Government in the Solow Growth Model Foreign Aid in the Solow Model

3. why does the effectiveness of foreign aid often fail?
In the long run foreign aid is only effective if the government uses it appropriately. In other words, foreign aid must be used to sustainable improve the economical and political environ-ment.
If the foreign aid is used to reduce taxes, the steady state of the economy will only improve in the short run. If the foreign aid is consumed or invested in bad investment projects there will also be no sustainable growth and the population will not be better of.
Foreign aid is most effective if it is used to apply new and better technologies or to develop new business opportunities.
4. Foreign aid is accompanied with technical assistance or transfer of technology
Foreign aid in the form of technical assistance can lead to sustainable increase the output per worker hence the total output of the economy.
Once the economy is in a steady state, the rate of growth of output per worker depends only on the rate of technological progress. Only technological progress can explain persistently rising living standards.
…