FRAMEWORK AND TECHNIQUE
B) The growth Equations
V. CONCLUDING REMARKS
V.
CONCLUDING REMARKSThis thesis examined the role of foreign aid on growth, it also examined the role governance play on the effectiveness of aid vis-à-vis economic growth.
This was done by empirical investigation of a number of questions. The first question was if poor countries get more aid than rich countries. The results confirmed that poor countries get more aid and this was significant at the 1% level. The second question asked about the impact of foreign aid on growth. Consistent with other findings foreign aid has had very insignificant impact on the growth of developing countries. Finally concerning the question on whether improvement in governance enhances the effectiveness of aid, I found no significant correlation between growth and aid interacted with the governance indicators.
There has been a lot of believe that government is the cause of under development and aid ineffectiveness, but this thesis has not confirmed this.
Actually the period of heated debates and doubts among writers, researchers, donor governments and aid agencies about the impact of aid on growth of developing countries has dragged on for several decades. Considering the aid allocation, improvement in governance, and looking at the picture is in terms of growth, It is my opinion that donor bodies adjust allocation criteria and procedure and maybe try out the following propositions
-donors should take up more hands-on coordinative and supervisory role to make sure aid trickles down to the appropriate quarters: the rural poor and also used on intended development projects.
- From the empirical results, lump sum aid is found to have no significant correlation with growth, so donors might try to identify the development objectives of the needy recipients and tailor aid packages according to studied problems and projects. I feel that if this is done efficiency might prevail than when allocation is base on conditionality. Conditionality in a way promotes eye-service. This is because recipient government will design theoretical policies aim at fulfilling conditions set by donors in other to receive the aid after which
the situation remain same. On the other hand, as noted in (South Centre, International Commodity Problems and Policies. The Key Issues for Developing Countries, South Centre, Geneva, 1996) and (Non-Aligned Movement, The Continuing Debt Crisis of Developing Countries, Report of the Non-Aligned Movement Ad Hoc Advisory Group of Experts on Debt, 1994.), both public and private flows in their different ways impinge considerably on developing countries' decision-making and sovereignty. Conditionalities of the multilateral financial institutions and bilateral donors, and the preferences and structures of investors and the market, exert a powerful influence on social and economic policy choices and on the political framework. The pervasiveness of Northern influence is such that many developing countries loss sense a of control over their own destinies.
- The control of corruption has been found to be positively correlated with growth though not significant, so emphasis should be laid on this aspect of governance to archive better results on economic growth. Also the interaction terms between aid and voice and accountability(Aid/GDP*va) and aid and regulatory quality(Aid/GDP*rq) are also positively correlated with growth thus donor government and agencies may emphasize on these aspects of governance so as to render aid more effective vis-à-vis economic growth.
Recipient governments should also be forward looking and growth-oriented in their policies.
Myopic governments are hardly forward looking, so they should be closely monitored probably by an autonomous coordinating and supervisory body. But then the problem still arises : who monitors the monitor (Alchian and Demsetz, 1972). If donors suppose that a lot of aid has been given to the developing with minimal results, then it is equally a challenge to donor bodies as well. Proposals are that there should be checks and balances at both levels. At the level of donors, it should be made sure that aid disbursed is development aid per se. At the level of the recipients, there should be accountability in the execution of the aid funds and ordained projects seen to finishing points. With this it may be hoped that some change may come sometimes in the nearest future. Thus, monitoring development aid flows is of absolute necessity because of their economic significance to the developing world.
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Appendix 1 An extract (1998-2000) of the World wide Governance Indicator data set(WGI
Croatia 1998 -1.68 0.07 -0.48 -1.06 -0.5 -0.29
Mexico 2000 0.09 -0.11 0.35 0.68 -0.38 0.37
Trinidad &Tobago 1998 0.92 0.68 0.54 0.82 0.38 -0.45
Trinidad &Tobago 2000 0.61 0.42 0.64 0.81 0.47 -0.63
Tunisia 1998 -0.92 0.48 0.86 0.5 0.44 0.13
Tunisia 2000 -0.71 0.73 1.24 0.37 0.44 0.38
Turkey 1998 -0.92 -1.1 -0.31 0.86 0.19 0.11
Turkey 2000 -0.65 -1.01 -0.07 0.24 -0.28 0.7
Uganda 1998 -0.61 -0.95 -0.11 0.42 -0.11 -0.01
Uganda 2000 -0.94 -1.35 -0.16 0.16 -0.58 0.05
Uruguay 1998 0.74 0.6 0.67 1.02 0.54 -0.62
Uruguay 2000 1.04 1.04 0.71 1.05 0.65 -0.86
Venezuela 1998 0.16 -0.37 -0.89 0.13 -0.64 0.42
Venezuela 2000 -0.33 -0.44 -0.83 -0.55 -0.82 0.76
Zimbabwe 1998 -0.73 -0.37 -1.06 -0.35 0 -0.56
Zimbabwe 2000 -0.97 -1.21 -1.13 -1.61 -0.74 -0.82