(3), pp. 355-370.

Griffin, K. B., 1970. Foreign capital, domestic savings and economic development. Bulletin of the Oxford University Institute of Economics and Statistics, Volume 32, pp. 99-112.

Guillaumont , J. S. & Kpodar, K., 2012. Aid and income stabilization. Review of Development Economics, 16(2), pp. 216-229.

Guillaumont, P., 2011. Aid effectiveness for poverty reduction: Macroeconomic overview and emerging issues, https://halshs.archives-ouvertes.fr/halshs-00554285:HAL.

Guillaumont, P. & Le Goff, M., 2010. Aid and remittances: Their stabilizing impact compared, s.l.: FERDI, Working Paper No. 12..

Guillaumont, P. & Wagner, L., 2014. Aid effectiveness for poverty reduction: lessons from cross-country analyses, with a special focus on vulnerable countries, s.l.: Development Policies Working Paper No. 96, Fondation pour les études et recherches sur le développement in ternational.

Guisan. M.C. (2014) World Development. 2000-2010: Production, investment and savings in 21 areas of America, Africa, Asia-Pacific, Europe and Eurasia. Regional and Sectoral Economic Studies. Vol. 14-2. pp. 193-206.1

Guisan, M.C., Aguayo, E., Exposito, P. (2015). MDGs and international cooperation: An analysis of private and public aid and the role of education. Chapter 6 in the book by Arvin and Lew (eds) (2015).

Hanmer, L. & Naschold, F., 2000. Attaining the international development targets: Will growth be enough?. Development Policy Review, Volume 18, p. 11–36.

Hansen, H. & Tarp, F., 2000. Aid effectiveness disputed. Journal of International Development, Volume 12, pp. 375-398.

Hussain, N. M., 2001. "Exorcising the ghost": An alternate model for measuring the financing gap in developing countries. Journal of Post Keynesian Economics, 24(1), pp. 9124.

Kosack, S., 2003. Effective Aid: How democracy allows development aid to improve the quality of life. World Development, 31(1), pp. 1-22.

Kraay, A., 2005. Aid, growth, and poverty. Maputo, Presentation for IMF Seminar on Foreign Aid and Macroeconomic Management, The World Bank.

Lele, U. & Goldsmith, A., 1989. The development of national agricultural research capacity: India’s experience with the Rockefeller Foundation and its significance for Africa. Economic Development and Cultural Change, Volume 37, pp. 305-343.

Lewis, A. W., 1954. Economic development with unlimited supplies of labour. The Manchester School, 22(2), pp. 139-191.

Masud, N. & Yontcheva, B., 2005. Does foreign aid reduce poverty? Empirical evidence from nongovernmental and bilateral aid, Washington DC: IMF Working Paper WP/05/100.

Mavrotas, G. & Ouattara, B., 2006. Foreign aid and fiscal response: Does aid disaggregation matter. Weltwirtschafttliches Archiv, Volume 138, pp. 534-59.

McGillivray, M., Feeny, S., Hermes, N. & Lensink, R., 2006. Controversies over the impact of development aid: it works; it doesn’t; it can, but that depends.... Journal of International Development, 18(7), p. 1031–1050.

Mosley , P. & Suleiman, A., 2007. Aid, agriculture and poverty in developing countries. Review of Development Economics, 11(1), p. 139–158.

Mosley, P., Hudson, J. & Horrell, S., 1987. Aid, the public sector and the market in less developed countries. The Economic Journal, 97(September 1987), pp. 616-641.

Mosley, P., Hudson, J. & Verschoor, A., 2004. Aid, poverty reduction and the 'new conditionality'. The Economic Journal, Volume 114, pp. F217-F243.

Moyo, D., 2009. Dead Aid: Why aid is not working and how there is a better way for Africa. New York: Farrar, Straus and Giroux.

Murphy, K. M., Shleifer, A. & Vishny, R. W., 1989. Industrialisation and the big push. Journal of Political Economy, 97(5), pp. 1003-1026.

Murphy, K. M., Shleifer, A. & Vishny, R. W., 1993. Why is rent seeking so costly to growth?. American Economic Review, 83(2), pp. 109-414.

Myrdal,G., 1957.Economic Theory and Underdeveloped Regions. New York:Harper &Row.

Niyonkuru F (2016) Failure of foreign aid in developing countries: A quest for alternatives. Bus Eco J 7:231. doi:10.4172/2151-6219.1000231.2

Nurske, R., 1953. Problems of capital formation in underdeveloped countries. New York: Oxford University Press.

OECD, 2017. Aid (ODA) by sector and donor [DAC5]. [Online] Available at: http://stats.oecd.org/Index.aspx?DataSetCode=TABLE5 [Accessed 18 April 2017].

Perry, G. E., López,, H. J. & Maloney, W. F., 2006. From vicious to virtuous circles. In: G. E. Perry, et al. eds. Poverty reduction and growth: Virtuous and vicious circles. Washington DC: The World Bank, pp. 1-20.

Radelet, S., 2006. A primer on foreign aid, Washington DC: Center for Global Development, Working Paper No. 92 .

Radelet, S., Clemens, M. & Bhavnani, R., 2004. Aid and growth: The current debate and some new evidence, Washington DC: Center for Global Development.

Rajan, R. G. & Subramanian, A., 2008. Aid and growth: What does the cross-country evidence really show?. The Review of Economics and Statistics, 90(4), pp. 643-665.

Ranaweera, T., 2003. Foreign aid, conditionality and ghost of the financing gap: A forgotten aspect of the aid debate, Washington, D.C: World Bank Policy Research Working Paper No. 3019.

Ravallion, M., 2016. The economics of poverty: History, measurement, and policy. New York: Oxford University Press.

Rosenstein-Rodan, P. N., 1943. Problems of industrialisation of Eastern and Southern Europe. The Economic Journal, 53(210/211), pp. 202-211.

Roser, M., Ortiz-Ospina, E. (2017). Global extreme poverty. First published 2013, substantive revision 2017. OMIC, Oxford. Retrieved 18th October 2017.3

Rostow, W. W., 1960. The stages of economc growth. Cambridge, Mass: Cambridge University Press.

Rostow, W. W., 1990. Theorists of economic growth from David Hume to present. Oxford: Oxford University Press.

Sachs, J. D., 2005. The end of poverty: Economic posibillities for our time. New York: Penguin Books.

Schaffner, J., 2014. Development economics: Theory, empirical research, and policy analysis. Danvers, MA: John Wiley & Sons, Inc..

Shleifer, A., 2009. Peter Bauer and the failure of foreign aid. Cato Journal, 29(3), pp. 379390.

Stiglitz, J. E., 2007. Making globalization work. New York: W. W. Norton & Company, Inc..

Taylor, L., 1990. A three-gap model. In: F. D. McCarthy, ed. Problems of Developing Countries in the 1990s.. Washington, D.C: World Bank, pp. 55-90.

Taylor, L., 1994. Gap models. Journal of Development Economics, Volume 45, pp. 17-34.

Thirlwall , A., 1979. The balance of payments constraint as an explanation of international growth rate differences. Banca Nazionale del Lavoro Quarterly Review, 128(1), pp. 45-53.

Thirlwall, A. & Hussain, M. N., 1982. The balance of payments constraint, capital flows and growth rate differences between developing countries. Oxford Economic Papers, 34(3), pp. 498-510.

Weisskopf, T. E., 1972. The impact of foreign capital inflow on domestic savings in underdeveloped countries. Journal of International Economics, Volume 2, pp. 25-38.

World Bank, 1998. Assessing aid: What works, what doesn't and why.. Washington DC: World Bank.

World Bank, 2008. Annual review of development effectiveness 2008: Shared global challenges, Washington, D.C: World Bank, Independent Evaluation Group.