Vector Autoregressive Analysis of the Validity of the Two-gap Model for Nine Large Recipients of Japan's ODA

The purpose of this paper is to identify empirically the factors that have promoted or restrained the economic growth in developing countries, based on the well-known growth model called the two-gap model. The authors apply vector autoregressive (VAR) analysis to nine developing countries, to which Japan has liberally provided ODA over the past 30 years. The results of the empirical tests, however, do not give a straightforward answer to the effectiveness of the two-gap model. It reveals instead that the growth-promoting (restraining) factors vary across the countries, implying that each country requires its own development strategies. Chapter 1 of this paper briefly reviews the historical path of Japan's ODA policies. Chapter 2 describes the theoretical framework and the empirical methodologies employed in the analysis. Chapter 3 presents the results of the empirical tests, and concludes its implications.