Much of the current popular debate about foreign aid is based on the assumption that the poorest countries are in a poverty trap. The usual mechanisms suggested to explain the poverty trap are inadequate saving and increasing returns to investment, and foreign aid is offered as a way to escape poverty traps. How do these explanations for low growth of the poorest countries fare against alternative explanations, such as bad government and institutions? Preliminary results indicate that the poorest countries grow more slowly than the rest only during some time periods (especially recent ones), but not others. Bad government is the main explanation of the slower growth in these periods rather than the conventional mechanisms for the poverty trap, which in turn would suggest a different role for foreign aid.
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)