the world bank global keynesianism and the distribution of the gains from growth sir hans singer whom this volume celebrates was a pupil of john maynard keynes at cambridge and in 1945 attended the bretton woods negotiations at which keynes and others designed the institutions which now seek to regulate and stimulate the international economy the world bank the imf and the gatt sir hans has provided ever since that time frequent creative suggestions concerning the way in which all of those institutions separately and in relation to the un system should set about the task of global economic governance with a particular flurry of activity around 1994 5 when the bretton woods institutions celebrated their half century by this time of course the bretton woods institutions had departed from their original articles of agreement and implicated the world bank progressively more deeply in policy based programme lending alongside its original project lending functions this paper attempts a little belatedly to take up some of the concerns aroused by that flurry of activity with particular reference to the world bank which keynes as we saw above saw as having the principal stimulative and entrepreneurial role the concerns have been expressed by sir hans in the following way the shift to programme lending and policy conditionality tied in with three other developments first the withering away of the development functions of the un created a gap into which it was tempting and easy for the world bank to move together with the imf second the debt crisis of the 1980s made the developing countries pliant in accepting conditionality pressures from the bretton woods institutions third in the process of replacing the un as a focus of development policy guidance and in line with trends in the major industrial countries the world bank developed again together with the imf a new washington consensus emphasising government failures market orientation liberalisation privatisation etc now the purpose of this is i am using the language of the imf and world bank now to cut down today but in doing so lay the foundations for subsequent sustainable growth now the fact is that if you cut down today it is just as likely that if you cut investment today that does not lay the foundations for subsequent growth that does exactly the opposite the imf are quite fond of illustrating their policy with the french proverb reculer pour mieux sauter the trouble is that what we have today is that in all too many cases the developing countries stand on the edge of an abyss and therefore by stepping back they don t gain manoeuvring space for moving forward but they fall into the abyss singer 1995 p 469 and 1994 p 55

when is foreign aid policy credible aid dependence and conditionality the author studies foreign aid policy within a principal agent framework he shows that one reason for foreign aid s poor overall record may be a moral hazard problem that shapes the aid recipient s incentive to undertake structural reform the model s basic prediction is a two way relationship disbursements of foreign aid are guided in part by the needs of the poor anticipating this recipients have little incentive to improve the welfare of the poor preliminary econometric work shows that the data support this hypothesis in principle conditionality could partly solve this problem but only if the donor can make a binding commitment to increase disbursements in good relative to bad states without such a commitment technology aid disbursements remain guided by the needs of the poor and recipient countries maintain a low effort to reduce poverty contrary to the conventional wisdom found in the aid literature the author shows that the welfare of all parties might be improved by using tied project aid or by delegating part of the aid budget to an international agency with less aversion to poverty

lobbying by ethnic groups and aid allocation we develop a political economic model of foreign aid allocation each ethnic group in the donor country lobbies the government to allocate more aid to its country of origin and the government accepts political contributions from lobby groups initial per capita income of the recipients and those of the ethnic groups are shown to be important determinants of the solution of the political equilibrium we also examine the effects of changes in the degree of corruption aid fatigue and ethnic composition in the donor country on the allocation of aid

the outlook for us oil dependence abstract oil dependence is defined as a dynamic problem of short and long run market power the potential monopoly power of an oil cartel depends on its market share and the elasticities of oil supply and demand while the economic vulnerability of oil consuming states depends most directly on the quantity of oil imported and the oil cost share of gross domestic product gdp of these factors only the market share of the organization of petroleum exporting countries opec cartel and the rate of growth of world oil demand are clearly different than they were 25 years ago opec still holds the majority of world oil and in the future will regain market share a hypothetical 2 year supply reduction in 2005 2006 similar in size to those of 1973 1974 or 1979 1980 illustrates the potential benefits to opec and harm to the us economy of a future oil price shock opec s revenues are estimated to increase by roughly 0 7 trillion while the us economy loses about 0 5 trillion strategic petroleum reserves seem ineffective against a determined multi year supply curtailment increasing the market s price responsiveness by improving the technologies of oil supply and oil demand can greatly reduce the costs of oil dependence each element of this interpretation of the oil dependence problem is well supported by previous studies this paper s contribution is to unite these elements into a coherent explanation and to point out the enormously important implications for energy policy

post fordism and flexibility the travel industry polyglot abstract theorists argue that leisure and travel related activities have become increasingly commodified reflecting the broader evolution of a postmodern culture of consumption this paper argues that these developments have produced a travel industry complex characterized by a polyglot of varying production processes each placing a premium on flexible forms of accumulation focusing on certain key sectors of the travel industry the paper examines how partly because of new information technologies each element of the travel industry polyglot appears to have been affected by flexible based production strategies such as the externalization of ancillary services the development of interfirm strategic alliances and sophisticated product differentiation through brand segmentation the paper ends with a call for in depth empirical investigations to help develop a superior understanding of how flexible production techniques affect the various components comprising the travel industry

sovereign debt and joint liability an economic theory model for amending the treaty of lisbon as the euro area crisis drags on it is evident that a part of the problem lies in the architecture of debt within the euro area this study argues that at least part of the debt problem could be addressed through limited cooperative action entailing appropriately structured contracts generating cross country liability for sovereign debt incurred by individual nations within the european union such agreements are currently proscribed by the treaty of lisbon we construct a game theoretic model demonstrating that there exist self fulfilling equilibria which are pareto superior to the existing outcome and which would come into existence if cross country debt liabilities were permitted

opec retrospective and prospects 1973 1990 abstract using a relatively simple economic model of the world oil market we review what has happened since the price quadrupling of 1973 1974 comparing the model s results with actual historical data we also make projections through 1990 assuming that opec s real price is either held constant or determined by a target capacity utilization pricing rule

samaritan agents on the strategic delegation of aid policy abstract should a donor delegate the responsibility for allocating its aid budget to a less inequality averse agent to alleviate the consequences of the samaritan s dilemma it is facing i show that when aid impact differs across recipients the optimal type of agent depends on whether or not committing to a greater share for countries where the productivity of aid is low raises the combined domestic incomes of recipients this is the case for donors too concerned with efficiency ex post they therefore delegate the decision on the discretionary aid allocation rule to agents more sensitive to distributional issues than themselves

effectiveness of imf supported stabilization programs in developing countries abstract this paper examines the effectiveness of fund supported stabilization programs by investigating whether the imf achieves its own objectives in such programs even though the fund s conditionality prescribes fiscal and monetary discipline in program countries the results of the empirical analysis show that the imf cannot impose its conditionality even during program years furthermore when successive interprogram periods are considered program countries enter a new program in a worse macroeconomic condition than they entered the previous program these results and the fact that stabilization programs have a revolving nature are inconsistent with the effectiveness of imf supported stabilization programs and may signal the existence of moral hazard

dancing to the donors tune policy choice in aid dependent countries current aid rhetoric emphasizes the selective allocation of otherwise unconditional funds in support of the recipients own plans in contrast to the old donor practice of bundling money and policies i show that when recipients have private information policies reflecting their preferences and knowledge might result in such a regime however generous transfers can also induce them to conform to the outcome oriented expectations of donors at the expense of lower aid impact such behaviour is consistent with an abundance of case study evidence moderate disagreements over what the optimal policy is could actually produce better results certain forms of both donor competition and coordination might also eliminate this distortion while a donor concern for need only removes incentives for aid seeking in the least needy countries in summary optimal aid policies are highly context specific and donors should thus concentrate their efforts to practise more informed selectivity

foreign aid taxes and public investment a further comment abstract the paper in this journal by gang and khan 1991 employed heller s 1975 fiscal response model to demonstrate that aid to india has all been used to finance government investment this conclusion is shown to be a misinterpretation of the model s results which actually suggest that aid has had no impact on government investment at all however the reported parameters are determined by the estimation procedure adopted by gang and khan and not by the indian government s fiscal behaviour

cartel formation and oligopoly structure a new assessment of the crude oil market while economic theorists regard opec as a perfect example of a long lasting cartel energy economists strongly deny such view applying the ideas of new empirical industrial organization a market description is derived cartel theory and empirical evidence fit together well stable long lasting cartels can be explained only for subclasses of market models and exactly such type of model is obtained here a variety of different market models is tested opec and the market for crude oil is best described by a price leader model

the price competitive position of mediterranean countries in tourism evidence from the thomson brochure abstract tourism in the mediterranean region is highly dependent on the few large mass market tour operators situated in the north european tourist originating countries price competition is intense both between the tour operators and between the mediterranean countries themselves this paper uses the hotel package prices listed in the thomson summer and winter brochures to develop relative price indexes of each mediterranean country with respect to the mediterranean average indexes are developed in the 3 star 4 star 5 star 7 nights and 14 nights half board holiday packages the prices in the thomson brochure can be regarded as a unified internally consistent set of price data compiled by the largest uk tour operator and offered to uk tourists desiring a thomson summer holiday the change through time of the competitive relative price ranking of hotels regions and countries listed in the thomson brochure may be regarded as an important competitive indicator by industry operators and national policy makers concerned about tourism development

the structural adjustment debate the last decade has witnessed dramatic changes in economic policy in the developing world on every continent countries have moved to open their economies free up prices and reduce the role of the state in managing and regulating economic activity developing nations from mexico to malaysia have made changes in their economies that dwarf anything achieved by ronald reagan the design of structural adjustment programs directed at the four ations stabilization liberalization deregulation privatization has become a cottage industry efforts at structural adjustment have been assisted and encouraged by the international community most directly through multilateral financial institutions the international monetary fund has long conditioned its support on policies consistent with macroeconomic stability the imf has increasingly taken the position that changes in economic structure are necessary if stabilization is to be attained and maintained structural adjustment lending lending conditioned on specific economic policy changes has emerged as a major instrument of world bank support to developing countries and world bank investment lending has increasingly been conditioned on policy reforms given the extent of economic change that structural adjustment programs have wrought it is hardly surprising they have been controversial this paper summarizes the results of the latest world bank review of adjustment lending world bank 1992 and highlights the crucial identification problem involved in assessing structuraladjustment programs we then try to advance the debate over structural adjustment lending by distilling the main lines of criticism levied against structural adjustment programs to four critiques and assessing the validity of each in conclusion we point to three newer issues for which we believe further research and analysis are necessary

why conditional aid does not work and what can be done about it abstract this paper studies a simple reform that introduces ex post incentives for the donor to reward good policies contrary to existing practices instead of committing aid to each recipient ex ante and making aid conditional on reform the donor centralizes the disbursement decision by committing aid to a group of countries the actual amount disbursed to each individual country would depend on its relative performance this explicit linkage of the allocation and disbursement decisions has two important advantages as compared to present practices first it raises the opportunity cost of disbursing aid ex post thereby giving the donor stronger incentives to reward good policies second competition among recipients allows the donor to make inferences about common shocks which otherwise conceal the recipient s choice of action this enables the donor to give aid more efficiently

the price of oil lower and upper bounds abstract the magnitude of the recent dramatic fall in oil prices has once again like the rises of 1973 and 1979 taken most energy analysts and oil industry participants by suprise creating even greater uncertainty about future developments in the oil market in this paper we suggest that a return to first principles is appropriate at this time in order to help clarify the outlook two simple hotelling type models of the oil market are described one of the perfectly competitive market the other of a purely monopolistic market these two models are used to derive lower and upper bounds on oil prices a reinterpretation of the history of the oil market over the last 25 years is suggested with some implications for the future course of oil prices

aid growth nexus empirical evidence from fiji foreign aid to the island economies is a major source for foreign exchange and resource needs this paper presents an empirical analysis of the relationship between foreign aid and economic growth in the case of fiji a neoclassical production function is applied to estimate the aid growth nexus since the data employed are time series for the period 1968 to 1996 the autoregressive distributed lag approach to cointegration is utilized to estimate the models components of total aid such as grant aid loan aid technical cooperation bilateral and multilateral aid flows are also utilized to estimate a disaggregated short run and long run relationship between foreign aid and economic growth the results show that total aid flows and its various forms i e bilateral aid grant aid and technical cooperation grant aid has a significant impact on economic growth in fiji as for domestic resources only exports and private investments in two equations show positive contribution to growth

triadic power relations in rural nepal abstract we generalise basu s model of triadic power for one landlord and multiple merchants the landlord s threat towards a labourer becomes credible in the original stage game for multiple landlords and merchants we generalise more recent solutions we estimate a reduced form of the model where equilibrium rural wages are a function of the number of landlords distance to merchants characteristics of the labourers and the distance to external markets we apply living standards measurement study data from nepal and find support for the triadic model in particular the influence via the merchants depends on the number of landlords

debt relief for poor countries conditionality and effectiveness this paper studies the effectiveness of debt relief to stimulate economic growth in the most heavily indebted poor countries we develop a neoclassical framework with a conflict of interest between the altruistic donor and the recipient government and model conditionality as an imperfectly enforceable dynamic contract in contrast to the recent practice of fully cancelling debt optimal incentive compatible conditionality is accompanied by a concessionality level that implies a combination of subsidized loans and outright grants the optimal concessionality level depends on the recipient s access to international financial markets and on the strength of the conflict of interest incentive compatible transfers with optimal concessionality levels generate substantial welfare gains if the donor does not implement the optimal concessionality level and provides subsidized loans only then the effectiveness of transfers decreases in the long run with severe welfare implications in contrast transfers are less effective in the short run if the donor offers outright grants only

foreign aid poverty reduction and democracy eradication of poverty is the most pervasive goal of donors foreign aid programmes as a result there has been much research on the degree of correlation between aid and poverty reduction however this work to date has shed little light on the direction of causation between the two variables using the method of granger causality and conditioning aid and poverty on the state of democracy in developing countries this study asks whether aid flows impact poverty whether poverty influences aid flows or whether causality proceeds in both directions simultaneously while the results identify no causal relationships in some of the sub samples they point to the existence of a multitude of relationships across others

a note on opec market power and oil prices a static model of opec as a cartel with a fringe group of competitive producers is used to define short and long run monopoly price curves as a function of opec s market share a static model is used on the grounds that oil as adelman has argued is not a depletable resource in the sense of the hotelling theory but is more like a normal good that can be produced with application of labour capital resources and technology a rational cartel will choose prices that lie between the two curves the shapes of the curves depend on the world price elasticity of demand for oil and on the supply response rate of competitive oil producers as opec s market share increases the distances between the two curves increase rapidly this could lead to an unstable market since any price between the two curves would be obtainable in the short run in the long run prices above the long run price curve will result in a loss of market share for the cartel except in a growing market reducing the cartel s market power future work will extend the model to consider dynamic pricing strategies as a function of the cartel s discount rate and world market response rate

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 competitive price of oil some results under uncertainty abstract the recent weakness of the world oil price has led to speculation concerning the forces that are acting to keep the price well above the cost of production in this paper we investigate the strength of concerns about depletion by calculating the price of oil in 1983 as it would have been in a competitive market the simplicity of our model allows the effects of uncertainty in the input variables to be explored model parameters are entered as subjective probability distributions solving the model gives a probability distribution of the competitive oil price in 1983 the competitive price is found to have an 80 chance of lying between 3 and 11 1983 bbl with an expected value of 7 bbl the difference between these prices and the actual price of oil in 1983 gives an indication of the strength of forces other than concern about depletion principally the action of the opec cartel in keeping the oil price high

company interests and foreign aid policy playing donors off against one another abstract the evidence on conditionality indicates that this instrument sometimes works and sometimes does not work we suggest that third parties to the donor recipient relationship influence the aid disbursement the halt in aid that should follow non compliance could trigger the recipient to cancel contracts with companies from donor countries which creates incentives for the companies to put pressure towards aid disbursement we use a multi agent triadic model of the relationships between a recipient and two donors and two companies to illustrate that recipients may act strategically to make third parties like companies and others influence the disbursement decision failing to take account of third parties role yields the opposite result conditionality becomes successful

the aid effectiveness literature the sad results of 40 years of research abstract the aid effectiveness literature ael consists of empirical macroeconomic estimates of the effects of development aid by the end of 2004 it comprised 97 econometric studies of three families of related effects each family has been analyzed in a separate meta analysis the ael is an ideal subject for meta analysis as it uses only a few formally similar models to estimate the same underlying effects it is also an area with strong beliefs often generated by altruism when this whole literature is examined a clear pattern emerges after 40 years of development aid the preponderance of the evidence indicates that aid has not been effective we show that the distribution of results is significantly asymmetric reflecting the reluctance of the research community to publish negative results the dutch disease effect on exchange rates provides a plausible explanation for the observed aid ineffectiveness

the macroeconomic impact of development aid a critical survey the early literature explained aid s macroeconomic impact in the context of the dual gap model showing a clear link between aid and growth many now believe that the empirical evidence shows there to be no such relationship this paper critically reviews the different theoretical perspectives the dual gap model the savings debate recipient fiscal response and aid as dutch disease and the empirical debates on aid savings and growth the basis for denying a relationship between aid and growth is shown to be weak though more recent areas of research offer promising directions for future work

learning by doing and the dutch disease this paper develops a model of learning by doing and the dutch disease that extends the earlier literature in two ways first it is assumed that both the traded and the non traded sector can contribute to learning second it is assumed that there are learning spillovers between the sectors it is shown that within such a model a foreign exchange gift results in a real exchange rate depreciation in the long run due to a shift in the steady state relative productivity between the traded and the non traded sector in contrast to standard models of the dutch disease production and productivity in both sectors may go up or down the conditions for the different cases are worked out

does the samaritan s dilemma matter evidence from u s agriculture the samaritan s dilemma posits a downside to charity recipients may rely on free aid instead of their own efforts anecdotally the expectation of free assistance is thought to be important for decisions about insurance and risky behavior in numerous settings but reliable empirical evidence is scarce we estimate whether the samaritan s dilemma exists in u s agriculture where both private crop insurance and frequent federal disaster assistance are present we find that bailout expectations are qualitatively and quantitatively important for the insurance decision furthermore aid expectations reduce both expenditure on farm inputs and subsequent crop revenue jel d72 h84 q18

trade policy and growth of developing countries some new data abstract the present study provides empirical evidence on trade policy and economic growth of developing countries our data indicate that adverse changes in world demand carried greater weight in determining export performance than changes in trade policy the results presented confirm that high growth rates of export earnings occur only when external demand to strong low income countries are shown to fare worse across all time periods though there are regional variations these are not due solely to differences in trade policy thus an outward oriented policy is not necessarily a valid policy recommendation for all conditions and all countries

aid investment and incentives promoting productive investment and economic growth are among the key objectives of most aid organizations operating in poor countries however it is not possible to conclude from existing empirical evidence that aid contributes positively to growth in this paper it is shown that those rather negative results may be explained by important incentive problems built into the aid system itself the recipient countries own efforts to contribute to investment and growth may in reality be undermined and the result may be aid dependency

international charity for the poor i introduction charities transfer billions of dollars annually to help people in other countries survive famines and other hardships due to natural and man made disasters such as droughts and civil wars in this article we address the difficulties charities have ensuring the survival of the life threatened poor overseas without exacerbating income inequality encouraging free riding or undermining recipient countries incentives to invest in the kinds of public works that could reduce their needs international charitable activities are subject to moral hazard principal agent and adverse selection problems due to information asymmetries thus too little charity can go to the truly needy and too much to countries that exaggerate their needs and or shirk indeed the empirical literature is rich with evidence of these effects for example lele and jain 1991 ruttan 1993 kanbur et al 1994 maren 1997 and the world bank 1998 document the disincentive effects of aid alesina and weder 1999 show that more aid goes to countries that are more corrupt cashel cordo and craig 1997 provide empirical evidence that the more aid a country receives the less it taxes cashel cordo and craig 1997 found statistically significant evidence of an inverse relationship between the amount of soft aid grants received and the amount of tax revenues subsequently collected by recipient governments in addition to this evidence of shirking they also found significant evidence of fungibility in which the recipient government spends released funds on other nontargeted budget items furthermore they show that donors appear to be complicit in this fungibility larger soft aid is associated with higher institutional spending such as for public administrators salaries inflows of hard aid loans targeted explicitly to economic development or public works projects show up in expanded spending on social services not expanded investment in public works alesina and weder 1999 found statistically significant evidence of a positive relationship between the share of aid in a government s budget and corruption they argued that high corruption may imply that domestically raised public resources are low and that a higher fraction of public resources are covered by foreign aid 14 also according to tornell and lane s 1999 voracity effect when power over redistributive mechanisms is highly concentrated aid encourages shirking by recipient governments thus in this article we model charities that expect recipients to reallocate revenues but not to reduce tax collections or spending on public works to formally analyze this international income transfer problem we apply the mechanism design techniques of laffont and tirole 1986 that have proven very useful in the design of domestic income maintenance programs there is a long tradition of optimal tax income maintenance program design literature about how aid encourages personal choices that are socially inefficient or self enriching see for example mirlees 1971 besley and coate 1992 or crane 1996 the key issue is that participants may reduce work effort or migrate to qualify for more benefits the impacts of information asymmetries on domestic program costs and implementation are also well known as in besley and coate 1991 1995 but with the exception of besley and coate 1998 the emphasis in that literature is on the design of domestic policies with respect to the incentives of individuals in this article we focus on charity with respect to the incentives of national governments our work on this problem is motivated by the desire to design programs that can address acute life threatening poverty defined as the inability to acquire the level of consumption goods necessary for life as in sen 1985 or ravaillon 1997 we assume that the charitable objective is that everyone has at least a minimum income

the impact of globalization on small and medium enterprises new challenges for tourism policies in european countries abstract the pressure of globalization is having a major impact on the small and medium enterprises smes of the european tourism industry globally acting suppliers decreasing transportation costs and emerging new destinations have put pressure on the european smes in traditional destinations as many european countries are economically very dependent on tourism a need for effective policy support arises the paper focuses on the questions what could be done to restore the european tourism industry as a growth engine for income and employment as well as what roles should the government sector and the private sector respectively play the implementation of flexible operating network alliances and holistic destination management techniques geared to meet post modern tourism demand are suggested to alleviate the impacts of globalization on smes

us food aid and civil conflict we study the effect of us food aid on conflict in recipient countries our analysis exploits time variation in food aid shipments due to changes in us wheat production and cross sectional variation in a country s tendency to receive any us food aid according to our estimates an increase in us food aid increases the incidence and duration of civil conflicts but has no robust effect on interstate conflicts or the onset of civil conflicts we also provide suggestive evidence that the effects are most pronounced in countries with a recent history of civil conflict jel d74 f35 o17 o19 q11 q18 we are unable to determine whether our aid helps or hinders one or more parties to the conflict it is clear that the losses particularly looted assets constitutes a serious barrier to the efficient and effective provision of assistance and can contribute to the war economy this raises a serious challenge for the humanitarian community can humanitarians be accused of fueling or prolonging the conflict in these two countries medecins sans frontieres amsterdam 1

what explains the success or failure of structural adjustment programs in the 1980s development assistance shifted largely from financing investments such as roads and dams to promoting policy reform this change came because of a growing awareness that developing countries were held back more by poor policies than by a lack of finance for investment after nearly 20 years experience with policy based or conditional lending there have now been many studies of adjustment lending most of which take a case study approach many conclude that policy based lending works if countries have decided on their own to reform the authors examine a database of 220 world bank supported reform programs to identify why adjustment programs succeed or fail they find that a few political economy variables can successfully predict the outcome of an adjustment loan 75 percent of the time variables under the world bank s control resources devoted to preparation and supervision or number of conditions have no relationship with an adjustment program s success or failure what development agencies must do then is select promising candidates for adjustment support when the candidates is a poor selection devoting more administrative resources or imposing more conditions will not increase the likelihood of successful reform to improve its success rate with adjustment lending the world bank must become more selective and do a better job of understanding which environments are promising for reform and which are not that is likely to lead to fewer adjustment loans unless there is a significant change in the number of promising reformers to become more effective at supporting policy reform the agency must be willing to accept that this may lead to smaller volumes of lending

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

aid flows and the international transfer problem in a structuralist north south model this paper analyzes the impact of increased aid flows from industrial to developing countries on growth in transferr ing and recipient countries one key variable in the analysis is the ter ms of trade which links the analysis to the classic transfer debate th e analysis is centered around policy simulations with a small structuralist general equilibrium model of north south interactions simulation exercises for a doubling of official development assistan ce up to the dac target of 0 7 percent of the gnp of the industrialized countries show the great sensitivity of the global adjustment proces ses to the way in which these transfers are financed the model results suggest that deficit financing under monetary constraints may trigge r a global recession and a secondary burden falls on the recipient countries in the form of a strong decline in their terms of trade tax financing or financing of the aid transfer through budget cuts can help to avoid the global recessionary effects and recipients may gai n from the aid transfer evidently the global economic environment an d macroeconomic policies in the industrialized countries are an import ant component in determining the effectiveness of aid to developing countries copyright 1993 by royal economic society

aid and performance a reassessment two visions of aid effectiveness and allocation are compared the first corresponding to the new aid paradigm argues that aid is only effective if domestic policies are appropriate the second in contrast argues that aid effectiveness depends on the external and climatic environment the worse this environment or the more vulnerable the recipient countries the greater the effectiveness of aid cross sectional econometric tests related to gdp growth on two 12 year pooled periods clearly favour the second view the two views can be reconciled through the principle of performance based aid allocation where performance is defined as outcomes adjusted for the impact of environmental factors performance can then be measured in several manners which are subject to comparison one approach would lead one to allocate more aid the worse the external environment is for a given policy and the better the policy is for a given environment