Constraints to Achieving the MDGs with Scaled-Up Aid

This paper examines the macroeconomic and structural constraints to scaling up aid fl ows to developing countries to meet the Millennium Development Goals in 2015, including infrastructure, competitiveness and the real exchange rate, labour markets, fi scal constraints, governance, and aid volatility and fragmentation. The impact of these constraints on cost-effi cient sequencing and composition of scaled-up aid fl ows is considered, using a dynamic computable general equilibrium model applied to Ethiopia. The main conclusions are that: (i) accelerating growth through productivity-enhancing infrastructure investment (and improved governance) is key to achieving the MDGs; (ii) large increases in aid risk undermining competitiveness and future growth; and (iii) skilled labour constraints require careful aid sequencing that limit the scope for frontloading. JEL classifi cation: O11 (Macroeconomic Analyses of Economic Development); O12 (Microeconomic Analyses of Economic Development); O21 (Planning Models; Planning Policy).