AID and GROWTH

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AID and GROWTH

• Ichiro Uehara and Zaza Akhvediani
• Development Economics
• UW/MADE
• 25-Jan-2010

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CONTENT

1. Summery of papers
2. Conclusion of papers
3. Critique of papers
4. From perspective of AID receiving country
5. From perspective of AID sending country
6. Conclusion of presentation

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Good policies

• Fiscal Budget surplus
• Monetary Low inflation
• Trade Opennes
• AID can fill the financial GAP (Saving), there
  for it will be investment, then economic growth.
• Sachs and Warner 1995

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Summary of papers

• Aid, Policies and Growth
• Does Aid has an impact on growth?
• Do donors favor good policy?
• On average AID has little impact on growth
• Positive impact on countries with good
  fiscal, monetary and trade policies
• No significant tendancy for favor of good policy
  
• Trend towards better policy among poor countries

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• On the Empirics of the Foreign Aid and Growth
• Significant growth in aid per capita
• Positive impact on countries with good policies

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AID instability as measure of the uncertainty and
the positive impact of AID on growth

• Is uncertainty of Aid inflow important?
• Stability of Aid flow is important
• Effects the level of investment
• Could constrain policy
• Effects fiscal behavior

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Can Foreign Aid Buy Growth

• Good policy is insignificant factor
• Introduction of Alternative good policy
• Black market premium
• M2/GDP
• Insignificant

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Conclusion

• Aid investment growth theory is in fact important
  and sound very good.
• But empirically there is a little proof.

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Critique

• Good Policy?
• Normative Statement v.s. Positive Statement
• Aid is positively correlated to economic growth.
• Positive Statement
• Budget surplus, low inflation, and openness are
  good policies.
• Normative Statement

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Critique

• Is a policy same in different countries?
• Japan v.s. Costa Rica

Japan Constitution no military 7th military
expenditure
Costa Rica Constitution no military 0
expenditure for military Border Guards
(Police?)
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Critique

• Development of Nation Nation Building?
• Marshall Plan (Europe)
• George Marshall, U.S. Secretary of State
• 1. Long-term support from outside
• Steadily, Politically and financially
• 2. Strong leadership from inside

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Haiti

• Haitis development
• Jeffery Sachs, Special Adviser to S.G. of U.N.
• Haitis recovery has to start now.
• Reconstruction Big money!!
• Dominique Strauss-Kahn, IMF Managing Director
• 1. Nation has to be on drivers seat.
• 2. need long-term commitment from outside.

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Critique

• How do we know aid receiving countries are doing
  their best?
• Four possible scenarios (Game Theory?)

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Critique

• In summary
• Good policies are not universal for everyone.
• Policy effects differ from country to country.
• Cultural factor?
• If the country actually grow, it will lose aid
• (free money?). Aid addiction?

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AID to GeorgiaReceiving
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Help to Georgia from 94 to 2003as Loan/Grant

• USAID projects in Geogia 1.2 Billion USD
• EU 1,4 Billion USD
• Other Countries - 760 Million USD

• USAID projects in Geogia 2.3 Billion USD
• EU 800 Million USD
• Other Countries - 940 Million USD
• Georgian department of Statistics

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(No Transcript)
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• JUST in 2008-2010 Georgia received and will
  receive
• (main aim of AID is to help Georgia rebuild
  infrastructure and reserves, destroyer after war
  with Russia in August 2008)
• 750 Million (IMF)
• 500 Million (EU)
• 1 Billion (US)
• TOTAL 2,25 Billion USD
• Georgian department of Statistics

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Georgian department of Statistics
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Small Conclusion about Georgia

• Financial AID received by the country in 90s and
  00s is significant but the effectivness of the
  AID is very different.
• The main reason of Economic grow supported by
  international AID in last years was good
  management (even tho it is not the best one) we
  have significant changes in standarts of living
  and economic growth in whole country.
• Georig is very good example of

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Aid Receiving Country

• Which country is this?
• Two US officials on an aid mission, in 1950, said
  this country would have trouble competing on
  world market.
• The US Secretary of State, in 1954, held up a
  cheap shirt from this country as evidence how far
  they were behind.
• An Australian expert said workers in this country
  were easygoing and impossible to change.
• The World Banks largest single borrower from
  1953 to 1966.

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Aid Receiving Country

• The Answer is
• Japan!!

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Aid Receiving Country

• Why and how Japan grow?
• Aid?
• Cultural factor?

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Once upon a time

• After the World War II in Japan

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Once upon a time

• School started

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Japans Saving Rate
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Aid Receiving Country (Japan)

• In case of Japan
• Cultural factor
• Education
• Work ethics (?)
• Social Goals
• Three Things you have to have (?????)
• TV, refrigerator, washing machine (1950s)
• 3C Color TV, Air Conditioner, Car (1960s)
• Digital camera, DVD recorder, flat-screen TV
• Personal computer, cell phone, Play Station

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Tokyo Now
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Aid Receiving Country (Japan)

• Can you measure cultural factor?
• Can you model cultural factor?
• May predict no education because no facility
• What you receive v.s. How you receive

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Aid Sending Country (Japan)

• ODA to Poland
• Ended in 2007 due to out of Development
  Assistance Committee (DAC) list in 2005
• Loan Total 213 million
• Grant Total 40 million
• Technological Support Total 90 million
• Last grant made in 2003 was for

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Aid Sending Country

• Official Development Aid (ODA) in 2007
• U.S. 22 billion
• Japan 13 billion
• Germany 12 billion
• Poland 363 million
• China (Peoples Republic of) 0 million
• China (Republic of) 516 million

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Aid Sending Country (Japan)

• ODA to China
• Built Beijing Airport ( 300 million)
• Built Shanghai Airport ( 400 million)
• Loan Total 21 billion
• Paid back only 9 billion
• Grant Total 1.4 billion
• Tech. Support Total 1.4 billion

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Aid Sending Country

• World Bank Contributors
• U.S. 39 billion (22)
• Japan 34 billion (20)
• Germany 20 billion (11)
• Poland 86 million (0.05)
• China 0 million (0.00)

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World Bank Loan

• China
• Lend 37 billion
• Repaid 16 billion
• Obligation 22 billion
• Africa
• Lend 31 billion
• Repaid 0
• Obligation 10 billion

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Conclusion

• There is something you can measure by numbers
  there is also you cannot measure by numbers.
• Aid from outside can help economic growth of
  developing countries in certain extent.
• But, economic growth is depending on people
  inside of the countries.

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Lastly

• If you give a person a fish, he can eat a day.
  But, if you teach the person how to fish, he can
  eat forever.
• unknown

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Thank you

• More question?