Comments and Discussion (Ending Africa's Poverty Trap‪)‬

Michael Kremer: This is an interesting and indeed provocative paper, arguing for a large increase in foreign aid to Africa to help the continent escape from a poverty trap. I agree that aid should be increased, but I will take issue with a few of the building blocks in the authors' analysis and will suggest an alternative case for aid. In particular, I will argue that the limited empirical evidence seems just as consistent with conventional growth models, in which government quality and policies determine steady-state income, as with the idea that Africa is caught in a poverty trap. This should not be taken as an argument against aid, however, because there is little evidence for the "new Washington consensus" that aid cannot work in areas with weak governments and that conditionality is a failure. In fact, the case for aid may be greater where governments are doing a poor job. I will conclude by arguing that planning development expenditure around the Millennium Development Goals (MDGs) risks generating distortions. Poverty trap models suggest that if countries can get over a certain income threshold, they will take off economically. These models therefore suggest that aid can have a powerful effect by raising countries over this threshold. The basic microeconomic case for poverty traps typically involves nonconvexities. However, even if nonconvexities exist at the microeconomic level (for example, lumpy capital investments), it is not clear that they exist at the macroeconomic level. If a certain level of transport and communications infrastructure is needed for development, for example, one could imagine a country starting out by building this level of infrastructure in a single port or capital city and then expanding outward. This might eliminate nonconvexities at the macroeconomic level.