Testing the Big Push Hypothesis - The Case of Montserrat

Sammanfattning: The idea of a big push is one of the earliest theories in development economics and the original justification for foreign aid. The past 30 years have witnessed the publication of numerous studies on aid effectiveness with varying results. This thesis proceeds from the discussion regarding the relationship between aid, economic growth and poverty reduction. The big push hypothesis implies increased aid and investments aiming to raise economic growth and thus reduce poverty. In this study, the hypothesis is examined by two methodological approaches, a macro study on developing countries and a case study of Montserrat. In 1997, Montserrat suffered from volcanic eruptions and has since received substantial amounts of development aid from the UK. Departing from a panel data regression analysis on 79 developing countries between 1982 and 2010, the results indicate that a big push of aid promotes economic growth. However, when analyzing the aid-poverty relationship through conducting interviews with stakeholders in Montserrat, a big push of aid has not reduced poverty. This is due to the lack of sustainable economic and social development resulting in high cost of living, few employment opportunities, short-term character of implemented projects and an insufficient welfare system. Thus, combining the results from both approaches, this thesis concludes that the theoretical framework of the big push hypothesis is questioned.