Why do some countries remain fragile states? How can they get out of what is known as ‘the fragility trap’? The study suggests that three features – political instability and violence, insecure property rights and unenforceable contracts, and corruption – conspire to create a slow-growth-poor-governance equilibrium. It argues 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.
Twenty-two of Sub-Saharan Africa’s 48 countries are classified by the World Bank as fragile and conflict-affected states. These are countries where policies and institutions or governance are so weak that the state’s ability to guarantee security to its citizens and deliver basic public services is severely limited. Since the late 1990s, their performance has been lagging behind that of non-fragile states, with the gap widening over time.
According to World Bank figures, the fragility of these countries seems to be persistent. Globally, 35 countries defined as fragile in 1979 were still fragile in 2009. Because of their weak policies and institutions, some of these countries could be caught in a low-growth-poor-governance equilibrium trap, while others risk falling into the trap if their resources are reduced by only a small margin.
This paper presents an analytical economic model and empirical estimates of the model. It finds that an economy can collapse or is at risk of falling into a low-investment, slow-growth equilibrium when:
- Instability and violence destroy part of the country’s capital stock
- Insecurity of property rights and unenforceable contracts undermine the productivity of labour
- Corruption and other forms of capture limit government tax revenues
- There is a minimum level of consumption below which people would starve.
An additional problem is that donors tend to cut aid to fragile states, fearing that it will be wasted under such conditions. However, the study’s findings also suggest that:
- Foreign aid is positively related to economic growth, and that aid to fragile states is more productive than aid in general
- If a country has access to sufficient resources that can be spent on addressing the three problems of instability and violence, insecure property rights, and high levels of corruption, it can emerge from the fragility trap or avoid falling into it and enjoy sustained growth
- Therefore, if aid can be used to help countries escape the fragility trap, the benefits could dwarf the usual considerations of low aid productivity because of weak policies and institutions
- Future research needs to examine the impact of aid at sectoral level• and interactions among policies and institutions.
