Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals

The Millennium Development Goals (MDGs) have lofty expectations regarding the impact of official development aid. Are these expectations valid? This paper surveys the literature on aid and growth. It finds that practically all aid studies since the late 1990s conclude that aid increases economic growth. By implication, therefore, it can be inferred that poverty would be higher in the absence of aid. As such the above- mentioned expectations are, to a certain extent, valid. The paper then reviews volumes of and trends in official development assistance since 1960, highlighting flows to Sub-Saharan Africa. A downturn in volumes in the 1990s is demonstrated. It asserts that poverty is higher and the MDGs are hard to achieve because of this downturn. It also asserts that while aid will be important, other sources of external finance are required to achieve the MDGs. The paper concludes by examining recent proposals regarding new sources of such finance. [Research Paper No. 2005/09]