Macro vulnerability in low income countries and aid responses
Macro vulnerability of the poor countries, an increasing concern of the international community, is analyzed as the risk that their development be hampered by the shocks they face, natural or external. Structural vulnerability mainly results from the size of the shocks and the exposure to the shocks, while general vulnerability also depends on resilience, mainly determined by policy. We first explain how, through instability, vulnerability affects growth and development, arguing four main points. The ex post effects are at least as important as the ex ante or risk effects. Instability affects productivity growth rather more than the level of investment. Primary or exogeneous instabilities lower growth through intermediate and policy related instabilities. Instability also increases the level of poverty (and child mortality), beyond its effects through the rate of growth. Second we examine how, for operational purposes, a synthetic measure of structural vulnerability can be obtained in an Economic Vulnerability Index (EVI), as that developed at the UN. The components of such a structural vulnerability indicator should be related both to the size of the natural and external shocks and to the exposure to these shocks. They should be averaged so that to reflect the interaction between shocks and exposure. The last part considers the implications for aid policy of the macro vulnerability of poor countries. It relies on the view that aid dampens consequences of vulnerability (i.e. vulnerability increases aid effectiveness) and that the aid volatility issue must be reexamined with this regard. Three aid responses are considered. Vulnerability (EVI) can be used as a criterion for aid allocation. Aid can be also designed as an insurance, if it can be disbursed quickly and effectively. Finally, but difficultly, aid can be oriented to contribute to the long-term reduction of vulnerability
Aid Effectiveness for Poverty Reduction: Lessons from Cross‑country Analyses, with a Special Focus on Vulnerable Countries
Introduction: focus of the paperFollowing the adoption of the MDG, particularly the first one that is to reduce poverty by half between 1995 and 2015, numerous studies have examined how external aid can contribute to their achievement. The formula "doubling aid to reduce the poverty by half" relied on the implicit assumption that aid was an effective instrument for poverty reduction. The formula and corresponding assumption have been debated. Two opposite views clearly appeared, one, represented by Jeffrey Sachs in his End of Poverty, underlining the need for a big push to get low income countries out of poverty traps, the other one, illustrated by the attacks of William Easterly against aid as a support of a big push and the idea of a poverty trap, and also including arguments about a limited absorptive capacity. Elsewhere we have argued that the absorptive capacity of aid depends on aid modalities and can be enhanced by a reform of aid, a way by which big push and absorptive capacity views can be reconciled and to which we come back later (Guillaumont and Guillaumont Jeanneney, 2010).Actually the academic debate on aid effectiveness of the first millennium decade has been dominated by another controversy, relying on cross country regressions and initiated by the highly influential paper of Burnside and Dollar (2000). After so many cross country studies following their paper, supporting or, more often, criticizing it, there seems to be a temptation to consider this research orientation as a deadlock and to switch to micro impact analysis. Whatever the importance and need of impact micro-analyses, we argue that it would be a dangerous dismissal to give up the cross-section approach, for several reasons. First the methodological weaknesses of many studies does not entail that other ones relying on better methodology and data cannot lead to more robust results. Second, since cross section studies on aid effectiveness will never be totally given up, there is a risk to see only the most provocative (and possibly least robust) retaining the attention of media and policy makers, a policy challenge to be kept in mind in the orientation of research. Finally micro studies and impact analyses, while they supply policy makers with useful information in a given context, are not an appropriate tool for assessing the impact of macro-economic features of countries on aid effectiveness.The aim of this paper, relying on results of the cross country literature on aid effectiveness, and drawing only on those we consider as particularly relevant and robust is to examine how aid can contribute to poverty reduction, with a special focus on the way it can address the vulnerability of many developing countries.
International Commodity Policy: A Quantitative Analysis
Part 1 The politics and economics of commodity agreements and compensation: 1. The history and politics of international commodity agreements and compensatory financing. 2. The economics of stabilization, an historical survey. Part 2 Compensatory financing - an economic evaluation of current programmes: 3. The IMF's compensatory financing facility. 4. Commodity-related financial compensation by the European community. 5. Food cereal import facility. Part 2 Commodity arrangements - an economic evaluation of current programmes: 6. The international coffee agreement. 7. The international natural rubber agreement. 8. The international cocoa agreements. 9. Commodity protocols. 10. A comparison and evaluation of the arrangements.