nep-afr New Economics Papers
on Africa
Issue of 2005‒09‒17
four papers chosen by
Suzanne McCoskey
Foreign Service Institute, US Department of State

  1. Ghost of 0.7%: Origins and Relevance of the International Aid Target By Michael Clemens; Todd Moss
  2. Institutions, Social Capital, and Economic Development in Africa: An Empirical Study. By Mina Baliamoune-Lutz
  3. Estimating the Quality of Economic Governance: A Cross-Country Analysis By Sudip Ranjan Basu
  4. Globalization and International Conflict: Can FDI Increase Peace? By Solomon Polachek; Carlos Seiglie; Jun Xiang

  1. By: Michael Clemens (Center for Global Development); Todd Moss (Center for Global Development)
    Abstract: The international goal for rich countries to devote 0.7% of their national income to development assistance has become a cause célèbre for aid activists and has been accepted in many official quarters as the legitimate target for aid budgets. The origins of the target, however, raise serious questions about its relevance. First, the 0.7% target was calculated using a series of assumptions that are no longer true, and justified by a model that is no longer considered credible. When we use essentially the same method used to arrive at 0.7% in the early 1960s and apply today’s conditions, it yields an aid goal of just 0.01% of rich-country GDP for the poorest countries and negative aid flows to the developing world as a whole. We do not claim in any way that this is the 'right' amount of aid, but only that this exercise lays bare the folly of the initial method and the subsequent unreflective commitment to the 0.7% aid goal. Second, we document the fact that, despite frequent misinterpretation of UN documents, no government ever agreed in a UN forum to actually reach 0.7%—though many pledged to move toward it. Third, we argue that aid as a fraction of rich country income does not constitute a meaningful metric for the adequacy of aid flows. It would be far better to estimate aid needs by starting on the recipient side with a meaningful model of how aid affects development. Although aid certainly has positive impacts in many circumstances, our quantitative understanding of this relationship is too poor to accurately conduct such a tally. The 0.7% target began life as a lobbying tool, and stretching it to become a functional target for real aid budgets across all donors is to exalt it beyond reason. That no longer makes any sense, if it ever did.
    Keywords: aid, foreign aid, development, mdg, mdgs, millennium development goals, oda, united nations, un, overseas development assistance, africa
    JEL: O19
    Date: 2005–09–07
  2. By: Mina Baliamoune-Lutz
    Abstract: Using 1975-2000 panel data, this paper examines the effects of institutions and social capital, in the form of generalized trust (proxied by contract-intensive money), on economic development in 39 African countries. The results indicate that there is a robust positive influence of social capital on income. In addition, the interaction between social capital and institutional quality, and the interaction of social capital with human capital also have a positive influence on economic development. On the other hand, institutions do not seem to have an independent effect (or may even have a negative impact) on income. Overall, the empirical results suggest that social capital and institutions in Africa may be complements rather than substitutes.
    Date: 2005–07
  3. By: Sudip Ranjan Basu (Graduate Institute of International Studies HEI , Geneva)
    Abstract: This paper proposes a methodology to combine different dimensions of economic governance into a combined index. The quality of economic governance index (QEGI) is estimated as the weighted average of principal components of the standardised economic governance indicators, where weights are variances of successive principal components. The paper reports the QEGI for 71 developing and transition economies in 1998-2000. The evidence from a simple scatter diagram and a cross country regression analysis indicates that the better economic governance positively affects the economic performance (e.g., rise in per capita income, decline in poverty level, etc.) for sample of countries in our analysis.
    Keywords: Economic governance,Economic performance, Cross-country analysis, principal component.
    JEL: C1 O1 N4
    Date: 2005–09–08
  4. By: Solomon Polachek; Carlos Seiglie; Jun Xiang
    Abstract: This paper extends the analysis of the conflict-trade relationship by introducing foreign direct investment (FDI). We present a formal model that shows why FDI can improve international relations. We then proceed to test the model empirically. Our empirical results in fact show that foreign direct investment plays a similar role to trade in affecting international interactions. More specifically, we find that the flow of FDI has reduced the degree of international conflict and encouraged cooperation between dyads during the period of the late 1980 and the decade of the 90s. This is an especially important finding since one of the main characteristics of globalization has been the reduction of barriers to international capital flows. As a consequence, these have expanded enormously relative to trade flows. Finally, we also find that trade and FDI complement each other in reducing conflict. The policy implication of our finding is that further international cooperation in reducing barriers to both trade and capital flows can promote a more peaceful world.
    Keywords: Foreign Direct Investment, Conflict, Trade
    JEL: H56 F21
    Date: 2005–09

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