Aid, Institutions and Development

Aid, Institutions and Development

New Approaches to Growth, Governance and Poverty

Ashok Chakravarti

In spite of massive flows over the past 50 years, aid has failed to have any significant impact on development. Marginalization from the world economy and increases in absolute poverty are causing countries to degenerate into failed, oppressive and, in some cases, dangerous states. To address this malaise, Ashok Chakravarti argues that there should be more recognition of the role economic and political governance can play in achieving positive and sustainable development outcomes.

Chapter 7: The Way Ahead

Ashok Chakravarti

Subjects: development studies, development economics, economics and finance, development economics, politics and public policy, regulation and governance


The foregoing analysis has shown that aid has had a weak impact on key macro-economic, institutional and governance-related variables. It has not been an effective instrument for bringing about economic and social change in the developing world, and, to a large extent, has been a waste of scarce resources. Aid has been channelled to developing countries primarily through their respective governments who have predominantly used these resources to finance consumption or unproductive public investment. There are a few success stories. However, these belong to the small group of countries that have maintained a relatively non-distorted environment, and pursued a combination of orthodox policies at the macro-level with selective government interventions at a micro- or industry-level. Our study finds that certain factors are critical for high rates of growth and sustainable development to be achieved. These factors can be termed the preconditions for successful economic development. This conclusion is not only consistent with the historical experience of the East Asian countries, but with explanations of the differential growth performance of developing-country regions during the past 25 years or so. The fact that the growth convergence hypothesis seems to be valid for Asia but not for Africa shows that, apart from investment levels, take-off requires that the other preconditions are met (Ito, 1997). Take-off, therefore, is not merely a question of raising investment levels through domestic or foreign savings, as was postulated by development theorists in the early post-war period. The literature reviewed in this study provides a good indication of the...

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