Foreign Aid, Fertility and Human Capital Accumulation

This paper analyses the effect of foreign aid on population growth and human capital accumulation. Consistent with empirical evidence from sub-Saharan Africa, the model shows that foreign aid can work against its stated goal of alleviating poverty and promoting growth. Humanitarian aid fosters population growth and adversely affects the recipients' incentive to invest in human capital. The analysis suggests that foreign aid may lock a recipient economy in a low-equilibrium trap.