Mark McGillivray

The Human Development Index: Yet Another Redundant Composite Development Indicator?

Abstract In its Human Development Report 1990 , the United Nations Development Program (UNDP) proposes yet another composite indicator of development levels: the “human development index” (HDI). The HDI assesses intercountry development levels on the basis of three so-called deprivation indicators: life expectancy, adult literacy and the logarithm of purchasing power adjusted per capita GDP. Using simple statistical analysis, this paper questions both the composition of the HDI and its usefulness as a new index of development. It concludes that the HDI is both flawed in its composition and, like a number of its predecessors, fails to provide insights into intercountry development level comparisons which preexisting indicators, including GNP per capita, alone cannot.

Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid

Summary Aid has been the principal source of development finance for the majority of developing countries over the past few decades. This has spawned a large literature on the effectiveness of aid, which remains essentially inconclusive. The empirical literature has tended to evaluate the impact of aid by including it as a variable in a regression for the determinants of some economic performance indicator. This paper follows a different strand of the literature and examines the impact of aid on public sector fiscal behavior. Aid is in general given to the public sector, thus any effect of aid is mediated by that sector. We specifically address this behavioral feature by analyzing how aid revenue affects government fiscal behavior with respect to tax, borrowing and expenditure decisions; unlike previous contributions, aid is endogenous in our model, which has a number of important implications. We estimate an econometric model that differs from previous studies not only in this respect but also by allowing domestic borrowing, in addition to aid and tax revenue, to finance both capital and recurrent expenditure. Structural and reduced form equations are derived and estimated using 1956–95 time-series data for Pakistan. Results indicate, contrary to much of the literature, that only half of aid has gone to government consumption, that it has had a slightly positive impact on public investment and negative impact on tax effort.

Aid fungibility in assessing aid: red herring or true concern?

This paper critically reviews Assessing Aid (World Bank, 1998), focussing on Chapter 3, which looks at public sector aspects of aid, specifically the issue of aid fungibility. Whilst Assessing Aids focus on public sector aspects of aid is highly appropriate, it is based on a partial review of the literature and draws conclusions not entirely supported by the literature. We argue that fungibility itself is not an important concern, and distracts attention from what donors can do to ensure that more of their aid is allocated to areas that they want to support. Insufficient attention is paid to how aid impacts on public sector behaviour overall and how fiscal management can be improved. Copyright

Foreign aid, taxes and public investment A comment

Abstract In a paper recently published in this Journal, Gang and Khan (1991) analysed the relationship between foreign aid and the fiscal behavior of the Indian government. A number of behavioural equations were estimated, each derived from a utility maximizing theoretical framework. This paper identifies and seeks to correct some inconsistencies in this framework.

The allocation of aid among developing countries: A multi-donor analysis using a per capita aid index

Abstract This paper seeks to measure the relative aid giving performance of aid donors in terms of the inter-recipient distribution of their aid. “Performance” is taken to be the extent to which a donor bases its aid allocation on the relative needs of recipient countries. Donor performance is measured by an income-weighted per capita aid index, formulated in this paper. This index was calculated using the per capita allocations to a sample of 85 recipient countries in the years 1969–84. The performance of 17 DAC members, plus that of a number of multilateral agencies, and that of the DAC and these agencies combined is identified. Results indicate that the performance of four countries — Belgium, Finland, Denmark and Norway — was generally superior to that of other donors.

A two-part sample selection model of British bilateral foreign aid allocation

The allocation of British bilateral foreign aid among developing countries is simultaneously modelled, focusing on allocations during the period 1980–87. Two aid allocation decisions are analysed using a variant of the Lee-Maddala econometric model. The first decision concerns the determination of developing country eligibility for aid, while the second concerns the amount of aid eligible countries are allocated. Given the implied two-part decision-making process, sample selection techniques are employed. It is hypothesized that British bilateral aid eligibility and amount decisions are based on Bristains humanitarian, commercial and political interests in developing countries. Results obtained indicate that these decisions are generally consistent with each of these interests, especially those relating to the political importance of Commonwealth members.

Aid and Public Sector Behavior in Developing Countries

This paper analyzes developing-country public-sector fiscal behavior. It is concerned specifically with how aid inflows affect various categories of revenue and expenditure. An econometric model is developed, which differs from those used in previous studies by allowing domestic borrowing to finance both capital and recurrent expenditure. Structural and reduced-form equations are derived and estimated using 1956-95 time-series data for Pakistan. Results indicate that aid is allocated mainly to investment, is positively associated with both investment and consumption expenditure, and has no final impact on taxation. Copyright 2000 by Blackwell Publishing Ltd

Does Aid Create Trade? An Investigation for European Donors and African Recipients

This article has a simple aim – to demonstrate that an empirical link between aid and trade may exist (for some donor-recipient pairs), but that the nature of this linkage is complex and can take a variety of forms. We challenge the commonly made assertion that aid creates trade. Theoretical considerations can be used to justify a link from aid to trade, from trade to aid, or in both directions together. Indeed, there may be no empirical linkage at all. We examine data on aid and trade flows for a sample of four European donors and 26 African recipients over 1969-95. Three broad findings emerge. First, a statistical link between aid and trade, of whatever form, is the exception rather than the norm. Second, there is very little evidence that aid creates trade; this argument for tied aid is unproven on our analysis of aggregate bilateral flows. Third, France, unlike the other donors examined, does appear more likely to use trade links as a criterion in determining aid allocations.

Aid, adjustment and public sector fiscal behaviour in the Philippines

Abstract A common aim of structural adjustment programmes is to expand the tax base of countries undergoing such reforms. Moreover, it is often the case that adjustment programmes are introduced soon after or in conjunction with attempts to stabilize the economies of these countries, which includes attempts to reduce public sector fiscal deficits. It is also the case, of course, that most programmes have been introduced under World Bank and IMF policy‐based lending regimes. While aid is obviously tied to domestic policy reforms, comparatively few constraints are imposed on how this money is spent. Bearing this in mind, the paper attempts to answer the following question: does the aid to which structural reforms are tied promote public sector fiscal behaviour which is inconsistent with the aims of these reforms? Does it, for example, reduce taxation effort or lead to larger fiscal deficits than would otherwise be the case? The paper looks specifically at the experience of the Philippines and builds on rece...

Composite Indices: Rank Robustness, Statistical Association and Redundancy

This article evaluates the robustness of rankings obtained from composite indices that combine information from two or more components via a weighted sum. It examines the empirical prevalence of robust comparisons using the method proposed by Foster et al. (2010). Indices examined are the Human Development Index (HDI), the Index of Economic Freedom (IEF), and the Environmental Performance Index (EPI). Key theoretical results demonstrate links between the prevalence of robust comparisons, Kendalls tau rank correlation coefficient, and statistical association across components. Implications for redundancy among index components are also examined.