Aid and Growth Regressions

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the relationship between foreign aid and growth in real GDP per capita as it emerges from simple augmentations of popular cross-country growth specifications. It is shown that aid in all likelihood increases the growth rate, and this result is not conditional on ‘good’ policy. There are, however, decreasing returns to aid, and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables. When investment and human capital are controlled for, no positive effect of aid is found. Yet, aid continues to impact on growth via investment. We conclude by stressing the need for more theoretical work before this kind of cross-country regressions are used for policy purposes.

Keywords: Aid impact; Economic growth; Investment; Generalized method of moments; Panel data (search for similar items in EconPapers)
JEL-codes: C23 O1 O2 O4 (search for similar items in EconPapers)
Date: 2000-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Journal Article: Aid and growth regressions (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:62288

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