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Foreign aid and structural transformation: Micro-level evidence from Uganda

Report
Authors Pelle Ahlerup
Publisher University of Gothenburg
Place of publication Gothenburg
Publication year 2019
Published at Department of Economics
Language en
Links hdl.handle.net/2077/59805
Keywords foreign aid, structural transformation, Africa, AidData, LSMS
Subject categories Economics

Abstract

History tells us that sustained economic growth, necessary to alleviate poverty in sub-Saharan Africa, requires growth in the fundamentals, such as infrastructure and human capital, but also structural transformation, i.e., a reallocation of labor from low-productivity to high-productivity sectors. I study whether foreign aid is a factor that helps or hinders structural transformation. I use a dataset on aid projects with precise coordinates from all major donors and match it to panel data with extensive information on labor market activities for a large representative sample of individuals in Uganda. I find consistent evidence that foreign aid reverses the process of structural transformation. More specifically, the local short-term effect of foreign aid is that people in areas with ongoing aid projects work more in agriculture and less in non-agricultural sectors. There are no significant effects on wages or household expenditures for people in the agricultural sector, but the effects on people in non-agricultural sectors are negative.

Page Manager: Webmaster|Last update: 9/11/2012
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