Foreign Aid, Debt and Growth in Zambia

A study which discusses the structural problems in Zambia and the policies of adjustment that have been tried. It also analyses the impact of various strategies with regard to external resource transfers. The results show that the scope for growth is highly dependent on the tightness of the external resource constraint, and that debt service tends to dominate the policy-making.

Arne Bigsten is Professor of Development Economics at Goteborg University.

Preface

5

(6)

List of Acronyms

6

(1)

Introduction

7

(2)

Macroeconomic Framework

9

(21)

Introduction

9

(1)

Colonial Background

10

(1)

Ten Years of Relative Prosperity, 1964--1974

11

(5)

Shocks and Decline 1975--1980

16

(3)

A Lost Decade, the 1980s

19

(2)

Adjustment at Last, the 1990s

21

(7)

Economic and Social Outcomes

28

(2)

Aid and Foreign Debt

30

(26)

Introduction

30

(1)

Cross-Country Evidence on the Impact of Aid on Growth in Africa

30

(5)

The Zambian Case

35

(3)

Foreign Aid Flows to Zambia

38

(6)

The Debt Problem

44

(3)

Can Aid Be Growth Generating?

47

(4)

Concluding Remarks

51

(5)

The Donor-Recipient Relationship

52

(4)

Determinants of Investment

56

(29)

Introduction

56

(1)

Macroeconomic Reforms and Economic Outcomes in Africa

56

(11)

Adjustment and the Determinants of Private Investment

67

(3)

The Business Environment and Private Investment

70

(4)

Investment in Zambia

74

(3)

Summary and Policy Conclusions

77

(8)

Macroeconomic Reforms and Investment

79

(1)

Adjustment and Investment in Selected African Countries

80

(2)

Investment Behaviour in Manufacturing Firms in Africa

82

(1)

Africa's Tiny Share of Foreign Investment

83

(2)

CGE Models for Investment Analysis

85

(3)

Introduction

85

(1)

The Neo-Classical Model

85

(1)

Application of the Neo-classical Model

86

(1)

The Structuralist Model

87

(1)

Policy Analysis

88

(21)

Introduction

88

(1)

The Base Run with the Neo-classical Model

88

(3)

Foreign Loans to the Private Sector plus Amortisation

91

(2)

Foreign Aid to the Public Sector

93

(2)

Investment Aid to Agriculture

95

(2)

Investment Aid to Manufacturing

97

(2)

Investment Aid to Mining

99

(2)

Price Boom in Mining

101

(2)

A Sensitivity Test Using the Structuralist Model

103

(1)

A Comparison of Policy Impacts

104

(5)

Comparisons across Experiments

107

(2)

Summary

109

(3)

References

112

(8)

Model Appendix: CGE Models of the Zambian Economy

120

1. The Neo-classical Model

1.1. Production

1.2. The Physical Balance Equation

1.3. Prices, Wages and Profit

1.4. Export and Import

1.5. The Government Budget

1.6. Private Consumption and Saving

1.7. Investment

1.8. Calibration of Production Parameters

1.9. Nested Labour Relations

1.10. Calibration of the Linear Expenditure System

1.11. The Structure of the Model

1.12. Data

2. A ``Structuralist'' Model with Endogenous Capital Formation

2.1. Physical Balance Equation

2.2. Private Consumption and Saving

2.3. Public Demand

2.4. Export and Import

2.5. The Forecast Period and Investment

2.6. Labour Market

2.7. Prices

2.8. Solution Procedure

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Foreign Aid, Debt and Growth in Zambia

Summary

Author Biography

Table of Contents

Supplemental Materials