OUPCORRECTEDPROOF–FINAL,29/3/2014,SPi TOXIC AID OUPCORRECTEDPROOF–FINAL,8/4/2014,SPi Toxic Aid Advance praise for “Opposingsidesonforeignaidfiercelydebatewhetheritspursgrowthoractually doesharm.SebastianEdwards’fascinatingtaleofaidinTanzaniasuggestsitcan doboth.HeremindsusthatthemorerecentsuccessofaidandreforminTanzania isundoingthedisastercausedbyaid’sdecades-longsupportofdomestictyranny andcorruption.Amust-readforbothsidesoftheaiddebate,orforallthosewho simplycareaboutpoverty.” WilliamEasterly,NewYorkUniversityandauthorofTheTyrannyofExperts: Economists,Dictators,andtheForgottenRightsofthePoor “Brilliant analysis from one of our leading thinkers on economic development. EdwardsplacestheexperienceofTanzaniainthebroaderandcontinuingdebate about the effectiveness of foreign aid. His sober and thorough dissection of the historical record leads to a powerful conclusion: the international assistance provided from 1961 to 1981 proved highly toxic, but outside support subse- quentlybecamemoreconstructive.Thiscontroversialvolumewillbecomeamust readforanyoneconcernedwithprosperityandstabilityaroundtheworld.” Simon Johnson, former chief economist of the International Monetary Fund andauthorof13Bankers “Tanzanianeconomicpoliciesresultedinadisasterofmonumentalproportions, aided and supported by most of the foreign aid community through the first several decades. Edwards provides an excellent insightful, balanced, and well- documentedanalysisoftheeconomy’simplosion,itsturnaroundinpoliciesand performance, and the role foreign aid providers played in the debacle and the recovery.Thisfirst-ratebookshouldberequiredreadingforallthoseinterestedin development policies and African economic development. It also provides an invaluable overview for those non-specialists wanting to learn more about the Tanzanianexperience.” AnneKrueger,ProfessorofEconomics,JohnsHopkinsUniversity, andHeraldL.andCarolineRichEmeritusProfessorofScience andHumanities,StanfordUniversity “In this compelling and highly readable account of the Tanzanian experience, SebastianEdwardsexposesthefaciledebateoverthequestionofwhetherforeign aidisharmfulorbeneficial.Bydistinguishingtheapproachesthathaveworked fromthosethathavefailed,Edwardsdemonstratesconvincinglythatthequestion cannotbeansweredunconditionally.Thisbookshouldberequiredreadingforall thoseinterestedhowforeignaidcanbeusedtoachievepositiveoutcomes.” Robert Lawrence, Albert L Williams Professor of International Trade and Investment,HarvardKennedySchool OUPCORRECTEDPROOF–FINAL,8/4/2014,SPi “This book is a must-read for anyone interested in African economic develop- ment.SebastianEdwardsisanexcitingnewvoiceinthedebateonforeignaidin Africa,andexpertlyusesthecaseofTanzaniatoshedlightonthegood-andthe bad - that aid can do. Employing the latest statistics, and drawing on his own extensive first-hand experience advising the Tanzanian government, Edwards weaves an engaging tale of failure and redemption in one of Africa’s most intriguing nations. I look forward to recommending this book to my friends, colleaguesandstudentsalike.” EdwardMiguel,OxfamProfessorinEnvironmentalandResourceEconomics, DepartmentofEconomics,UniversityofCalifornia,Berkeley,andauthorof Africa’sTurn “This engagingly written ‘analytical narrative’ fills a gap in the literature on development. It goes inside a country that has experienced failure (Tanzania 1961-1981)and,plausibly,success(1996totoday).Edwards’valuableinterpret- ation of this case exploits his vast experience and his mastery of the scholarly literature.Regardingthecontroversyover“doesforeignaidwork?”heshowshow theanswerdependsonthepoliciesandprobityofthecountry’sleaders.” RobertKlitgaard,ClaremontGraduateUniversityandauthor ofTropicalGangsters “InTanzaniaglobalacademicfashionshavebeenatypicallyinfluentialwithboth donors and governments. The resulting roller coaster is splendidly dissected in thisimportantbook.” PaulCollier,OxfordUniversityandauthorofTheBottomBillion “Doesforeignaidreallyhelpdevelopingcountriestodevelop?Ordoesitstandin thewayofdevelopmentbyenablingcorruptandrepressiveregimesthatpursue inappropriateeconomicpolicies?SebastianEdwards’importantvolumeonTan- zania provides compelling answers. With carefully marshalled economic data, Edwards shows that foreign aid may have been a critical factor in enabling the governmentofTanzaniatopursueeconomicallyruinouseconomicpoliciesdur- ing the two decades following independence. Beginning in the early 1980s, however,pressurefromtheforeignaidcommunitywasatleastequallyimportant inconvincingTanzaniatoundertakeneededandbeneficialeconomicreformsand inprovidingresourcestocarryoutthesereforms.” MichaelF.Lofchie,ProfessorofPoliticalScience,UCLAandauthorof ThePoliticalEconomyofTanzania OUPCORRECTEDPROOF–FINAL,29/3/2014,SPi About the Author Sebastian Edwards is the Henry Ford II Professor of International EconomicsattheAndersonGraduateSchoolofManagementandDepart- ment of Economics of the University of California, Los Angeles. He is a ResearchAssociateoftheNationalBureauofEconomicResearch,where hehasbeenCo-DirectoroftheAfricaProject,andChairmanoftheInter American Seminar on Economics. From 1993 to 1996 he was chief economist for Latin America at the World Bank. He has published 14 books, including two novels, and over 200 scholarly articles. He has been an advisor to numerous governments, financial institutions, and multi-nationalcompanies.ProfessorEdwardsisafrequentcommentator on economic matters on CNN and other cable outlets, and his op-ed pieceshavebeenpublishedbytheWallStreetJournal,theFinancialTimes, the Los Angeles Times, El País (Spain), La Vanguardia (Spain), and other newspapersfromaroundtheworld.HisbooksincludeLeftBehind:Latin America and the False Promise of Populism (University of Chicago Press, 2010) and Crisis and Reform in Latin America: From Despair to Hope (OxfordUniversityPress,1995).ProfessorEdwardswaseducatedatthe Universidad Católica de Chile. He became a Licenciado en Economía in 1975.HeearnedanIngenieroComercialdegreealsoin1975.Hereceived anMAineconomicsin1978,andaPhDineconomicsin1981,bothfrom theUniversityofChicago. OUPCORRECTEDPROOF–FINAL,29/3/2014,SPi Toxic Aid Economic collapse and recovery in Tanzania BY SEBASTIAN EDWARDS 1 OUPCORRECTEDPROOF–FINAL,29/3/2014,SPi 3 GreatClarendonStreet,Oxford,OX26DP, UnitedKingdom OxfordUniversityPressisadepartmentoftheUniversityofOxford. ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship, andeducationbypublishingworldwide.Oxfordisaregisteredtrademarkof OxfordUniversityPressintheUKandincertainothercountries #SebastianEdwards2014 Themoralrightsoftheauthorhavebeenasserted FirstEditionpublishedin2014 Impression:1 Allrightsreserved.Nopartofthispublicationmaybereproduced,storedin aretrievalsystem,ortransmitted,inanyformorbyanymeans,withoutthe priorpermissioninwritingofOxfordUniversityPress,orasexpresslypermitted bylaw,bylicence,orundertermsagreedwiththeappropriatereprographics rightsorganization.Enquiriesconcerningreproductionoutsidethescopeofthe aboveshouldbesenttotheRightsDepartment,OxfordUniversityPress,atthe addressabove Youmustnotcirculatethisworkinanyotherform andyoumustimposethissameconditiononanyacquirer PublishedintheUnitedStatesofAmericabyOxfordUniversityPress 198MadisonAvenue,NewYork,NY10016,UnitedStatesofAmerica BritishLibraryCataloguinginPublicationData Dataavailable LibraryofCongressControlNumber:2013950542 ISBN 978–0–19–870442–3 PrintedinGreatBritainbyClaysLtd,StIvesplc LinkstothirdpartywebsitesareprovidedbyOxfordingoodfaithand forinformationonly.Oxforddisclaimsanyresponsibilityforthematerials containedinanythirdpartywebsitereferencedinthiswork. OUPCORRECTEDPROOF–FINAL,29/3/2014,SPi This book is for Octavia OUPCORRECTEDPROOF–FINAL,29/3/2014,SPi OUPCORRECTEDPROOF–FINAL,29/3/2014,SPi Contents PrefaceandAcknowledgements xiii ListofTables xx ListofAbbreviations xxii 1. Tanzania:FinallyaSuccessStory? 1 2. Tanzania’sMarket-orientedReformsandEconomic Performance:The“OfficialStory” 9 3. TheWarofIdeasandForeignAid 21 3.1 AfricaandthePlanningApproachtoEconomicDevelopment 22 3.2 TheMarketApproachtoEconomicDevelopment:Fromthe “WashingtonConsensus”totheGlobalFinancialCrisis 29 3.3 InternationalAid:PoliciesandControversies 38 3.3.1 Theinconclusivenessofeconometricstudies 43 3.3.2 Thebitternessofrecentcontroversies 45 4. TheEvolutionofForeignAidtoTanzania,1961–2011 51 5. TheArushaDeclaration,ForeignAid,andtheCrisisof1979 63 5.1 Background:TheEarlyYearsofIndependence 66 5.2 TheArushaDeclaration 71 5.3 ImplementingtheArushaDeclaration:TheFirstSteps 74 5.4 TheSecondFive-YearPlan,Agriculture,andIndustrialization 76 5.5 ForeignAidandAfricanSocialism 81 5.6 Stagnation,Villagization,Agriculture,andtheThirdFive-YearPlan 85
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