Aid increases to SSA?

The IMF report mentioned in my last post suggests (page 43) that low income countries may require large financing increases to maintain a stable external position during the economic difficulties. The report is doubtful (page 29-30) whether aid will be forthcoming to support the financing.

In the face of possible aid increases, some economists have had increased profiles for their scepticism about aid's merits. Perhaps the most prominent runs a blog here, and has written on the subject from an academic viewpoint in pdf format here.

Criticism of aid is often based on a rejection of neo-classical macroeconomics in one form or another. If income is assumed to be equal to A*K^b, where A measures technology, K measures capital, and b is a constant less than one, then sending aid for investment should result in predictable increases in capital and income. Critics argue that b can be close to zero for large values of K or when K is increased by conventional aid. The precise reason for the argument can vary, and may involve rejection of the presumed income equation entirely. They argue that there are better ways of promoting growth than repetitive transfers of aid along traditional lines, for example by changing the forms of transfers to adjust not just capital but also technology and other inputs and using as much information as possible. They argue that the government-to-government route ensures limited information and vulnerability to fraud.

The criticism can be linked to the economics of information and technological diversity which emerged in the 1970s. Similar analyses could be applied to any country relying on large-scale, low-information capital accumulation as a means to growth, and the aforementioned author is indeed also well-known for writings on Soviet decline and East Asian growth.