CONTENT

1) Summery of papers2) Conclusion of papers3) Critique of papers4) From perspective of AID receiving country5) From perspective of AID sending country6) Conclusion of presentation

Good policies• Fiscal – Budget surplus• Monetary – Low inflation• Trade – Opennes

• AID can fill the financial GAP (Saving), there for it will be investment, then economic growth.

• Sachs and Warner 1995

Summary of papers

Aid, Policies and Growth Does Aid has an impact on growth?

Do donors favor good policy? On average AID has little impact on

growth Positive impact on countries with good

fiscal, monetary and trade policies No significant tendancy for favor of good

policy Trend towards better policy among poor

countriesCraig Burnside and David Dollar

On the Empirics of the Foreign Aid and Growth

Significant growth in aid per capita Positive impact on countries with

good policies

Carl-Johan Dalgaard, Henrik Hansen and Finn Tarp

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

AID on growth Is uncertainty of Aid inflow

important?

Stability of Aid flow is important• Effects the level of investment

Could constrain policy Effects fiscal behavior

Robert Lensink and Oliver Morrissey

Can Foreign Aid Buy Growth

Good policy is insignificant factorIntroduction of Alternative good

policy Black market premiumM2/GDPInsignificant

William Easterly

Conclusion

• Aid investment growth theory is in fact important and sound very good.

• But empirically there is a little proof.

Critique

• Good Policy?–Normative Statement v.s. Positive

Statement

• Aid is positively correlated to economic growth.– Positive Statement

• Budget surplus, low inflation, and openness are good policies.–Normative Statement

Critique

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

JapanConstitution: no military7th “military” expenditure

Costa RicaConstitution: no military “0” expenditure for military Border Guards (Police?)

Source: Stockholm International Peace Research Institute

Critique

• Development of Nation = Nation Building?–Marshall Plan (Europe)• George Marshall, U.S. Secretary of State

1. Long-term support from outside– Steadily, Politically and financially

2. Strong leadership from inside

Haiti

Haiti’s development– Jeffery Sachs, Special Adviser to S.G. of

U.N.• Haiti’s recovery has to start now.• Reconstruction: Big money!!

– Dominique Strauss-Kahn, IMF Managing Director• 1. “Nation has to be on driver’s seat.”• 2. “need long-term commitment from

outside.”

Critique

• How do we know aid receiving countries are doing their best?

• Four possible scenarios (Game Theory?)

Critique

• In summary…• Good policies are not universal for

everyone.• Policy effects differ from country to

country.– Cultural factor?

• If the country actually grow, it will lose aid

(free money?). Aid addiction?

AID to Georgia

Receiving

Help to Georgia from 94 to 2003

as Loan/Grant

• USAID projects in Geogia – 2.3 Billion USD

• EU – 800 Million USD• Other Countries - 940 Million USD

Georgian department of Statistics

• USAID projects in Geogia – 1.2 Billion USD

• EU – 1,4 Billion USD• Other Countries - 760 Million USD

JUST in 2008-2010 Georgia received and will receive

(main aim of AID is to help Georgia rebuild infrastructure and reserves, destroyer after

war with Russia in August 2008)

750 Million (IMF)500 Million (EU)

1 Billion (US)TOTAL: 2,25 Billion USD

Georgian department of Statistics

Georgian department of Statistics

Small Conclusion about Georgia• Financial AID received by the country in 90s and

00s is significant but the effectivness of the AID is very different.

• The main reason of Economic grow supported by international AID in last years was good management (even tho it is not the best one) we have significant changes in standarts of living and economic growth in whole country.

• Georig is very good example of

Aid Receiving Country

• Which country is this?– Two US officials on an aid mission, in 1950,

said this country would have trouble competing on world market.

– The US Secretary of State, in 1954, held up a cheap shirt from this country as evidence how far they were behind.

– An Australian expert said workers in this country were easygoing and impossible to change.

– The World Bank’s largest single borrower from 1953 to 1966.

Source: Gurrerro

Aid Receiving Country

• The Answer is…• Japan!!

Aid Receiving Country

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

Once upon a time…

• After the World War II in Japan…

Once upon a time…

• School started…

Japan’s Saving Rate

Source: Gurrerro

Aid Receiving Country (Japan)

• In case of Japan…– Cultural factor• Education• Work ethics (?)• Social Goals

– Three Things you have to have ( 三種の神器 )» TV, refrigerator, washing machine (1950’s)» 3C: Color TV, Air Conditioner, Car (1960’s)» Digital camera, DVD recorder, flat-screen TV» Personal computer, cell phone, Play Station

Tokyo Now…

Aid Receiving Country (Japan)

• Can you measure cultural factor?• Can you model cultural factor?–May predict no education because no

facility

• What you receive v.s. How you receive

Aid Sending Country (Japan)

• ODA to Poland…– Ended in 2007 due to out of Development

Assistance Committee (DAC) list in 2005– Loan: Total $ 213 million– Grant: Total $ 40 million– Technological Support: Total $ 90 million

• Last grant made in 2003 was for…

Source: Minister of Foreign Affairs

Aid Sending Country

• Official Development Aid (ODA) in 2007–U.S. $ 22 billion– Japan $ 13 billion– Germany $12 billion– Poland $ 363 million• China (People’s Republic of)… $0 million• China (Republic of)… $ 516 million

Source: OECD 2008; adjusted to 2006 price and exchange rate

Aid Sending Country (Japan)

• ODA to China…– Built Beijing Airport ($ 300 million)– Built Shanghai Airport ($ 400 million)– Loan: Total $ 21 billion• Paid back: only $ 9 billion

– Grant: Total $ 1.4 billion– Tech. Support: Total $ 1.4 billion

Source: Minister of Foreign Affairs

Aid Sending Country

• World Bank Contributors–U.S. $39 billion (22%)– Japan $34 billion (20%)– Germany $20 billion (11%)

– Poland $86 million (0.05%)– China $0 million (0.00%)

Source: World Bank

World Bank Loan

• China– Lend: $37 billion– Repaid: $16 billion– Obligation: $22 billion

• Africa– Lend: $31 billion– Repaid: $0– Obligation: $10 billion

Source: World Bank

Conclusion

• There is something you can measure by numbers; there is also you cannot measure by numbers.

• Aid from outside can help economic growth of developing countries in certain extent.

• But, economic growth is depending on people inside of the countries.

Lastly…

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

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Thank you

• More question?