Type of Publication: Dissertation

Development aid and public investment programs in Sub-Sahara Africa - Modeling aid-financed investment in infrastructure and education and estimating relevant parameters

Schürenberg-Frosch, H.
Universität Duisburg-Essen
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From the perspective of Sub-Saharan Africa, the history of developmental aid is mostly a recollection of drawbacks and failures, although few success stories can be told as well. Over the last thirty years, many countries have received abundant developmental assistance, yet they are still struggling to reach adequate levels of human development. Many researchers, journalists and politicians, both from Africa and the Western countries, call for a substantial reformulation and reform of the international development aid framework. Consequently, research on the effects of developmental aid is crucial in the process of designing an informed new development agenda. At the same time it is important to understand how additional investments could operate and which effects are probable or possible for each of the specific fields. Additional indirect effects, may they be positive or negative, should be taken into account.

This dissertation aims at providing insights into the aspects listed above by integrating development assistance and sector development programs into adequate economy-wide models for Sub-Saharan African states. The Computable General Equilibrium (CGE) methodology belongs to the standard toolkit of economic policy consulting. This thesis comprises three different CGE models complemented by an econometric study. The models elaborate on various aspects of aid-financed development programs. The here-presented models are an important contribution to the respective modeling literature and add detail to their existing counterparts, especially in regards to the modeling of government behavior and the endogenous households' skill choice for their child members. The third model is a recursive-dynamic model which integrates educational production as well as the choice between child labor supply and schooling.

The second chapter in this dissertation focuses on the direct spending effect resulting from development aid being paid to the government of an African state. It investigates whether so called Dutch Disease effects from aid are possible and probable, yet it goes beyond the Dutch Disease literature. The model and the analysis distinguish between different aid-spending strategies on the one hand and the possible second-round effect on productivity on the other. The paper presents an application of the model to Zambia and subsequently incorporates the notion of enclave sectors in the economy (which is often the case in countries with large natural resources). Of the following three chapters each concentrates on distinctive areas where development aid might be invested in a way that fosters productivity.

Chapter three shows how the effects of infrastructure improvements can be explicitly captured in a CGE model setup. In contrast to many other studies, the paper depicts infrastructure as a transport cost-reducing element which improves market access by providing a low cost alternative to transportation services. The paper emphasizes the positive effect of an improved road network for market access, as well as its effects on home consumption and small-scale farming.

Chapter four extends the econometric analysis of infrastructure in the third chapter and elaborates further on the econometric relationship between transport costs and the status of the road network. The paper combines input-output data, road network data, meteorological as well as geographical data in order to analyze the key factors determining transport costs across countries in a pooled estimation. The paper contributes to the transportation literature by developing and applying a new measure for transport costs. Noteworthy differences between developed and developing countries are identified, which leads to the conclusion that evidence on the success of road network projects in industrialized countries cannot be easily transferred to the developing countries.

The last paper explores yet another important area of development policy: educational policy. It embeds the labor force effects from increased enrollment under different circumstances within a very detailed recursive-dynamic CGE model. The main advancement, as compared to other CGE studies in this field, lies in the explicit modeling of the educational process itself. The model carefully considers the short term requirements in terms of skilled staff and physical schooling facilities, which require financing in order to increase enrollment, as well as the long term effects of the above on skilled labor provision. Moreover, the paper looks into the trade-off between current foregone earnings from child labor and future possible returns from higher education, doing so by including child labor into the model.