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UNU-WIDER Aid and Rent-Driven Growth: Mauritania, Kenya and Mozambique Compared

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A teenager wears torn rubber boots in a muddy local market in Bac Ha, Viet Nam. As of 2005 figures, half the world population—more than 3 billion people–is estimated to live on less than USD 2.50 a day. Bac Ha, Viet Nam. UN Photo/Kibae Park.

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Aid and Rent-Driven Growth: Mauritania, Kenya and Mozambique Compared

This paper conceptualises foreign aid as a geopolitical form of rent in order to help distinguish the conditions under which aid is detrimental to sustained economic recovery from those where it is beneficial. Foreign aid shares with natural resource rent and contrived (i.e., government monopoly) rent the property of being a large revenue stream that is detached from the economic activity that generates it, and elicits political contests for its capture. Rent-driven models suggest such contests have two adverse effects: (i) they deflect government incentives into rent-channelling at the expense of promoting wealth creation; and (ii) the resulting political allocation of the rent distorts the economy and precipitates a growth collapse, which is protracted. In this context, the three principal causes of aid failure identified in the literature (corruption, a poor policy environment and Dutch disease effects) are all symptoms of the destabilizing impact of rent streams on immature political economies. Consequently, the deployment of foreign aid to revive collapsed economies runs the risk of perpetuating rent-seeking and thereby postponing essential economic restructuring. This paper compares the varied impacts of aid on the development trajectories of Mauritania, Kenya and Mozambique. It argues ...
Publisher:
UNU-WIDER
Series:
WIDER Research Paper
Volume:
2007/35
Title:
Aid and Rent-Driven Growth: Mauritania, Kenya and Mozambique Compared
Authors:
Richard M. Auty
Publication date:
June 2007
ISSN Web:
1810-2611
ISBN Web:
9291909785
ISBN 13 Web:
9789291909780
Copyright holder:
© UNU-WIDER
Copyright year:
2007
Keywords:
Africa, aid, rent, resource curse, economic development
JEL:
H53, O19, O55
Project:
Conference on 'Aid: Principles, Policies and Performance'
Sponsor:
UNU-WIDER gratefully acknowledges the financial contribution to the conference by the Finnish Ministry for Foreign Affairs.
Format:
online

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