Aid and Growth: Reflections on the Experiences of Vietnam and China

By Riedel, James | Behind the Headlines, Winter 2006 | Go to article overview

Aid and Growth: Reflections on the Experiences of Vietnam and China


Riedel, James, Behind the Headlines


I suspect that my invitation to participate in this conference came about from the review I wrote of Jeff Sachs' best-selling book, The End of Poverty, which appeared in the Summer 2005 issue of the Canadian Institute of International Affairs' International Journal. My review was more favorable than most others I have seen written by economists, but it did nonetheless take issue with the main thesis of the book--that African developing countries are caught in a "poverty trap" and that a doubling of ODA to Africa would work to break the poverty trap and lift African counties onto the bottom rung of the "ladder of economic development."

Lest I be dismissed as naive and uncaring before I even begin these brief remarks, allow me to mitigate. I don't dispute that the rich countries of the world can afford to increase Official Development Assistance (ODA), maybe even meet the 0.7 percent of GNP target. I also believe that more humanitarian aid should be given to impoverished people in developing countries. What I do not agree with is the proposition put forth in Sachs' book, and by other advocates of the UN Millennium Development Goals (MDG), that a doubling of aid would serve to break an alleged poverty trap and launch self-sustaining economic growth in those countries that have not yet achieved it. My doubts about the effectiveness of foreign aid as a spur to economic growth derive from studying the literature on the aid-growth nexus and from my experience working and living in Vietnam and other developing countries, most recently three years in China.

If not foreign aid, then how did developing countries accounting for about two-thirds of world population manage to escape the poverty trap and get a foothold on the ladder of development? The answer can only be that they were not "trapped" in poverty in the first place, but instead were victims of their own misguided and inappropriate policies. In one country after another, economic policy reforms have led to rapid industrialization, an acceleration of economic growth, declining poverty and rising prosperity. What has been the key to their success?

AID AND GROWTH

There is a voluminous literature on the aid-growth nexus going back to the 1950s and 1960s when aid was first promoted as the panacea for poverty. That literature cannot be adequately reviewed here, but it might be useful to cite one of the more influential studies, undertaken by the World Bank--The Burnside-Dollar study published in 2000.

Its main findings are:

* There is no positive statistical relation between aid and growth, except in a sub-sample of countries with good policies.

* There is no positive statistical relation between aid and policy. This finding suggests that the premise of World Bank structural adjustment lending programs, that aid induces countries to adopt better policies, is false.

* There is no statistical evidence that aid flows systematically to countries with good policies where, according to Burnside and Dollar, it might promote growth. Instead the allocation of aid is mainly determined by politics in donor countries.

* Subsequent studies have challenged the Burnside-Dollar finding that aid works in countries with good policies, detecting no robust association between aid and growth even in countries with good policies. Indeed a number of negative effects of aid dependency have been identified:

* Aid dependency induces countries to become lax in raising taxes and encourages government consumption, and hence leads to rising fiscal deficits that crowd out investment.

* Aid dependency allows governments to avoid accountability to the public, which has a corrupting influence even on the best-intentioned governments.

* And, as evident in Vietnam, aid dependency leads governments to give priority to projects that attract aid funding and to avoid those that they would have to finance themselves, even when the social return on such projects may be as high or higher than on those that donors are willing to finance. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Aid and Growth: Reflections on the Experiences of Vietnam and China
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.