Description
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The question why some countries reached economic prosperity while others remained poor has been the source of heated debates among (growth) economists and policy makers alike. Considerable work has been undertaken from both a theoretical and empirical perspective to answer the fundamental question of whether self-reinforcing mechanisms exist which can cause poverty to persist and result in countries to remain in a "poverty trap".2 However, the question under what conditions countries can escape poverty still is not fully resolved. From a practical point of view, it is precisely these conditions that are crucial for defining development policy. The existence of "traps" in which countries might fall implies that external aid might not be effective at all, unless it is large enough to lift countries out of the trap. This interpretation has led to repeated calls for an across-the-board debt relief coupled with major increases in aid for the poorest countries. For example, Sachs et al. (2004) maintains that the poorest countries remain in a vicious poverty cycle that will require (large amounts of) global assistance to disrupt the cycle. In the year 2000 the United Nations introduced the Millennium Development Goals, a plan to reduce poverty on a number of dimensions by the year 2015. Critics of these increased efforts in aid however claim that
foreign development assistance aid has been historically ineffective in promoting growth (Easterly, 2005, 2006). African economists such as Dambisa Moyo (2009) and James Shikwati (2005) even go so far as to propose a complete removal of monetary development aid.
