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Development Cooperation - Evaluation and New Approaches

Editors: Ahrens, Heinz

Schriften des Vereins für Socialpolitik, Vol. 308

(2005)

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Abstract

This volume represents some of the Proceedings of the Annual Meeting of the Research Committee on Development Economics (Ausschuss für Entwicklungsländer) of the German Economic Association (Verein für Socialpolitik) held in Cologne, Germany, in July 2004. The meeting focused on the effectiveness of, and new approaches in, development cooperation. Both issues have become increasingly important in recent years in view of the declining volume of budget funds allocated to development cooperation.

The papers discussing the effectiveness of foreign aid shed new light on the issue at a crucial moment where economists have begun to question the recent consensus that the productivity of aid mainly depends on the recipient country's policy environment. As far as the contributions dealing with new approaches in development cooperation are concerned, these are centred on a closer integration of the private sector, by joint action with so-called lead firms in production networks on the one hand, and the mobilization of additional financial resources from international capital markets for bilateral development cooperation, on the other. The authors also make suggestions concerning critical aspects relevant for implementation. The last part of this volume is dedicated to an assessment of low-income countries' pension schemes based on the human capital approach.
This volume represents some of the Proceedings of the Annual Meeting of the Research Committee on Development Economics (Ausschuss für Entwicklungsländer) of the German Economic Association (Verein für Socialpolitik) held in Cologne, Germany, in July 2004. The meeting focused on the effectiveness of, and new approaches in, development cooperation. Both issues have become increasingly important in recent years in view of the declining volume of budget funds allocated to development cooperation.

The papers discussing the effectiveness of foreign aid shed new light on the issue at a crucial moment where economists have begun to question the recent consensus that the productivity of aid mainly depends on the recipient country's policy environment. As far as the contributions dealing with new approaches in development cooperation are concerned, these are centred on a closer integration of the private sector, by joint action with so-called lead firms in production networks on the one hand, and the mobilization of additional financial resources from international capital markets for bilateral development cooperation, on the other. The authors also make suggestions concerning critical aspects relevant for implementation. The last part of this volume is dedicated to an assessment of low-income countries' pension schemes based on the human capital approach.

Table of Contents

Section Title Page Action Price
Preface 5
Contents 9
Philipp Harms and Matthias Lutz: The Macroeconomic Effects of Foreign Aid 11
A. Introduction 11
B. Using aid to overcome ‘gaps’ 13
I. Basic theory 13
II. Assessment 17
C. Using aid to overcome ‘poverty traps’ 18
I. Theory 18
II. Assessment 20
D. Evidence on aid, investment and growth 21
I. Hypotheses 21
II. The effect of aid on investment 22
III. The effect of aid on savings 24
IV. The effect of investment on growth 25
V. The effect of aid on growth 26
VI. The effect of aid on other aggregate variables 26
VII. Summary 27
E. Politics, policies, and institutions 27
I. Burnside and Dollar (2000) 27
II. Related studies 29
III. Critique 29
IV. Endogenous institutions and conditionality 32
F. Conclusions 34
References 35
Rainer Thiele: Aid Allocation and Aid Effectiveness 39
A. Introduction 39
B. The Collier/Dollar allocation rule 39
C. Some refinements of the Collier/Dollar allocation rule 42
D. Focusing on pro-poor expenditures 43
E. Accounting for geographical disadvantages 45
F. Concluding remarks 46
References 47
Tilman Altenburg: Cooperating With the Private Sector in Development Cooperation: Strategic Alliances with Lead Firms in Production Networks 49
A. Introduction 49
B. Increasing integration of production networks 51
I. Increasing efficiency and meeting technological demands 52
II. Compliance with standards 54
C. The increasing importance of lead firms 55
I. Lead firms as engines of innovation 56
II. Lead firms as coordinators of production networks 56
III. Lead firms as standard-setters 57
IV. Power relations and governance of production networks 58
D. Integration in production networks from the perspective of developing countries 59
I. Risks for developing countries 59
II. Opportunities for developing countries 61
E. Interests of lead firms versus interests of locations in developing countries 62
F. Opportunities for development cooperation 66
References 71
Jörn Altmann: Integrating the Private Sector into Development Cooperation 75
A. Comments on Altenburg’s paper 75
B. Complementary aspects 77
I. Private sector and poverty reduction 77
II. Dedication and commitment 78
III. WTO regulations and the private sector 79
1. General Agreement on Trade in Services (GATS) 79
2. Agreement on Trade-Related Investment Measures (TRIMs) 81
C. Approaches to integrating the private sector into development cooperation 82
I. Investment promotion in the investing and in the host country 82
II. Co-financing and build-operate-models 83
III. Capacity building by enterprises from industrialized countries 85
IV. Private capital funds 86
V. Micro-financing by “people’s banks” 86
VI. Integration of altruistic agents 86
VII. Cooperations between the private sector and NGOs 87
D. Concluding remarks 88
References 88
Rainer Durth: Tapping Financial Markets for Bilateral Development Cooperation 91
A. Millennium Development Goals, Poverty Reduction Strategy Papers, and donor coordination 91
B. Political challenges to the achievement of the MDG 92
I. Consequences of focusing MDG and PRSP on social indicators 92
II. Scarce financial resources 94
III. Relationship between bilateral and multilateral development cooperation 95
C. Complementarity as a criterion for designing bilateral German development cooperation 96
D. The instruments of German bilateral financial cooperation 98
I. FC grants and FC loans: pure budget funds 98
II. FC development loans: mixture of budget and market funds 99
III. FC promotional loans: market funds for official development investments 101
IV. DEG funds: market funds for development investment of the private sector 102
V. What does subsidiarity mean for financial cooperation? 103
VI. What role do economic risks play in development cooperation? 104
E. Outlook 105
References 106
Heiko Körner: Towards a Re-orientation of Poverty Reduction Programmes 107
I. 107
II. 108
III. 109
References 109
Oskar Gans: Economic Assessment of Pension Systems Based on the Human Capital Approach: The Outlook for Reform in Chile and Malaysia 111
A. On the efficiency of alternative pension systems 111
I. Traditional lines of argument 111
1. Efficient procedures 112
2. Efficient adjustment paths 113
II. The Human Capital foundation of pensions 115
1. Lucas’ overlapping generations model 115
2. The Becker/Murphy/Tamura model 118
3. Questions regarding the concrete shape of an efficient overall system 119
B. Chile’s government pension system 122
I. Complex starting situation 123
II. The new pension system 123
1. Characteristic features 123
2. Microeconomic and macroeconomic performance 125
III. Possibilities of Human Capital – based reform 125
C. Pension system in Malaysia 126
I. Starting situation 126
II. The “Employees Provident Fund” 127
1. Characteristic features 127
II. Microeconomic and macroeconomic performance 128
III. Possibility of a Human Capital – oriented reform 128
D. Summary 129
References 131
Rainer Marggraf: Family Decisions Affecting the Formation of Human Capital 133
A. A rational choice model of family economics 133
B. Implications 135
C. Normative analyses 137
References 138
List of authors 141