Advanced Search
MyIDEAS: Login to save this article or follow this journal

The allocation of volatile aid and economic growth: Theory and evidence

Contents:

Author Info

  • Neanidis, Kyriakos C.
  • Varvarigos, Dimitrios

Abstract

We analyse, both theoretically and empirically, the growth effects associated with two components of volatile foreign financial assistance: 'directly productive' (or 'tied') aid and 'pure' aid. We find that scenarios in which aid can hurt the recipient's growth rate emerge only in cases where foreign aid is volatile. As a result, we conclude that it is only in conjunction with the presence of aid variability that aid allocation determines whether foreign aid hurts or promotes long-run growth.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V97-4W7B08M-1/2/b6039f46beae02d9ee1f4c54c69e217a
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 25 (2009)
Issue (Month): 4 (December)
Pages: 447-462

as in new window
Handle: RePEc:eee:poleco:v:25:y:2009:i:4:p:447-462

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505544

Related research

Keywords: Allocation Economic growth Foreign aid Volatility;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Chatterjee, Santanu & Sakoulis, Georgios & Turnovsky, Stephen J., 2003. "Unilateral capital transfers, public investment, and economic growth," European Economic Review, Elsevier, vol. 47(6), pages 1077-1103, December.
  2. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
  3. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
  4. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  5. Roland Hodler, 2007. "Rent seeking and aid effectiveness," International Tax and Public Finance, Springer, vol. 14(5), pages 525-541, October.
  6. Raghuram G. Rajan & Arvind Subramanian, 2005. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," NBER Working Papers 11513, National Bureau of Economic Research, Inc.
  7. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
  8. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  9. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  10. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  11. Collier, Paul & Hoeffler, Anke, 2004. "Aid, policy and growth in post-conflict societies," European Economic Review, Elsevier, vol. 48(5), pages 1125-1145, October.
  12. Pallage, Stephane & Robe, Michel A, 2001. "Foreign Aid and the Business Cycle," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 641-72, November.
  13. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-51, December.
  14. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  15. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
  16. Sanjay G. Reddy & Camelia Minoiu, 2006. "Development Aid and Economic Growth: A Positive Long-Run Relation," Working Papers 29, United Nations, Department of Economics and Social Affairs.
  17. David Roodman, 2004. "The Anarchy of Numbers: Aid, Development, and Cross-country Empirics," Development and Comp Systems 0412003, EconWPA.
  18. Santanu Chatterjee & Stephen Turnovsky, 2005. "Foreign Aid and Economic Growth: The Role of Flexible Labor Supply," Working Papers UWEC-2004-07-P, University of Washington, Department of Economics, revised Nov 2005.
  19. Alessandro Prati & Thierry Tressel, 2006. "What is the Most Effective Monetary Policy for Aid-Receiving Countries?," Working Papers 12, United Nations, Department of Economics and Social Affairs.
  20. Kent P. Kimbrough, 1986. "Foreign Aid and Optimal Fiscal Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 35-61, February.
  21. George Economides & Sarantis Kalyvitis & Apostolis Philippopoulos, 2008. "Does foreign aid distort incentives and hurt growth? Theory and evidence from 75 aid-recipient countries," Public Choice, Springer, vol. 134(3), pages 463-488, March.
  22. A. Javier Hamann & Ales Bulir, 2006. "Volatility of Development Aid," IMF Working Papers 06/65, International Monetary Fund.
  23. Collier, Paul & Dehn, Jan, 2001. "Aid, shocks, and growth," Policy Research Working Paper Series 2688, The World Bank.
  24. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  25. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May.
  26. George Mavrotas & David Fielding, 2010. "The Volatility of Aid," Working Papers id:3166, eSocialSciences.
  27. J. Svensson, 1999. "Aid, Growth and Democracy," Economics and Politics, Wiley Blackwell, vol. 11(3), pages 275-297, November.
  28. William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
  29. Author-Name: Jeffrey D. Sachs & John W. McArthur & Guido Schmidt-Traub & Margaret Kruk & Chandrika Bahadur & Michael Faye & Gordon McCord, 2004. "Ending Africa's Poverty Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(1), pages 117-240.
  30. Pantelis Kalaitzidakis & Sarantis Kalyvitis, 2008. "On the Growth Implications of Foreign Aid for Public Investment Co-Financing," Review of Development Economics, Wiley Blackwell, vol. 12(2), pages 354-371, 05.
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 in new window

Cited by:
  1. Aurore Gary & Mathilde Maurel, 2013. "The effect of donors' policy coherence on growth," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00825816, HAL.
  2. Kumar, Ronald/R, 2011. "Role of Trade, Aid, Remittances and Financial Development in Pakistan," MPRA Paper 38871, University Library of Munich, Germany.
  3. Hudson, John, 2012. "Consequences of Aid Volatility for Macroeconomic Management and Aid Effectiveness," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Dobronogov, Anton & Keutiben, Octave, 2014. "Containing volatility : windfall revenues for resource-rich low-income countries," Policy Research Working Paper Series 6956, The World Bank.
  5. Stephen M. Miller & Kyriakos C. Neanidis, 2012. "Demographic Transition and Economic Welfare: The Role of Humanitarian Aid," Centre for Growth and Business Cycle Research Discussion Paper Series 164, Economics, The Univeristy of Manchester.
  6. T. Bhavan & Changsheng Xu & Chunping Zhong, 2011. "Growth effect of foreign aid and volatility in South Asia," International Journal of Development Issues, Emerald Group Publishing, vol. 10(3), pages 204-213, September.
  7. Brück, Tilman & Xu, Guo, 2012. "Who gives aid to whom and when? Aid accelerations, shocks and policies," European Journal of Political Economy, Elsevier, vol. 28(4), pages 593-606.
  8. Kathavate, Jay & Mallik, Girijasankar, 2012. "The impact of the Interaction between institutional quality and aid volatility on growth: theory and evidence," Economic Modelling, Elsevier, vol. 29(3), pages 716-724.
  9. Aurore Gary & Mathilde Maurel, 2013. "The effect of donors' policy coherence on growth," Documents de travail du Centre d'Economie de la Sorbonne 13046, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  10. Raschky, Paul A. & Schwindt, Manijeh, 2012. "On the channel and type of aid: The case of international disaster assistance," European Journal of Political Economy, Elsevier, vol. 28(1), pages 119-131.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:poleco:v:25:y:2009:i:4:p:447-462. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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