Poverty Traps, Aid, and Growth

51 Pages Posted: 22 Jul 2005

See all articles by Aart Kraay

Aart Kraay

World Bank - Development Research Group (DECRG)

Claudio E. Raddatz

Central Bank of Chile; World Bank

Date Written: June 2005

Abstract

This paper examines the empirical evidence in support of the poverty trap view of underdevelopment. We calibrate simple aggregate growth models in which poverty traps can arise due to either low saving or low technology at low levels of development. We then use these models to assess the empirical relevance of poverty traps and their consequences for policy. We find little evidence of the existence of poverty traps based on these two broad mechanisms. When put to the task of explaining the persistence of low income in African countries, the models require either unreasonable values for key parameters, or else generate counterfactual predictions regarding the relations between key variables. These results call into question the view that a large scaling-up of aid to the poorest countries is a necessary condition for sharp and sustained increases in growth.

Suggested Citation

Kraay, Aart and Raddatz, Claudio E., Poverty Traps, Aid, and Growth (June 2005). World Bank Policy Research Paper No. 3631. Available at SSRN: https://ssrn.com/abstract=756944

Aart Kraay (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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HOME PAGE: http://econ.worldbank.org/staff/akraay

Claudio E. Raddatz

Central Bank of Chile ( email )

United States

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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