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The
development impact of aid in recipient countries has frequently been
very disappointing. In a series of projects we try to find out why in
order to be able to make policy recommendations for donors and
recipients.
In
the case of Bolivia, the problem seems to be that aid projects, and an
artificially large and generous public sector inflated by foreign aid,
are attracting scarce skilled workers away from local productive
activities, thus seriously limiting the country's capacity for
sustainable growth.
At
the same time, foreign aid tends to increase income inequality in the
country, because it creates many well-paid jobs for the well-educated,
while the poor receive toilets, environmental education, reproductive
advice and many other services that may or may not improve their
quality of life, but which generally do not improve their incomes.
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1)
The Dynamic Impacts of Aid on
Recipient Behavior
This project makes a micro-level analysis of the dynamic impacts of
remittances in order to understand how households change their behaviour
in response to the receipt of significant amounts of unconditional aid.
For this purpose we test how remittances affect school attendance, labor
supply, consumption patterns, investment propensities, and future social
mobility,
The data used for the project
consists of the two Living Standard Measurement Surveys conducted in
Nicaragua in 1998 and 2001. The huge advantage of this data is that it
follows the same persons over time. This kind of longitudinal data is
very rare in developing countries, but extremely useful since it allows
us to test causality, rather than just discovering correlations.
Nicaragua also provides an excellent case study of the impact of aid, as
the country receives substantial amounts of remittances (around 10% of
GDP) as well as substantial amounts of official development assistance
(also around 10% of GDP).
Lykke Andersen
Oscar Molina, Bent Jesper Christensen (University of Aarhus,
Denmark).
Global
Development Network and University of Aarhus. This project won
the 2004 Global Development Award for Outstanding Research on
Development.
2) The
Effectiveness of Foreign Aid in Bolivia
The project investigates the effectiveness of foreign aid in
Bolivia. When comparing accumulated aid in each sector during the period
1998-2002 with the progress in each sector during the same period, it
becomes clear that the four sectors receiving by far the most aid
(Institutional strengthening, Rural Development, Roads, and Budget
support) have shown disappointingly little progress. When the impact of
aid is analyzed in a Computable General Equilibrium model, it becomes
clear that aid tends to have a positive effect on growth, but only in
the short run, and it tends to have an adverse effect on the income
distribution.
Lykke Andersen
José Luis Evia.
British Development Cooperation (DFID), Spanish Development Cooperation,
Fundación Milenio.
3) Foreign
Aid and Productivity
The paper reexamines empirically the robustness of competing theories of
foreign aid effectiveness. By shifting the focus from the effects of aid
on income to effects of aid on productivity, it is possible to put to
test 3 existing theories of foreign aid effectiveness. The results
provide support for the hypotheses that (i) aid has a positive effect in
fostering growth of average productivity, (ii) aid doesn't operate with
diminishing returns, and (iii) the magnitude of the total effect depends
on climate-related circumstances. The results support the policy
recommendation previously made in the literature to seriously reconsider
the conditionality rule for foreign aid disbursements.
Pablo Selaya
University of Copenhagen,
Denmark.
4) Labor
Mobility in Bolivia: On-the-job Search Behavior of Private and Public
Sector Employees
This project compares on-the-job search behavior of employees in the
private and public sector in Bolivia. The empirical evidence indicates
that skilled workers are scarce, and that the private sector has trouble
attracting and maintaining the skilled workers they need, as skilled
workers are attracted by the much more favorable working conditions in
the public sector (higher salaries, shorter working hours, more
job-security, worker benefits). The imbalance between private and public
sector pay is likely created by the large amounts of foreign aid inflows
to the government (about 10% of GDP).
Lykke Andersen
Bent Jesper Christensen (University of Aarhus, Denmark), Claudia
Delgadillo.
University of Aarhus.
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