Like previous contributions, this paper relies on a very simple growth model to relate development financing — private or public — to growth in order to estimate how much it would cost to halve poverty across developing countries. The virtue of this model is precisely its simplicity but the trade-off is that it does not claim to take account of the effects of increases in development financing, tax revenues, public expenditure and transfers on the general equilibrium of the economy to which it is applied. For instance, increasing the supply of schooling does not necessarily guarantee that it will be met with an equivalent increase in the demand for education. The model used in this paper simply provides orders of magnitude that are helpful to size up the challenges that meeting MDGs entails for low- and middle-income countries.
Similarly, when measuring the amount of transfers or government expenditure that it would take to achieve the poverty, education and health MDGs across countries, this paper acknowledges that the link between inputs and outcomes is often weak and that absorption and delivery issues can represent significant challenges in developing countries. From this perspective, the orders of magnitude presented cannot be taken to be precise estimates, especially at the country level, of how much public expenditure would be needed to increase in order to achieve specific MDGs. The importance of framing the corresponding debate in the larger framework of the quality of public policy and institutions is, indeed, a key take-away from the MDG costing exercise undertaken in this paper.
