The news so far this year has made for sobering reading for low income countries. Their economies have been buffeted by falling commodity prices and continued concerns over the health of the Chinese economy. In a speech earlier this month, Christine Lagarde stated that ‘on current forecasts, the emerging world will converge to advanced economy income levels at less than two-thirds the pace predicted a decade ago’.
At the same time, aid flows are falling to the countries that need it most. Although aid flows from OECD countries increased by 1.2% in 2014, the share going to low income countries fell by 5%, to less than a third of the total.
What is the case for increasing aid for infrastructure in the poorest countries?
At the same time aid is falling to the lowest income countries, consensus is rising on the importance of infrastructure for promoting economic growth.
This has been dismissed as ‘capital fundamentalism’. But there is good empirical evidence that infrastructure investment can ‘crowd in’ private capital in low income countries. Dani Rodrik recently highlighted Ethiopia, India and Bolivia as countries where public investment is driving growth.
Aid for infrastructure can support growth in the poorest countries where it is most needed, and can support counter-cyclical investments to boost demand in countries feeling the ill-winds of falling commodity prices.
Despite this, the proportion of OECD aid going to infrastructure in the world’s poorest region, sub-Saharan Africa, although rising, is significantly lower than in other parts of the world.
