[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/a/sae/emeeco/v12y2020i3p283-302.html
   My bibliography  Save this article

Foreign Aid Effectiveness: Evidence from Panel Data Analysis

Author

Listed:
  • M. Adnan Kabir
Abstract
The effectiveness of foreign aid is an important issue that encompasses a wide range of academic fields but fails to provide any underlying consensus. This study empirically investigates the effectiveness of foreign aid in reducing income inequality of the developing world and subsamples of countries from Africa, South Asia, and South America, which historically demonstrate socioeconomic and geopolitical similarities. In an attempt to recognize aid effectiveness with clarity, this study contributes to the debate in the literature to reconcile the seemingly composite effect of foreign aid on income inequality and extrapolate if the inhibitory mechanisms of institution quality have a regressing effect. Thus, central to the thesis are two intertwining legacies: (a) the possible egalitarian effect of foreign aid on the income distribution of a country and (b) aid effectiveness when a country’s institutional quality is factored in. Using panel data from eight subsamples, the study found statistically significant but marginal foreign aid effectiveness in tackling the income inequality divide of most developing countries. Moreover, the effectiveness diminishes when institutional quality is factored in, which implies a confounding yet deracinating effect on foreign aid efficacy.

Suggested Citation

  • M. Adnan Kabir, 2020. "Foreign Aid Effectiveness: Evidence from Panel Data Analysis," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(3), pages 283-302, September.
    • Handle: RePEc:sae:emeeco:v:12:y:2020:i:3:p:283-302
    DOI: 10.1177/0974910120961570
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0974910120961570
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0974910120961570?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. César Calderón & Alberto Chong, 2004. "Volume and Quality of Infrastructure and the Distribution of Income: An Empirical Investigation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(1), pages 87-106, March.
    2. Tony Addison & George Mavrotas & Mark McGillivray, 2005. "Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals," WIDER Working Paper Series RP2005-09, World Institute for Development Economic Research (UNU-WIDER).
    3. Francisco H. G. Ferreira & Shaohua Chen & Andrew Dabalen & Yuri Dikhanov & Nada Hamadeh & Dean Jolliffe & Ambar Narayan & Espen Beer Prydz & Ana Revenga & Prem Sangraula & Umar Serajuddin & Nobuo Yosh, 2016. "A global count of the extreme poor in 2012: data issues, methodology and initial results," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(2), pages 141-172, June.
    4. Sylvie Démurger & Jeffrey D. Sachs & Wing Thye Woo & Shuming Bao & Gene Chang & Andrew Mellinger, 2002. "Geography, Economic Policy, and Regional Development in China," Asian Economic Papers, MIT Press, vol. 1(1), pages 146-197.
    5. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    6. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    7. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398, April.
    8. Gottschalk, Peter & Smeeding, Timothy M., 2000. "Empirical evidence on income inequality in industrialized countries," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 5, pages 261-307, Elsevier.
    9. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 1, Center for International Development at Harvard University.
    10. Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 120-130, Jan.-Feb..
    11. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages 191-216, June.
    12. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
    13. Edward Anderson & Hugh Waddington, 2007. "Aid and the Millennium Development Goal Poverty Target: How Much is Required and How Should it be Allocated?," Oxford Development Studies, Taylor & Francis Journals, vol. 35(1), pages 1-31.
    14. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-641, September.
    15. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 01A, Center for International Development at Harvard University.
    16. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 158-183, December.
    17. Klaus Abbink & Bernd Irlenbusch & Elke Renner, 2002. "An Experimental Bribery Game," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 428-454, October.
    18. Chong, Alberto & Calderon, Cesar, 2000. "Institutional Quality and Income Distribution," Economic Development and Cultural Change, University of Chicago Press, vol. 48(4), pages 761-786, July.
    19. Alberto Chong & Mark Gradstein, 2007. "Inequality and Institutions," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 454-465, August.
    20. Gallup, J.L. & Sachs, J.D. & Mullinger, A., 1999. "Geography and Economic Development," Papers 1, Chicago - Graduate School of Business.
    21. Alberto Chong & Mark Gradstein & Cecilia Calderon, 2009. "Can foreign aid reduce income inequality and poverty?," Public Choice, Springer, vol. 140(1), pages 59-84, July.
    22. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    23. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
    24. Solt, Frederick, 2019. "Measuring Income Inequality Across Countries and Over Time: The Standardized World Income Inequality Database," SocArXiv mwnje, Center for Open Science.
    25. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    26. Willam Greene, 2005. "Fixed and Random Effects in Stochastic Frontier Models," Journal of Productivity Analysis, Springer, vol. 23(1), pages 7-32, January.
    27. Malabika Roy & Saikat Sinha Roy (ed.), 2016. "International Trade and International Finance," Springer Books, Springer, number 978-81-322-2797-7, December.
    28. Brautigam, Deborah A & Knack, Stephen, 2004. "Foreign Aid, Institutions, and Governance in Sub-Saharan Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 52(2), pages 255-285, January.
    29. Gallup, John L. & Sachs, Jeffrey D. & Mellinger, Andrew, "undated". "Geography and Economic Development," Instructional Stata datasets for econometrics geodata, Boston College Department of Economics.
    30. Georgios Karras, 2006. "Foreign aid and long-run economic growth: empirical evidence for a panel of developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(1), pages 15-28.
    31. H. Naci Mocan, 1999. "Structural Unemployment, Cyclical Unemployment, and Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 122-134, February.
    32. Hollis B. Chenery, 1967. "Foreign Assistance and Economic Development," International Economic Association Series, in: John H. Adler (ed.), Capital Movements and Economic Development, chapter 0, pages 268-292, Palgrave Macmillan.
    33. Shujie Yao, 1997. "Industrialization and spatial income inequality in rural China, 1986‐921," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 5(1), pages 97-112, May.
    34. Gallup, John & Sachs, Jeffrey, 1999. "Geography and Economic Development," Harvard Institute for International Development (HIID) Papers 294434, Harvard University, Kennedy School of Government.
    35. Sanjeev Gupta & Hamid Davoodi & Rosa Alonso-Terme, 2002. "Does corruption affect income inequality and poverty?," Economics of Governance, Springer, vol. 3(1), pages 23-45, March.
    36. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    37. Bjørnskov, Christian, 2010. "Do elites benefit from democracy and foreign aid in developing countries?," Journal of Development Economics, Elsevier, vol. 92(2), pages 115-124, July.
    38. repec:idb:brikps:39798 is not listed on IDEAS
    39. J. J. Polak & Joydeep Roy & Ms. Catherine A Pattillo, 2007. "Measuring the Effect of Foreign Aidon Growth and Poverty Reduction or the Pitfalls of Interaction Variables," IMF Working Papers 2007/145, International Monetary Fund.
    40. Eskander Alvi & Aberra Senbeta, 2014. "Foreign aid, growth, and poverty relation: a quantile regression approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 48(3), pages 381-403, July-Sept.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kosea Wambaka, 2023. "Impact of Bilateral and Multilateral Aid on Economic Growth in Low and Middle-Income Sub Sahara African Countries: Mediating Role of Institutional Quality," International Business Research, Canadian Center of Science and Education, vol. 16(1), pages 1-44, January.
    2. Ku McMahan & Saad Usmani, 2022. "The Economic Benefits of Supporting Private Social Enterprise at the Nexus of Water and Agriculture: A Social Rate of Return Analysis of the Securing Water for Food Grand Challenge for Development," Sustainability, MDPI, vol. 14(10), pages 1-16, May.
    3. Noamane Cherkaoui, 2022. "The Sovereignty of Developing Countries: The Challenge of Foreign Aid," Policy briefs on Economic Trends and Policies 2221, Policy Center for the New South.
    4. repec:ocp:rpaeco:pb_45-22 is not listed on IDEAS
    5. Muhammad Arshad & Sana Hameed Pasha & Naeem Akram & Nadia Hussain, 2023. "Estimating aggregate economic rate of return to foreign aid in Pakistan," SN Business & Economics, Springer, vol. 3(6), pages 1-19, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mark McGillivray & Simon Feeny, 2008. "Aid and Growth in Fragile States," WIDER Working Paper Series RP2008-03, World Institute for Development Economic Research (UNU-WIDER).
    2. Young, Andrew T. & Sheehan, Kathleen M., 2014. "Foreign aid, institutional quality, and growth," European Journal of Political Economy, Elsevier, vol. 36(C), pages 195-208.
    3. Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2005. "It Works; It Doesn't; It Can, But that Depends...: 50 Years of Controversy Over the Macroeconomic Impact of Development Aid," WIDER Working Paper Series RP2005-54, World Institute for Development Economic Research (UNU-WIDER).
    4. Angeles, Luis & Neanidis, Kyriakos C., 2009. "Aid effectiveness: the role of the local elite," Journal of Development Economics, Elsevier, vol. 90(1), pages 120-134, September.
    5. Roland Hodler & David S. Knight, 2012. "Ethnic Fractionalisation and Aid Effectiveness," Journal of African Economies, Centre for the Study of African Economies, vol. 21(1), pages 65-93, January.
    6. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    7. Geetilaxmi MOHAPATRA & A. K. GIRI & Madhu SEHRAWAT, 2016. "Foreign aid, macroeconomic policies and economic growth nexus in India: An ARDL bounds testing approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(609), W), pages 183-202, Winter.
    8. Ismail O. FASANYA & Adegbemi B.O ONAKOYA, 2012. "Does Foreign Aid Accelerate Economic Growth? An Empirical Analysis for Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 423-431.
    9. Kourtellos, Andros & Tan, Chih Ming & Zhang, Xiaobo, 2007. "Is the relationship between aid and economic growth nonlinear?," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 515-540, September.
    10. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages 191-216, June.
    11. Lessmann, Christian & Markwardt, Gunther, 2012. "Aid, Growth and Devolution," World Development, Elsevier, vol. 40(9), pages 1723-1749.
    12. Meysonnat, Aline & Muysken, Joan & Zon, Adriaan van, 2015. "Poverty traps: the neglected role of vitality," MERIT Working Papers 2015-052, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    13. Harb, Nermeen & Hall, Stephen G., 2019. "Does foreign aid play a role in the maintenance of economic growth? A non-linear analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 192-204.
    14. Zohid Askarov & Hristos Doucouliagos, 2013. "Does aid improve democracy and governance? A meta-regression analysis," Public Choice, Springer, vol. 157(3), pages 601-628, December.
    15. Mina Baliamoune‐Lutz & George Mavrotas, 2009. "Aid Effectiveness: Looking at the Aid–Social Capital–Growth Nexus," Review of Development Economics, Wiley Blackwell, vol. 13(3), pages 510-525, August.
    16. Kamguia, Brice & Tadadjeu, Sosson & Miamo, Clovis & Njangang, Henri, 2022. "Does foreign aid impede economic complexity in developing countries?," International Economics, Elsevier, vol. 169(C), pages 71-88.
    17. Muhammad, Fidlizan & Abdul Razak, Azila & Mohd Hussin, Mohd Yahya, 2015. "Kesan Bantuan Kewangan Luar terhadap Indikator Pembangunan di ASEAN: Analisis Panel," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 49(1), pages 61-70.
    18. Nadeem Abdulmalik Abdulrahman Aljonaid & Fengming Qin & Zhaoyong Zhang, 2022. "The Heterogeneous Impact of Sectoral Foreign Aid Inflows on Sectoral Growth: SUR Evidence from Selected Sub-Saharan African and MENA Countries," JRFM, MDPI, vol. 15(3), pages 1-45, February.
    19. Geetilaxmi MOHAPATRA & A. K. GIRI & Madhu SEHRAWAT, 2016. "Foreign aid, macroeconomic policies and economic growth nexus in India: An ARDL bounds testing approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 183-202, Winter.
    20. Tadesse, Tasew, 2011. "Foreign aid and economic growth in Ethiopia," MPRA Paper 33953, University Library of Munich, Germany, revised 20 Sep 2011.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:emeeco:v:12:y:2020:i:3:p:283-302. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.emergingmarketsforum.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.