input output analysis of alternative policies implemented on the energy activities an application for catalonia abstract the aim of this paper is to analyze the economic impact of alternative policies implemented on the energy activities of the catalan production system specifically we analyze the effects of a tax on intermediate energy uses a reduction in intermediate energy demand and a tax on intermediate uses combined with a reduction in intermediate energy demand the methodology involves two versions of the input output price model a competitive price formulation and a mark up price formulation the input output price framework will make it possible to evaluate how the alternative measures modify production prices consumption prices private real income and intermediate energy uses the empirical application is for the catalan economy and uses economic data for the year 2001 the combination of a tax on energy uses and an improvement in the energy efficiency of the production system is a measure that accomplishes both economic and environmental goals since it has no effects on prices it has a positive effect on private real income and finally energy consumption is considerably reduced

aid and growth what meta analysis reveals abstract recent literature in the meta analysis category where results from a range of studies are brought together throws doubt on the ability of foreign aid to foster economic growth and development this article assesses what meta analysis has to contribute to the literature on the effectiveness of foreign aid in terms of growth impact we re examine key hypotheses and find that the effect of aid on growth is positive and statistically significant this significant effect is genuine and not an artefact of publication selection we also show why our results differ from those published elsewhere

evidence on changes in aid allocation criteria have donors changed their aid allocation criteria over the past three decades toward greater selectivity a frequently stated goal of the international development community using data on how 22 donors allocated their bilateral aid among 147 countries over 1970 2004 the article finds that after the fall of the berlin wall in 1989 and especially in the late 1990s bilateral aid responded more to poverty and the quality of the policy and institutional environment in the recipient countries furthermore the sensitivity of aid allocation to the country s size and its debt burden has declined over time these results are robust to different samples and model specifications various econometric techniques and alternative measures of institutional quality while the specific factors causing these changes cannot be identified these presumably include geopolitical and economic concerns and the many changes in the international aid architecture donors still differ greatly in their selectivity this suggests that further multifaceted reforms are needed to ensure even greater selectivity of aid

does aid availability affect effectiveness in reducing poverty a review article this paper addresses the impact of aid supply on aid effectiveness first we review theoretical literature that deals with the problem of governance in donor recipient relationships and are susceptible of highlighting effects of aggregate aid availability second we provide a conceptual framework that explicitly incorporates a trade off between considerations of needs and governance we examine the impact of aid supply on the manner in which a donor agency allocates the available money between countries differing in terms of both needs and domestic governance the central conclusion is that a donor s utility function that embodies the need governance trade off and the associated optimization mechanism yield a meaningful rule to guide inter country allocation of aid resources

on the empirics of foreign aid and growth the present paper re examines the effectiveness of foreign aid theoretically and empirically using a standard olg model we show that aid inflows will in general affect long run productivity the size and direction of the impact may depend on policies deep structural characteristics and the size of the inflow the empirical analysis investigates these possibilities overall we find that aid has been effective in spurring growth but the magnitude of the effect depends on climate related circumstances finally we argue that the collier dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate the usefulness of foreign aid in promoting growth in developing countries has been an area of controversy ever since rosenstein rodan in 1943 advocated for aid to eastern and south eastern europe browsing through successive editions of a leading textbook in development economics provides a telling illustration of how the confidence in aid effectiveness dwindled over the years in the first edition of leading issues in economic development meier 1964 dedicated a full 18 page section to the issue of foreign aid he started out asking how much aid by the time of the sixth edition meier 1995 the treatment of foreign aid had been cut into half and the questions in focus were why official assistance and does aid work in the 2000 edition meier and rauch 2000 foreign aid is not even listed in the index

quantifying china s oil import risks and the impact on the national economy abstract with an increase in china s oil imports china s oil supply will also continue to be effected by the socio economic stability of oil exporting countries and the safety of oil transport routes this paper introduces a systematic and quantitative method to evaluate the influence of china s oil import risks oir on the national economy and industrial sectors from a perspective of apply chain process for this analysis china s oir is quantified by integrating oil exporting country risk and the risks from oil transportation routes country risk is defined as the oil exporting country s political risk caused by political changes or internal conflicts transport risk is defined as the risk of shipping routes affected by pirate attacks and geopolitics second the relationship between china s oir and oil import costs is analyzed using a multiple linear approach third an input output analysis method is used to research the effect of the cost of china s oil imports on the cost of investment within china s domestic sectors this research finds that the corresponding impact on gdp is 3494 5 million dollars given an increasing by 10 of china s oir and the impact on domestic sectors differs from sector to sector finally this paper puts forth recommendations to improve long term oil supply security in china

inflation in south africa a long memory approach abstract this paper deals with the analysis of the inflation rate in south africa for the time period 1970m1 2008m12 we use long range dependence techniques and the results show that inflation in this country is a covariance stationary process with long range dependence with an order of integration ranging in the interval 0 0 5 policy implications are derived

poverty reduction during 1990 2013 did millennium development goals adoption and state capacity matter abstract while poverty reduction remains central in the post 2015 agenda its determinants remain debated in the literature especially the role of structural conditions related to governance this paper provides an assessment of two key dimensions the global adoption of mdgs and state capacity we do so by studying whether they facilitated convergence in income poverty measures using cross section and panel methods with data on 89 developing economies for the period 1990 2013 we find that poverty headcount and gap measures tended to decrease faster in countries with initially higher income poverty such convergence accelerated after 2000 suggesting that mdgs adoption was instrumental to poverty reduction however this still leaves unexplained substantial variation in poverty reduction performance across countries such variation is explained by state capacity countries with greater ability to administer their territories in 1990 experienced faster income poverty reduction and were more likely to have achieved the mdg target this result is insensitive to robust regression methods and to a large set of controls initial level of income dependence on natural resources education and health inputs dependence on foreign aid ethnic fractionalization regional effects and a set of governance variables as good governance and effective institutions are included in the sustainable development goals this result provides empirical justification for this move suggesting that more effective states could be crucial to sustain the development progress achieved so far

poverty relative to the ability to eradicate it an index of poverty reduction failure in this note we approach the question of relative poverty from a different angle fixing the poverty line we ask what is the extent of poverty relative to the resources available in the society to eradicate it we argue that the same level of poverty is worse if the resources available to address it are greater we characterize a class of indices that measure poverty reduction failure and provide an empirical illustration of their suitability using data for 94 country observations in 2001

a portfolio risk analysis on electricity supply planning abstract conventional electricity planning selects from a range of alternative technologies based on the least cost method without assessing cost related risks the current approach to determining energy generation portfolios creates a preference for fossil fuel consequently this preference results in increased exposure to recent fluctuations in fossil fuel prices particularly for countries heavily depend on imported energy this paper applies portfolio theory in conventional electricity planning with taiwan as a case study the model objective is to minimize the risk weighted present value of total generation cost both the present value of generating cost and risk variance of the generating cost are considered risk of generating cost is introduced for volatile fuel prices and uncertainty of technological change and capital cost reduction the impact of risk levels on the portfolio of power generation technologies is also examined to provide some valuable policy suggestions study results indicate that replacing fossil fuel with renewable energy helps reduce generating cost risk however due to limited renewable development potential in taiwan there is an upper bound of 15 on the maximum share of renewable energy in the generating portfolio in the meantime reevaluating the current nuclear energy policy for reduced exposure to fossil fuel price fluctuations is worthwhile

the income lever and the allocation of aid the paper develops a concept and a measure of the monetary capacity of a country to reduce its own poverty and shows how these tools can be used to guide budget allocations or the allocation of aid the authors call this concept the income lever making use of tax and distributive theory the paper shows how different redistributive criteria correspond to the different normative criteria of the income lever it then constructs various income lever indexes based on these criteria and uses such indexes to rank countries according to their own capacity to reduce poverty as shown in the empirical application this methodology can provide an equitable tool to rank countries or regions when it comes to budget or aid allocations whether it is the allocation of social funds within the european union north north transfers or the allocation of aid from rich to poor countries north south transfers the findings indicate that the allocation of social funds in the european union follows closely the rank that results from the income lever indexes proposed while the allocation of aid to sub saharan african countries does not

comparison of china s oil import risk results based on portfolio theory and a diversification index approach in recent years the international oil price has fluctuated violently bringing about huge risk for the international oil trade in fact the risk of crude oil and petroleum product imports is different because of the different import origins and prices which import risk is lower for china from the perspective of oil supply security how should china portfolio crude oil and petroleum product imports to minimize its oil import risk using portfolio theory and a diversification index approach this paper compares and analyzes the supply price and transport risks of crude oil and petroleum product imports our results show that the following 1 specific risk diversification risk and marine transport risk of china s petroleum product imports are lower than that of crude oil imports 2 the average rate of return of china s petroleum product imports is higher than that of crude oil imports moreover the average import price variance of petroleum product imports is lower than that of crude oil imports thus the systematic risk price risk of petroleum products is lower too therefore from the perspective of oil supply security china should increase petroleum product imports to decrease its oil import risk

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

optimal investment portfolio in renewable energy the spanish case abstract this article presents a model for investing in renewable energies in the framework of the spanish electricity market in a way that risk is minimised for the investor while returns are maximised the model outlined here is based on an economic model for calculating cash flows intended to obtain the internal rate of return irr of the different energies being studied wind photovoltaic mini hydro and thermo electrical the irrs obtained are considered the returns on investments while their standard deviations are considered associated risks in order to minimise risk a comprehensive portfolio of investments is created that includes all of the available energies by means of a system of linear equations the solution of the linear system is graphically checked using the efficient frontier method for the different financing options several case studies within the renewable energies plan per is its spanish abbreviation that is in force in spain in the period 2005 2010 are analysed in order to illustrate the method as are other case studies using different types of financing helping us to reach the pertinent conclusions

what is the aggregate economic rate of return to foreign aid in recent years academic studies have been converging towards the view that foreign aid promotes aggregate economic growth we employ a simulation approach to i validate the coherence of empirical aid growth studies published since 2008 and ii calculate plausible ranges for the rate of return to aid our results highlight the long run nature of aid financed investments and the importance of channels other than accumulation of physical capital we find the return to aid lies in ranges commonly accepted for public investments and there is little to justify the view that aid has had a significant pernicious effect on productivity

the gift of the dying the tragedy of aids and the welfare of future african generations this paper simulates the impact of the aids epidemic on future living standards in south africa i emphasize two competing effects on the one hand the epidemic is likely to have a detrimental impact on the human capital accumulation of orphaned children on the other hand widespread community infection lowers fertility both directly through a reduction in the willingness to engage in unprotected sexual activity and indirectly by increasing the scarcity of labor and the value of a woman s time i find that even with the most pessimistic assumptions concerning reductions in educational attainment the fertility effect dominates the aids epidemic on net enhances the future per capita consumption possibilities of the south african economy

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

an equal opportunity approach to the allocation of international aid abstract how should international aid be distributed the most common view is according to some utilitarian formula in order to maximize the average growth rate of aid recipients or the growth rate of income of the class of recipient countries recently the the world bank the world bank 1998 assessing aid world bank policy research report has published a study demonstrating the importance of good economic management within a recipient country in transforming aid into economic growth we identify good economic management with effort and ask how should aid be distributed to equalize opportunities among recipient countries for achieving growth according to roemer s theory of equal opportunity roemer j e 1998 equality of opportunity harvard university press cambridge ma

do performance measures of donors aid allocation underperform indices of donor performance abound their recent popularity has occurred within the context of pessimism over aid s impact and optimism over the effect of changes in donor behaviour rankings of donor allocative performance aim to change donor behaviour either through direct pressure on governments or indirectly through public engagement the indices themselves rely on descriptive measures and typically claim methodological superiority over positive alternatives due to their simplicity however there are two problems first measures do not seem robust to simple variations in methodology second correlation amongst competing indices is low leading to a host of contradictory judgements this offers neither clear technical guidance nor consistent political pressure the advantages and disadvantages of the approach are discussed building upon the more general critique of aggregate indices i suggest a graphical solution that embraces the advantages of the descriptive approach including ease of public communication while avoiding some of its major weaknesses which typically stem from aggregation

aid selectivity according to augmented criteria a dominant trend in the literature maintains that donor assistance should be targeted to poor countries with sound institutions and policies in this context donor selectivity refers to what extent aid is allocated according to the principles of this canonical model this paper shows that it is legitimate for donors to simultaneously use other selectivity criteria corresponding either to expected factors of aid effectiveness or to handicaps to development it is notably argued that vulnerability to exogenous shocks and low level of human capital should be considered as selectivity criteria taking these other criteria into account dramatically changes the assessment of donor selectivity

aid volatility and donor recipient characteristics in difficult partnership countries one factor limiting aid effectiveness is its volatility we examine aid volatility in 66 countries over 1975 2004 paying particular attention to the characteristics of difficult partnership countries and making a distinction between sector aid and total aid we explore whether weak recipient institutions and policies are associated with greater volatility allowing for differences in donor characteristics institutional quality and macroeconomic stability affect the stability of all kinds of aid as does reliance on a small number of donors however the relative importance of these effects varies across different aid types

personal income taxation and the principle of equal sacrifice revisited this paper shows that in the domain of piecewise linear statutory income tax functions the principle of equal sacrifice implies tax progressivity the progressivity implication of the doctrine is in fact stronger the equal sacrifice principle in essence characterizes marginal rate progressivity a result which is in sharp contrast with the standard literature on public finance the authors also apply their findings to the personal statutory income taxation practices of the oecd countries and observe that the united states and turkey were the only ones violating the principle of equal sacrifice in the time period 1988 to 1991 copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

can the world cut poverty in half how policy reform and effective aid can meet international development goals abstract poverty in the developing world will decline by about one half by 2015 if the trends of the 1990s persist most of this poverty reduction will occur in asia however while poverty will decline only slightly in africa effective aid could make a contribution to greater poverty reduction in lagging regions even more potent would be significant policy reform in these countries we develop a model of efficient aid in which flows respond to policy improvements that create a better environment for poverty reduction and effective aid we investigate scenarios of policy reform and efficient aid that point the way to how the world can cut poverty in half in every major region

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

the effectiveness of aid on savings and investment in sub saharan africa do volatility and institutional quality matter abstractthe effectiveness of aid is somewhat subject to its volatility this study investigates the impact of aid volatility especially on savings and investment with a particular focus on the role of institutional quality in 45 sub saharan african ssa countries over the period from 1990 to 2013 we used the generalized method of moments gmm technique combined with a measure of volatility namely an averaged data method involving six 4 year sub periods our results suggest that while aid is positively associated with savings and investment its volatility is harmful to savings and investment however when higher quality institutions exist the volatility of aid has a less negative impact on savings and investment the policy implications are diverse first donors and ssa aid dependent countries need to take into account the diversity of shocks to which aid can respond in mitigating its unpredictability secondly ssa countries should be encouraged to establish the conditions for better quality inst

growth inequality and poverty looking beyond averages the evidence is compelling that the poor in developing countries do typically share in the gains from rising aggregate affluence and in the losses from aggregate contraction but how much do poor people share in growth do they gain more in some settings than others do some gain while others lose does pro poor growth mean more or less aggregate growth recent theories and evidence suggest some answers but deeper microeconomic empirical work is needed on growth and distributed change only then will we have a firm basis for identifying the specific policies and programs needed to complement and possibly modify growth oriented policies

the world distribution of income falling poverty and convergence period we estimate the world distribution of income by integrating individual income distributions for 138 countries between 1970 and 2000 country distributions are constructed by combining national accounts gdp per capita to anchor the mean with survey data to pin down the dispersion poverty rates and head counts are reported for four specific poverty lines rates in 2000 were between one third and one half of what they were in 1970 for all four lines there were between 250 and 500 million fewer poor in 2000 than in 1970 we estimate eight indexes of income inequality implied by our world distribution of income all of them show reductions in global inequality during the 1980s and 1990s

fuel mix diversification incentives in liberalized electricity markets a mean variance portfolio theory approach monte carlo simulations of gas coal and nuclear plant investment returns are used as inputs of a mean variance portfolio optimization to identify optimal base load generation portfolios for large electricity generators in liberalized electricity markets we study the impact of fuel electricity and co2 price risks and their degree of correlation on optimal plant portfolios high degrees of correlation between gas and electricity prices as observed in most european markets reduce gas plant risks and make portfolios dominated by gas plant more attractive long term power purchase contracts and or a lower cost of capital can rebalance optimal portfolios towards more diversified portfolios with larger shares of nuclear and coal plants

targeting aid to the needy and deserving nothing but promises by reallocating aid to where it is needed most and where a productive use is most likely donors could help alleviate poverty in developing countries the rhetoric of donors suggests that this insight has increasingly shaped the allocation of aid we assess the poverty and policy orientation of bilateral and multilateral aid in different ways in addition to presenting stylised facts based on bivariate correlations we apply a tobit model that captures both altruistic and selfish donor motives we find little evidence supporting the view that the targeting of aid has improved significantly most donors provide higher aid to relatively poor countries but so far the fight against poverty has not resulted in a stronger focus on needy recipients with favourable local conditions the estimation results reveal that the policy orientation of aid critically depends on how local conditions are measured in general however donors appear to be less policy oriented than poverty oriented the response of donors to changing institutional and policy conditions in recipient countries turns out to be fairly weak we reject the proposition that multilateral aid is clearly superior to bilateral aid in terms of rewarding poor countries with better policies and institutions

keeping a low profile what determines the allocation of aid by non governmental organizations ngos play an important role in international development cooperation but the allocation of ngo aid has rarely been mapped let alone explained based on a representative dataset for 61 important ngos from various oecd countries we analyze the targeting of ngo aid across a large number of recipient countries by jointly considering major determinants of ngo aid in a multivariate regression framework while our results show that ngos are more active in the neediest countries we reject the hypothesis that ngos complement official aid through engaging in so called difficult institutional environments rather they tend to replicate the location choices of official backdonors moreover ngos follow other ngos so that aid gets clustered finally ngos select recipient countries with common traits related to religion or colonial history taken together our findings suggest that ngos keep a low profile rather than distinguishing themselves from other donors and trying to excel under risky conditions

forecasting core inflation the case of south africa forecasting and estimating core inflation has recently gained attention especially for inflation targeting countries following research showing that targeting headline inflation may not be optimal a central bank can miss the signal due to the noise despite its importance there is sparse literature on estimating and forecasting core inflation in south africa with the focus still on measuring core inflation this paper emphasises predicting core inflation using large time varying parameter vector autoregressive models tvp vars factor augmented var and structural break models using quarterly data from 1981q1 to 2013q4 we use mean squared forecast errors msfe and predictive likelihoods to evaluate the forecasts in general we find that i small tvp vars consistently outperform all other models ii models where the errors are heteroscedastic do better than models with homoscedastic errors iii models assuming that the forgetting factor remains 0 99 throughout the forecast period outperforms models that allow for the forgetting factors to change with time and iv allowing for structural break does not improve the predictability of core inflation overall our results imply that additional information on the growth rate of the economy and interest rate is sufficient to forecast core inflation accurately but the relationship between these three variables needs to be modelled in a time varying nonlinear fashion

volatility of development aid from the frying pan into the fire summary the paper building on the authors previous analysis examines the relative volatility of aid flows into developing countries and their domestic revenue using new data and three alternative measures of aid instability relative volatility vis a vis fiscal revenue unpredictability of aid disbursement relative to commitments and failure of aid to smooth fluctuations in aggregate income it finds that the volatility of aid flows is still much greater than that of domestic revenue and that this difference is not decreasing especially in very poor aid dependent countries this high volatility of inflows makes the macroeconomy hard to manage further the influence of aid has been procyclical and not countercyclical aid has failed to act either as a stabilizing force or as an insurance mechanism we argue that to counter these unwelcome trends donors need to be able to respond more speedily and effectively to large adverse shocks and their conditionalities need to become more flexible possibilities explicitly discussed elsewhere in this special section

halving global poverty the goal of central importance to this paper is to cut in half the proportion of people living below 1 a day from around 30 percent of the developing world s population in 1990 to 15 percent by 2015 based on population projections in 1990 this would correspond to around one billion people exiting poverty this paper begins by discussing poverty trends on a global scale where the poor are located in the world and how their numbers have been changing over time it then discusses the relationship of economic growth and income distribution to poverty reduction finally it suggests an evidence based agenda for poverty reduction in the developing world full text available at official url

aid policies and growth comment in an extraordinarily influential paper craig burnside and david dollar 2000 p 847 find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies but has little effect in the presence of poor policies this finding has enormous policy implications the burnside and dollar 2000 henceforth bd result provides a role and strategy for foreign aid if aid stimulates growth only in countries with good policies this suggests that 1 aid can promote economic growth and 2 it is crucial that foreign aid be distributed selectively to countries that have adopted sound policies international aid agencies public policy makers and the press quickly recognized the importance of the bd findings this paper reassesses the links between aid policy and growth using more data the bd data end in 1993 we reconstruct the bd database from original sources and thus 1 add additional countries and observations to the bd data set because new information has become available since they conducted their analyses and 2 extend the data through 1997 thus using the bd methodology we reexamine whether aid influences growth in the presence of good policies given our focus on retesting bd we do not summarize the vast pre bd literature on aid and growth we just note that there was a long and inconclusive literature that was hampered by limited data availability debates about the mechanisms through which aid would affect growth and disagreements over econometric specification see gustav f papanek 1972 robert cassen 1986 paul mosley et al 1987 peter boone 1994 1996 and henrik hansen and finn tarp s 2000 review since bd found that aid boosts growth in good policy environments there have been a number of other papers reacting to their results including paul collier and jan dehn 2001 carljohan dalgaard and hansen 2001 patrick guillaumont and lisa chauvet 2001 hansen and tarp 2001 robert lensink and howard white 2001 and collier and dollar 2002 these papers conduct useful variations and extensions some of which had already figured in the pre bd literature such as introducing additional control variables using nonlinear specifications etc some of these papers confirm the message that aid only works in a good policy environment while others drive out the aid policy interaction term with other variables this literature has the usual limitations of choosing a specification without clear guidance from theory which often means there are more plausible specifications than there are data points in the sample we differentiate our paper from these others by not deviating from the bd specification thus we do not test the robustness of the results to an unlimited number of variations but instead maintain the bd methodology this paper conducts a very simple robustness check by adding new data that were unavailable to bd thus we expand the sample used over their time period and extend the data from 1993 to 1997 easterly department of economics new york university 269 mercer street new york ny 10003 center for global development and national bureau of economic research e mail william easterly nyu edu levine department of finance carlson school of management university of minnesota 321 19th avenue south minneapolis mn 55455 and national bureau of economic research e mail rlevine csom umn edu roodman center for global development 1776 massachusetts avenue nw washington dc 20036 e mail droodman cgdev org we are grateful to craig burnside for supplying data and assisting in the reconstruction of previous results without holding him responsible in any way for the work in this paper thanks also to francis ng and prarthna dayal for generous assistance with updating the sachs warner openness variable and to three anonymous referees craig burnside and henrik hansen for helpful comments 1 see for instance the world bank 1994 2001 2002 the u k department for international development 2000 president george w bush s speech march 16 2002 the announcement by the white house on creating the millennium challenge corporation white house 2002 as well as a washington post editorial february 9 2002 a financial times column by alan beattie march 11 2002 and the economist march 16 2002

reforming aid toward more predictable performance based financing for development summary we explore ways of mitigating the costs of aid volatility in particular we show that these can be dramatically reduced by a flexible pre commitment rule which adjusts flows in the case of drastic improvements or deteriorations in country performance ratings such a system can further reduce variability with only minor efficiency costs our simulations suggest that a buffer stock of the order of 50 100 of annual aid financed spending might enable a corrective feedback loop with the necessary buffer depending on the size and variability of aid flows our proposed mechanism is similar in principle to natural resource funds which have worked well in some countries but not in others we briefly discuss some issues in design and implementation

aid instability as a measure of uncertainty and the positive impact of aid on growth this article contributes to the literature on aid and economic growth we posit that uncertainty measured as the instability of aid receipts will influence the relationship between aid and investment how recipient governments respond to aid and will capture the fact that some countries are especially vulnerable to shocks when we account for uncertainty which is negative and significant we find that aid has a significant positive effect on growth largely due to its effect on the volume of investment the finding that uncertainty of aid receipts reduces the effectiveness of aid is robust when the regression is estimated for the sub sample of african countries these findings hold although the effectiveness of aid appears weaker than for the full sample

aid allocation and poverty reduction the authors derive a poverty efficient allocation of aid and compare it with actual aid allocations they build the poverty efficient allocation in two stages first they use new world bank ratings of 20 different aspects of national policy to establish the current relationship between aid policies and growth onto that they add a mapping from growth to poverty reduction which reflects the level and distribution of income they compare the effects of using headcount and poverty gap measures of poverty they find the actual allocation of aid to be radically different from the poverty efficient allocation in the efficient allocation for a given of poverty aid tapers in with policy reform in the actual allocation aid tapers out with reform in the efficient allocation aid is targeted disproportionately to countries with severe poverty and adequate polices the type of country where 74 percent of the world s poor live in the actual allocation such countries receive a much smaller share of aid 56 percent than their share of the world s poor with the present allocation aid is effective in sustainably lifting about 30 million people a year out of absolute poverty with a poverty efficient allocation this would increase to about 80 million people even with political constraints introduced to keep allocations for india and china constant poverty reduction would increase to about 60 million reallocating aid is politically difficult but it may be considerably less difficult than quadrupling aid budgets which is what the authors estimate would be necessary to achieve the same impact on poverty reduction with existing aid allocations

reasonable expectations and the first millennium development goal how much can aid achieve summary using a calibrated neoclassical growth model we address three questions i how much growth should aid flows have produced in sub saharan africa over the last three decades ii how much aid would be needed to attain the first millennium development goal mdg 1 of cutting poverty in half by 2015 iii taking proposed aid flows as given how much would structural characteristics such as domestic savings rates and productivity have to change in order to reach the mdg 1 our analysis indicates that past and future expectations for aid in fostering growth and poverty reduction have been too high

aid and growth regressions this paper examines the relationship between foreign aid and growth in real gdp per capita as it emerges from simple augmentations of popular cross country growth specifications it is shown that aid in all likelihood increases the growth rate and this result is not conditional on good policy there are however decreasing returns to aid and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables when investment and human capital are controlled for no positive effect of aid is found yet aid continues to impact on growth via investment we conclude by stressing the need for more theoretical work before this kind of cross country regressions are used for policy purposes

quantifying the risk of an increase in the prices of non energy products by combining the portfolio and input output approaches abstract an increase in the price of imported fossil fuels indirectly increases the producer price in non energy sectors however this indirect influence cannot be taken into account by the traditional portfolio approach this study proposes an analytical framework combining the input output i o model and the portfolio approach that can take the indirect influence into account a risk of an increase in the producer price in japanese non energy sectors during the period 1970 2000 is estimated and the causes of a decrease in the risk through the analysis period are clarified by decomposing an index of the risk the result indicates that almost all non energy sectors have decreased this risk during the analysis period the degree and cause of the decrease depends on a sector s location in the hierarchical structure of japanese industries for example assembly sectors have decreased their risk mainly as the result of improvement in energy usage by upstream sectors such as material sectors rather than their own improvements proper policies considering such a structure are required to decrease the risk further because the effort taken to do so is seldom motivated by economic profit