by Phuong Vu Quynh

Created on: February 11, 2011

Should the Developed world focus on enabling trade or donating aid as an instrument to induce pro-poor growth?

INTRODUCTION

Enabling trade and donating aid are two of the main ways have been being used by the developed world to penetrate the pro-poor growth in developing countries (Stiglitz and Charlton, 2006 ). However, currently when measuring the effectiveness of both these two means, scholars have raised a disputable argument on whether developed countries should focus on trade or aid (Burnside and Dollar, 2001; Easterly, 2003; Lundsgaarde et al, 2007). The question of “trade or aid” has long been discussed and figured prominently in foreign aid discussions in the United States at least since the Eisenhower administration (Lundsgaarde et al, 2007). Unfortunately, either trade or aid by itself succeeds in nourishing the pro-poor growth of any developing country. Hence, there hasn’t been any common answer to all cases of developing world since each country has different socio-economic context as well as different level of growth. Both trade and aid are essentially important for poor countries in their development process. But the manner of how trade and aid are delivered is the determinant of their helpful contribution into the pro-poor growth of developing countries. Therefore, to explore the issue, this essay shall be broken into three parts. The first part reviews empirical literature on the context of trade and aid given to the developing world in cohesion with pro-poor growth. Accordingly, the second part analyzes why both trade and aid have not yet contributed effectively to the pro-poor growth in developing countries. And the final part concludes with some recommendations to tackle the issue.

TRADE AND AID AND PRO-POOR GROWTH

Pro-poor growth, as stated by Kakwani and Pernia (2000, p.3), “can be defined as one that enables the poor to actively participate in and significantly benefit from economic activity”. It has three components including: “a high growth rate of average incomes; a high sensitivity of poverty to growth in average incomes; and a poverty-reducing pattern of growth in relative incomes (2000, p.199). Therefore, it is unfortunately that sometimes high economic growth does not always pro-poor or even increases poverty when inequality appears largely so “the beneficial impact of growth is more than offset by the adverse impact of rising inequality” (Kakwani and Pernia, 2000, p.2). From this

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