THEORYANDPRACTICEOFFOREIGNAID FRONTIERS OF ECONOMICS AND GLOBALIZATION 1 SeriesEditors: HAMIDBELADI UniversityofTexasatSanAntonio,USA E.KWANCHOI IowaStateUniversity,USA Amsterdam–Boston–Heidelberg–London–NewYork–Oxford–Paris SanDiego–SanFrancisco–Singapore–Sydney–Tokyo THEORY AND PRACTICE OF FOREIGN AID Editedby SajalLahiri VandeveerProfessorofEconomics, SouthernIllinoisUniversityatCarbondale,USA Amsterdam–Boston–Heidelberg–London–NewYork–Oxford–Paris SanDiego–SanFrancisco–Singapore–Sydney–Tokyo Elsevier Radarweg29,POBox211,1000AEAmsterdam,TheNetherlands TheBoulevard,LangfordLane,Kidlington,OxfordOX51GB,UK Firstedition2007 Copyright©2007ElsevierB.V.Allrightsreserved Nopartofthispublicationmaybereproduced,storedinaretrievalsystemortransmittedinanyform orbyanymeanselectronic,mechanical,photocopying,recordingorotherwisewithoutthepriorwritten permissionofthepublisher PermissionsmaybesoughtdirectlyfromElsevier’sScience&TechnologyRightsDepartmentinOx- ford,UK:phone(+44)(0)1865843830;fax(+44)(0)1865853333;email:[email protected]. AlternativelyyoucansubmityourrequestonlinebyvisitingtheElsevierwebsiteathttp://elsevier.com/ locate/permissions,andselectingObtainingpermissiontouseElseviermaterial Notice Noresponsibilityisassumedbythepublisherforanyinjuryand/ordamagetopersonsorpropertyas amatterofproductsliability,negligenceorotherwise,orfromanyuseoroperationofanymethods, products,instructionsorideascontainedinthematerialherein.Becauseofrapidadvancesinthemed- icalsciences,inparticular,independentverificationofdiagnosesanddrugdosagesshouldbemade LibraryofCongressCataloging-in-PublicationData AcatalogrecordforthisbookisavailablefromtheLibraryofCongress BritishLibraryCataloguinginPublicationData AcataloguerecordforthisbookisavailablefromtheBritishLibrary ISBN-13:978-0-444-52765-3 ISSN: 1574-8715 ForinformationonallElsevierpublications visitourwebsiteatbooks.elsevier.com PrintedandboundinTheNetherlands 07 08 09 10 11 10 9 8 7 6 5 4 3 2 1 Inmemoryofmyparents Dipaliand Samarendra NathLahiri This page intentionally left blank ABOUTTHESERIES: FRONTIERSOFECONOMICSANDGLOBALIZATION Thisseriesisaimedateconomistsandfinancialeconomistsworldwideandwillpro- videanindepthlookatcurrentglobaltopics.Eachvolumeintheserieswillfocuson specialized topics for greater understanding of the chosen subject and provide a de- taileddiscussionofemergingissues.Thetargetaudiencesareprofessionalresearchers, graduatestudents,andpolicymakers.Itwilloffercutting-edgeviewsonnewhorizons anddeepentheunderstandingintheseemergingtopics. Withcontributionsfromleadingresearchers,eachvolumepresentsafreshlookat today’s current topics. This series will present primarily original works, and employ referencesappropriatetothetopicbeingexplored. Each volume will bring a set of highly concentrated articles that will provide in depth knowledge to a target audience, while the entire series will appeal to a wide audiencebyprovidingthemwithdeeperknowledgeonabroadsetofemergingtopics intheglobaleconomy. TheFrontiersofEconomicsandGlobalizationserieswillpublishontopicssuchas: – FrontiersofTradeNegotiations – FrontiersofDerivativePricing – FrontiersofInternationalLendingandDebtproblems – FrontiersofEconomicsIntegration – FrontiersofTradeandEnvironment – FrontiersofForeignExchange – FrontiersofInternationalFinance – FrontiersofGrowthofOpenEconomies – FrontiersofFuturesPricing – FrontiersofInternationalFinancialMarkets – FrontiersofInvestmentBanking – FrontiersofMergersandAcquisitions – FrontiersofGovernmentPolicyandRegulations – FrontiersofMulti-SectorGrowthModels – FrontiersofIntellectualPropertyRights – FrontiersofFragmentationsandOutsourcing SeriesEditors HamidBeladi E.KwanChoi This page intentionally left blank ABOUTTHEVOLUME AbouttheEditor:SajalLahiriistheVandeveerProfessorofEconomicsattheSouth- ernIllinoisUniversity–Carbondale;hasworkedasconsultantstotheFAO,IFAD,and theWorldBank;haswrittenextensivelyintopeconomicsjournalsonissuesrelatedto developmentingeneralandtoforeignaidinparticular. About the Volume: The volume contains contributions on both the theoretical and empiricalsidesoftheliteratureonaid,andhasequalemphasisonboth.Onthetheo- reticalside,theanalysisofthetransferparadoxhasevolvedprimarilyinthecontextof traditionalstaticmodels.However,givendevelopmentsinthepolicyarenaaswellin thedisciplineitself,thereisaneedforfurtherdevelopmentsinthetheoreticalanalysis offoreignaid.Thetheoreticalcontributionsinthisvolumewilldopreciselythat.For example,aiddependence,theimpactofaidonsaving,investmentandgrowthcallsfor anintertemporalframework.Developmentofspatialeconomicscallsforintroduction ofthespatialdimensiontotheanalysisofforeignaid.Similarly,thepotentialroleof aid in conflict resolution, in improving the environment, in public good (infrastruc- tural) provision and in the establishment of good governance are some of the issues thetheoreticalcontributionsconsider. On the empirical side, the issue of the effectiveness of aid; fiscal implications of aid, the determinants of aid; the allocation criteria for aid; the relationship between aid and trade, and aid and poverty remain as important as ever. The contributions in this volume look at these issues from a number of different perspectives, using a number of different methodologies and different types of data sets (time series data fromAfrica,cross-countrydata,andpaneldata). Aim and Scope of the Volume: This volume contains a comprehensive analysis of foreign aid from both theoretical and empirical perspectives, written by leading re- searchersinthefield.Thebookshouldbeanessentialtoolforbothundergraduateand graduatestudentsofdevelopmentstudies,researchersinthefield,andpolicymakers trainedineconomics. Acknowledgements: I would like to thank all the authors for their cooperation, to mywifeDipaforhersupportandunderstanding,andtoProfessor HamidBeladifor immediateandhelpfulresponsestoallmyqueries.
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