Challenging Issues
on
the effectiveness of ODA loans
(For Discussion)
October 1, 2004
Hiroto Arakawa
Japan Bank for International Cooperation (JBIC)
1
Conventional Views
●Sustainability :
Donor side: financing for achieving MDGs
with less burden
Recipient side: incentive for building costrecovery mechanism
●Continuance :from aid-dependency to
market-dependency (graduation from aid!)
●Stability :aid predictability
●Autonomy :on-budget large-scale projects
lead to strict selection process in recipient
countries.
2
“Aid, Policies, and Growth” puzzle?
●Burnside & Dollar (2000)
“Aid, Policies, and Growth”
→ the impact of aid on growth is positive with good
policies.
●Easterly, Levine and Roodman (2003*)
*This paper is published in American Economic Review, June 2004
→ the linkage breaks once data is extended.
●Sawada, Kohama & Kono (2003)
→ the reason of this puzzle is investigated by
decomposing the aid variables into loan and grant.
3
The Neutrality:
the big question is how the funds will be used.
Immediate
impacts
vocational
industrial training
FDI law parks
Doi Moi
policy
FDI/ local
investment
1.Factory
employment
2.Micro
business
expansion
3.Industrial
linkage
Highway
No.5 Project
Haiphong
Port project
agricultural
extension
agricultural
agricultural
credit
liberalization
policy
feeder roads
development
Medium
term impacts
Sustainable
economic
growth
4.Fiscal
contribution
5.High
valued
agriculture
Poverty
reduction
6. Access
to better
education/
health care
4
The way forward
●How to secure the incentive of the recipient
countries for efficient use of development funds?
-“Ex ante” incentive
-“Ex post” incentive
●How to strike a balance between grant and loan,
while those two are equivalent?
-“Pilot project/program” and “Replicable
project/program”
-Grant as a risk buffer, Loan as a trend term,
subject to the debt sustainability.
5