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On The Empirics of Foreign Aid and Growth

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Author Info
Carl-Johan Dalgaard
Henrik Hansen
Finn Tarp

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Abstract

The present paper re-examines the effectiveness of foreign aid theoretically and empirically. Using a standard OLG model we show that aid inflows will in general affect long-run productivity. The size and direction of the impact may depend on policies, 'deep' structural characteristics and the size of the inflow. The empirical analysis investigates these possibilities. Overall we find that aid has been effective in spurring growth, but the magnitude of the effect depends on climate-related circumstances. Finally, we argue that the Collier-Dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate. Copyright 2004 Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 496 (06)
Pages: F191-F216
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Handle: RePEc:ecj:econjl:v:114:y:2004:i:496:p:f191-f216

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  28. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 42-65, August. [Downloadable!] (restricted)
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  29. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
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