Closing the Knowledge-gap in the Scaling-up Debate: An Agenda Nora Lustig Director of the Poverty Group, UNDP October 20, 2006

Main message: the “scaling-up” debate is stuck in the “rhetorical space” must advance in the “knowledge space” to make headway

Is scaling-up of aid necessary to achieve the MDGs or, more generally, desirable human development outcomes? Most policy analysts, donors and multilaterals agree that scaling-up is desirable and needed. Why? Without aid, progress may be close to impossible due to poverty traps or it may be too slow.

How much aid? There is no consensus. The methods differ. The UN and BWIs go each their separate ways. =>Should work on a common framework.

Despite the consensus in favor of scaling-up there are a number of concerns which affect the size and pace at which aid is made available: short-term concern: “Dutch disease”. long-term concern: aid-dependency.

Is the concern with aid-dependency well founded? Development Economics literature shows that improvements in health and education, promoting gender equity, eradicating endemic diseases and reducing income poverty can result in higher per capita growth. So, why does the concern exist?

Because: 1. Positive impact on growth will only be visible in the long-run: 20 or 25 years. In the short-term, there may be trade-offs. => need “interim” indicators of progress.

2. No agreed upon method to estimate quantitatively the “growth dividend” of investing in human development.

3. Concern that returns or the growth dividend may not materialize because of corruption or gross inefficiencies.

This leads to: => a more conservative approach in the short-term on the part of donors because they are not persuaded that aid will lead to growth and self-reliance.

=> more uncertainty in aid-flows because without solid evidence it is easier for aid to become a “political football”.

=> a more conservative approach on the part of IMF and WB.

Leads to self-fulfilling prophecy of lower aid, lower growth, and lower human development.

What is needed on the part of international organizations? Less “rethoric-based” and more “knowledge-based” discussion and advocacy:

=> refine methods to estimate scaling-up requirements; costing methods must incorporate second-round and economy-wide effects as well as complementarities and trade-offs. => develop practical approaches to identify and address the non-financial constraints: for example, behavioral and institutional failures. => formulate ways to estimate the “growth dividend” (or “fiduciary payback”) of investing in human development or the MDGs. => construct interim indicators and device evaluation methods to monitor progress in the transition period (i.e., before the growth dividend materializes)