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Avoiding the Fragility Trap in Africa

ABSOLUTE TERMS ACCOUNTING AGGREGATE GROWTH AGGREGATE INCOME BALANCED ECONOMIC GROWTH BALANCED GROWTH BANK OPERATIONS BUDGET CONSTRAINT CAPITAL ACCUMULATION CAPITAL INCREASES CAPITAL INVESTMENT CAPITAL MARKET CAPITAL SHARE CAPITAL STOCK CIVIL WARS CONSTANT RETURNS CONSTANT RETURNS TO SCALE CONSUMERS CONTRACT ENFORCEMENT DATA SET DEMAND FUNCTIONS DEMOCRACY DEPENDENT VARIABLE DERIVATIVE DEVELOPING COUNTRIES DEVELOPMENT BANK DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DEVELOPMENT REPORT DEVELOPMENT RESEARCH DUMMY VARIABLE DUMMY VARIABLES DYNAMIC PATH ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC INSTABILITY ECONOMIC LITERATURE ECONOMIC REVIEW ECONOMIC STUDIES ELASTICITY EMPIRICAL ESTIMATES EMPIRICAL EVIDENCE EMPIRICAL GROWTH LITERATURE EMPIRICAL MODEL EMPIRICAL RESULTS ENDOGENOUS GROWTH EQUATIONS EQUILIBRIUM EQUILIBRIUM TRAP EQUILIBRIUM WAGE EXOGENOUS RATE EXPROPRIATION FACTOR PRICES FINANCIAL SUPPORT FOREIGN AID FUNCTIONAL FORM FUTURE RESEARCH GDP GDP PER CAPITA GENERAL EQUILIBRIUM MODEL GOVERNMENT BUDGET GOVERNMENT EXPENDITURES GOVERNMENT INVESTMENT GOVERNMENT POLICIES GOVERNMENT POLICY GOVERNMENT REVENUE GOVERNMENT REVENUES GOVERNMENT SPENDING GROWTH EQUATION GROWTH RATE GROWTH RATES GROWTH REGRESSION GROWTH REGRESSIONS HUMAN CAPITAL INCOME INCOME DISTRIBUTION INCOME GROWTH INCOME TAX INCREASE GROWTH INCREASING FUNCTION INDEPENDENT VARIABLES INTEREST RATE INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INVESTING INVESTMENT POLICIES INVESTMENT POLICY INVESTMENT RATE INVESTMENT RATIO LABOR MARKET LABOR PRODUCTIVITY LINEAR MODEL LIQUIDITY LONG-RUN INEQUALITY LONG-TERM INVESTMENTS LOW INCOME LOW-INCOME COUNTRIES MACROECONOMIC ISSUES MARGINAL PRODUCTIVITY MARGINAL PRODUCTS MARGINAL PROPENSITY MARGINAL PROPENSITY TO SAVE MARKET VOLATILITY MINIMUM LEVEL MULTIPLIERS NEGATIVE SHOCKS OPTIMIZATION OUTPUT OUTPUT GROWTH PERFECT COMPETITION POLICY DISCUSSIONS POLICY MAKERS POLICY OPTIONS POLICY RESEARCH POLICY VARIABLES POLITICAL ECONOMIES POLITICAL ECONOMY POLITICAL INSTABILITY POLITICAL INSTITUTIONS POLITICAL STABILITY POLITICAL UNCERTAINTY POPULATION GROWTH POSITIVE IMPACT POSITIVE RELATIONSHIP POSITIVE SHOCKS POVERTY REDUCTION POVERTY TRAPS PRIVATE INVESTMENT PRODUCTION FUNCTION PRODUCTIVITY PRODUCTIVITY GROWTH PROPERTY RIGHTS PUBLIC GOODS PUBLIC SPENDING REAL GDP RETURN RETURNS RISK PREMIUMS RULE OF LAW SAVING FUNCTION SAVINGS SECURE PROPERTY RIGHTS SHORT-TERM LIQUIDITY STATE CAPACITY STATE FAILURE STATE PERFORMANCE STOCKS SUSTAINABLE GROWTH TAX TAX CODES TAX RATE TAX RATES TAX REVENUES TAXATION TERRORISM TRANSITION ECONOMIES UNENFORCEABLE CONTRACTS UTILITY FUNCTIONS UTILITY MAXIMIZATION VOTERS WAGES WEALTH
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Africa | Africa | Africa
2012-03-19T18:06:14Z | 2012-03-19T18:06:14Z | 2011-11-01

Not only do Africa's fragile states grow more slowly than non-fragile states, but they seem to be caught in a "fragility trap". For instance, the probability that a fragile state in 2001 was still fragile in 2009 was 0.95. This paper presents an economic model where three features -- political instability and violence, insecure property rights and unenforceable contracts, and corruption -- conspire to create a slow-growth-poor-governance equilibrium trap into which these fragile states can fall. The analysis shows that, by addressing the three problems, fragile countries can emerge from the fragility trap and enjoy a level of sustained economic growth. But addressing these issues requires resources, which are scarce because external aid is often tailored to the country's performance and cut back when there is instability, insecurity, and corruption. The implication is that, even if aid is seemingly unproductive in these weak-governance environments, it could be hugely beneficial if it is invested in such a way that it helps these countries tackle the root causes of instability, insecurity, and corruption. Empirical estimations corroborate the postulated relationships of the model, supporting the notion that it is possible for African fragile countries to avoid the fragility trap.

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