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Aid and Growth in the Pacific Islands

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  • Vlad Pavlov
  • Craig Sugden

Abstract

The literature on the aid-growth relationship has recently been reinvigorated through the application of growth equations that seek to explain growth as a function of institutions, policies and aid. This approach has generally led to the conclusion that aid has contributed to growth, albeit with decreasing returns. Some studies have found that there is only a positive relationship between aid and growth when there is a favourable policy environment-a finding that has been used to provide a reason for the reallocation of aid to better-performing countries and an increased emphasis by donors on aid conditionality. It is unclear whether these conclusions apply to the Pacific island countries given their unusual features: notably, small populations, remote locations and a high level of aid. This paper draws on the recent literature in examining the aid-growth relationship in seven Pacific island countries. A positive relationship between aid and growth is identified, although it is subject to decreasing returns. The study is unable to provide an adequate explanation for the role of institutions and policy in growth in the countries studied, or determine whether aid only contributes to growth when favourable policy environments are in place. Copyright © 2006 The Authors Journal compilation © 2006 Crawford School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd..

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Bibliographic Info

Article provided by Asia Pacific School of Economics and Government, The Australian National University in its journal Asian-Pacific Economic Literature.

Volume (Year): 20 (2006)
Issue (Month): (November)
Pages: 38-55

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Handle: RePEc:bla:apacel:v:20:y:2006:i::p:38-55

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0818-9935

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Cited by:
  1. Balli, Faruk & Balli, Hatice O., 2011. "Income and consumption smoothing and welfare gains across Pacific Island Countries: The role of remittances and foreign aid," Economic Modelling, Elsevier, vol. 28(4), pages 1642-1649, July.
  2. Chowdhury, Anis, 2008. "Growth Oriented Macroeconomic Policies for Small Islands Economies: Lessons from Singapore," Working Paper Series RP2008/47, World Institute for Development Economic Research (UNU-WIDER).
  3. Bah, El-hadj M. & Ward, Jeremy, 2011. "Effectiveness of foreign aid in Small Island Developing States," MPRA Paper 32062, University Library of Munich, Germany.
  4. Catalina Amuedo-Dorantes & Susan Pozo, 2007. "Remittances and the Macroeconomy: The Case of Small Island Developing States," Working Papers 0018, San Diego State University, Department of Economics.
  5. Feeny, Simon & Iamsiraroj, Sasi & McGillivray, Mark, 2014. "Growth and Foreign Direct Investment in the Pacific Island countries," Economic Modelling, Elsevier, vol. 37(C), pages 332-339.
  6. Yongzheng Yang & Hong Chen & Shiu raj Singh & Baljeet Singh, 2013. "The Pacific Speed of Growth," IMF Working Papers 13/104, International Monetary Fund.

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