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

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  • Ahlerup, Pelle

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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.

Suggested Citation

  • Ahlerup, Pelle, 2019. "Foreign aid and structural transformation: Micro-level evidence from Uganda," Working Papers in Economics 755, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0755
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    File URL: http://hdl.handle.net/2077/59805
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    Cited by:

    1. Haldar, Anasuya & Sethi, Narayan, 2022. "Effect of sectoral foreign aid allocation on growth and structural transformation in sub-Saharan Africa—Analysing the roles of institutional quality and human capital," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 1010-1026.
    2. Sèna Kimm Gnangnon, 2020. "Comparative Advantage Following (CAF) development strategy, Aid for Trade flows and structural change in production," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-29, December.

    More about this item

    Keywords

    foreign aid; structural transformation; Africa; AidData; LSMS;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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