Is Foreign Aid to African Countries Counter-Productive?
I have often been mystified by “calibration” models that draw policy conclusions based on little more than what seems like manufactured data. In a recent publication, my office neighbour, Elizabeth Caucutt (and co-author Krishna Kumar), shows that calibration models, if anything, show how unhelpful foreign aid has been in many/most African countries. What is more, they do so using calibration models!Africa: Is Aid an Answer? Abstract We address the poverty trap rationale for aid to Africa. We calibrate models that embody typical explanations for stagnation: coordination failures, ineffective mix of occupational choices and imperfect capital markets, and insufficient human capital accumulation coupled with high fertility. Calibration is ideally suited for this evaluation given the paucity of high-quality data, the high degree of model nonlinearity, and the need for conducting counterfactual policy experiments. We find that calibrations that yield multiple equilibria — one being prosper
