Efficient Development Portfolio Design for Sub Saharan Africa
Adriaan van Zon & Kirsten Wiebe
#2010-050
We use Financial Optimum Portfolio Theory to obtain Optimum Development
(Policy) Portfolios for Sub Saharan African (SSA) Countries. We estimate
a model linking public expenditures on health, education and general
government expenditures to the Human Development Index (HDI). Given the
uncertainty of the estimated impact parameters, we obtain optimum
expenditure portfolios and use them to measure the effectiveness of
actual public spending. Actual HDI performance is in part due to pure
chance, but significant improvements in HDI performance could be
realized through the reallocation of public spending towards health and
education. For some SSA countries we find that a double dividend exists,
since an expansion of public expenditures may lead to both a rise in HDI
performance and a fall in its corresponding variance. We also find that
HDI shortfalls due to chance are uncorrelated with governance
indicators, while inefficient spending and good governance are
negatively correlated.
Keywords Human Development Index, Public spending, Optimum Portfolio
Theory
JEL classification H5, I, O2
UNU-MERIT Working Papers
ISSN 1871-9872