Today, David Roodman at the Center for Global Development responded to our guest blogger Arvind Subramanian's post (and forthcoming paper) on the effects of aid on manufacturing exports. Here, Arvind replies:
I cannot think of a more thoughtful follower of, and contributor to, the aid effectiveness literature than David Roodman (Aart Kraay is another). So, I am really very pleased with his bottom line assessment of my paper that he trusts this paper “more than most” in the aid growth literature.
That said, there is one point about his blog that merits a response. David gently chides Bill Easterly for his tweet where Bill interprets and presents our paper as showing that aid is bad for manufacturing exports. David’s point is that our paper strictly speaking only establishes a relative effect—that exportable sectors grow slower than non-exportable sectors —and not a total or overall effect: that aid leads to slower growth in exports as a whole.
But two points are worth noting. In a longer version of the paper, that I will post on my web-page, we do find evidence that aid leads to slower growth of the manufacturing sector as a whole. For methodological reasons, this result is less strong than our core result about relative effects. But, we certainly don’t get the empirical result that aid raises growth in all sectors that David claims (rightly) is theoretically possible.
Perhaps more important, Bill’s tweet does capture the spirit of our paper. Whether and how manufacturing exports can be an engine of overall growth is still debated. But the historical experience is strongly suggestive that if export sectors grow slowly or grow slower than other sectors, overall growth is affected. So, our paper could be interpreted not as a lament about the effects of aid on export sectors but as a celebration of its effects on non-export sectors. But, in my view and also in the historical record, between export and non-export sectors as an engine of growth, there is no contest.