Foreign aid, human capital accumulation and the potential implications for growth

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Abstract

Previous research has explored various channels in the aid-growth relationship such as the real exchange rate, changes in manufacturing output, institutional capacity, and governance. This paper puts forward a new mechanism: human capital accumulation. International organizations financially support and/or directly collaborate with educational institutions to establish courses. The development sector, borne out of aid, demands skilled workers. The workforce in turn develops human capital to meet this demand. There is a consequent change in the skills composition in the host country, and thus the types of skills available to employers in the labor market. This may have implications for long-run growth. These mechanisms are explored through mixed-methods analysis of human capital accumulation at the tertiary level in Sierra Leone, a small low-income, aid-dependent country. The data show that post-war interventions have given rise to courses that develop skills that are demanded by local and international non-governmental organizations, but not the formal private sector. This shift toward development-type qualifications has led to excess supply of these graduates, alongside a shortage of graduates with training in science, technology, engineering, and mathematics. The latter are highly demanded by the private sector.

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Change history

  • 07 January 2021

    The articles was revised due to an added data at the beginning of the last paragraph in section 6.1.

Notes

  1. 1.

    See the AVU website for more details: https://avu.org/avuweb/en/

  2. 2.

    The survey sought to explore occupational choice of graduates about to enter the labor market. 392 students were selected (out of final year cohort of 1000) using stratified random sampling. Harris (2019) describes the survey and results.

  3. 3.

    See chapter 4 of Gibbs (2007) for a discussion on thematic analysis and grounded theory.

  4. 4.

    Interview 22 (September 22, 2017); Interview 41 (November 21, 2017)

  5. 5.

    See online appendix for data extracts from interviews and focus group discussions.

  6. 6.

    Participant 21, Focus Group 5 (October 21, 2017)

  7. 7.

    Interview 31 (October 2, 2017); Interview 34 (October 5, 2017)

  8. 8.

    Interview 20 (September 20, 2017); Interview 28 (September 29, 2017); Interview 40 (October 13, 2017); Interview 42 (November 23, 2017)

  9. 9.

    Interview 22 (September 22, 2017); Interview 41 (November 21, 2017)

  10. 10.

    Anecdotal evidence suggests that most enumeration work is funded by development partners, even if conducted by the public or private sector.

  11. 11.

    Interview 41 (November 21, 2017)

  12. 12.

    Interview 20 (September 20, 2017); Interview 28 (September 29, 2017); Interview 31 (October 2, 2017); Interview 34 (October 5, 2017) Interview 40 (October 13, 2017); Interview 42 (November 23, 2017)

  13. 13.

    Participant 6, Group 2 (October 10, 2017); Participant 26, Group 6 (October 12, 2017); Participant 41, Group 9 (November 28, 2017)

  14. 14.

    Interview 34, (October 5, 2017)

  15. 15.

    Other factors cited include import liberalization policies which resulted in lower demand for some locally produced goods, macroeconomic uncertainties from government policies, and high electricity costs.

  16. 16.

    Examples of these modules include (Omeje 2015, 43): “The Sociology of Peace & Conflict in International Relations,” “The African Practices and Mechanisms of Conflict Management,” “Methods of Conflict Analysis,” “Peace and Security Issues in Africa,” “Leadership and the Culture of Peace,” “Conflict Prevention, Peacekeeping, and Peace Consolidation,” “Humanitarian Interventions and Conflicts in Africa,” and “Conflict Resolution and Development: Applied Skills.”

  17. 17.

    Interview 22 (September 22, 2017); Interview 41 (November 21, 2017)

  18. 18.

    Interview 22 (September 22, 2017); Interview 41 (November 21, 2017)

  19. 19.

    There are likely other factors that reinforce the upward trend in NGO courses after the initial development intervention. It was reported that some NGO courses (such as Sociology) have lower entry requirements, and that Arts/Social Science degrees are cheaper to run relative to STEM courses which require laboratory equipment. That said, there is still spare capacity for some STEM courses (Interview 41, November 21, 2017). Thus it is possible that if some NGO courses had not been introduced through development cooperation, some students studying NGO degrees may have taken a vocational path or re-done subjects to be accepted to more economically valuable STEM degrees that are below capacity.

  20. 20.

    Interview 15 (September 13, 2017); Interview 16 (September 13, 2017); Interview 22 (September 22, 2017); Interview 23 (September 22, 2017); Interview 25 (September 26, 2017); Interview 26 (September 26, 2017); Interview 31 (October 2, 2017)

  21. 21.

    Appendix Table 5 provides the raw data.

  22. 22.

    Participant 26, Group 6 (October 12, 2017)

  23. 23.

    Participant 6, Group 2 (October 10, 2017)

  24. 24.

    Participant 41, Group 9 (November 28, 2017)

  25. 25.

    The Mankiw-Romer-Weil model presented immediately above [Y = KαHβ(AL)1 − α − β] would be an endogenous growth model if α + β = 1 so there was no longer diminishing marginal returns (Mankiw et al. 1992, 421).

  26. 26.

    Specific to peace related training, employment opportunities significantly reduced as the international peacekeeping mission withdrew from Sierra Leone in 2014.

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Acknowledgements

This work would not have been possible without financial support from the International Growth centre (IGC) – project number 39408; my Sierra Leone team Abass Kargbo, Mousa Sesay, Sidi Saccoh, Umaro Tarawalie and Alpha Jalloh; and my research participants who gave of their time. I am also grateful for comments and feedback from Christopher Adam, Andy McKay, Martin Williams, Vincenzo Bove and Alex Jones. And to the taxpayers of Trinidad and Tobago, who funded my doctoral studies.

Funding

This study was funded by the International Growth centre (grant number 39408).

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Appendix

Appendix

Table 4 List of interview participants
Table 5 List of focus group participants

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Harris, J. Foreign aid, human capital accumulation and the potential implications for growth. Rev Int Organ (2021). https://doi.org/10.1007/s11558-020-09408-8

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Keywords

  • Foreign aid
  • Human capital
  • Skills
  • Economic growth
  • Sierra Leone

JEL codes

  • F35 J24 O19