Growth effect of foreign aid and volatility in South Asia
AbstractPurpose – South Asia has been an important destination of foreign aid over the past decades. Since a large part of aid is disbursed for social and economic infrastructure development in South Asian countries, and the volume of aid has tremendously increased in recent years, the purpose of this study is to investigate how far various categories of foreign aid affects economic growth rate in these countries. In addition, as the trend of each category of aid transfer appears to have been volatile, this study also investigates whether the volatilities inhibit growth rate in these countries. Design/methodology/approach – In this study, South Asia refers to India, Bangladesh, Pakistan and Sri Lanka. The Random effects approach is employed incorporating panel data for the period of 1995-2008. The aggregate foreign aid is classified into various categories to have a comprehensive investigation. Findings – Foreign aid positively associated with growth whereas the volatility of aid hurts it. Long-impact aid promotes growth more than short-impact aid does. The volatility of short-impact aid hurts growth, whereas the volatility of long-impact aid has no effect on it. Pure aid and its volatility have no effect on growth. Originality/value – This study has identified the structure of foreign aid disbursed in these countries, and explored how far each category and respective volatility affects growth. These findings would be useful to the scholars and policy makers in the recipient countries as well as donors, to make foreign aid much more effective in future.
Download InfoIf 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.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal International Journal of Development Issues.
Volume (Year): 10 (2011)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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.:
- Elizabeth Asiedu & Yi Jin & Boaz Nandwa, 2009.
"Does Foreign Aid Mitigate the Adverse Effect of Expropriation Risk on Foreign Direct Investment?,"
WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS
200905, University of Kansas, Department of Economics.
- Asiedu, Elizabeth & Jin, Yi & Nandwa, Boaz, 2009. "Does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment?," Journal of International Economics, Elsevier, vol. 78(2), pages 268-275, July.
- Selaya, Pablo & Sunesen, Eva Rytter, 2012.
"Does Foreign Aid Increase Foreign Direct Investment?,"
Elsevier, vol. 40(11), pages 2155-2176.
- Pablo Selaya & Eva R. Sunesen, 2008. "Does Foreign Aid Increase Foreign Direct Investment?," Discussion Papers 08-04, University of Copenhagen. Department of Economics.
- Kang Yong Tan, 2009. "A pooled mean group analysis on aid and growth," Applied Economics Letters, Taylor & Francis Journals, vol. 16(16), pages 1597-1601.
- Ouattara, B., 2006. "Foreign aid and government fiscal behaviour in developing countries: Panel data evidence," Economic Modelling, Elsevier, vol. 23(3), pages 506-514, May.
- C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
- Chauvet, Lisa, 2003.
"Socio-political instability and the allocation of international aid by donors,"
European Journal of Political Economy,
Elsevier, vol. 19(1), pages 33-59, March.
- Chauvet, Lisa, 2003. "Socio-political instability and the allocation of international aid by donors," Economics Papers from University Paris Dauphine 123456789/5404, Paris Dauphine University.
- Hudson, John & Mosley, Paul, 2008. "The macroeconomic impact of aid volatility," Economics Letters, Elsevier, vol. 99(3), pages 486-489, June.
- Hidemi Kimura & Yasuyuki Todo, 2009.
"Is Foreign Aid a Vanguard of Foreign Direct Investment? A Gravity-Equation Approach,"
Asia Pacific Economic Papers
380, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
- Kimura, Hidemi & Todo, Yasuyuki, 2010. "Is Foreign Aid a Vanguard of Foreign Direct Investment? A Gravity-Equation Approach," World Development, Elsevier, vol. 38(4), pages 482-497, April.
- Hidemi Kimura & Yasuyuki Todo, 2009. "Is Foreign Aid a Vanguard of Foreign Direct Investment? A Gravity-Equation Approach," Development Economics Working Papers 22881, East Asian Bureau of Economic Research.
- Rukmani Gounder, 2001. "Aid-growth nexus: empirical evidence from Fiji," Applied Economics, Taylor & Francis Journals, vol. 33(8), pages 1009-1019.
- Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
- Arellano, Cristina & Bulír, Ales & Lane, Timothy & Lipschitz, Leslie, 2009.
"The dynamic implications of foreign aid and its variability,"
Journal of Development Economics,
Elsevier, vol. 88(1), pages 87-102, January.
- Timothy D. Lane & Leslie Lipschitz & Cristina Arellano & Ales Bulir, 2005. "The Dynamic Implications of Foreign Aid and its Variability," IMF Working Papers 05/119, International Monetary Fund.
- Egger, Peter, 2000.
"A note on the proper econometric specification of the gravity equation,"
Elsevier, vol. 66(1), pages 25-31, January.
- Peter Egger, . "A Note on the Proper Econometric Specification of the Gravity Equation," WIFO Working Papers 108, WIFO.
- Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004.
"Counting chickens when they hatch: The short-term effect of aid on growth,"
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
- Mark McGillivray & Bazoumana Ouattara, 2005. "Aid, Debt Burden and Government Fiscal Behaviour in Côte d'Ivoire," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 14(2), pages 247-269, June.
- Neanidis, Kyriakos C. & Varvarigos, Dimitrios, 2009. "The allocation of volatile aid and economic growth: Theory and evidence," European Journal of Political Economy, Elsevier, vol. 25(4), pages 447-462, December.
- Sanjay G. Reddy & Camelia Minoiu, 2006.
"Development Aid and Economic Growth: A Positive Long-Run Relation,"
29, United Nations, Department of Economics and Social Affairs.
- Minoiu, Camelia & Reddy, Sanjay G., 2010. "Development aid and economic growth: A positive long-run relation," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 27-39, February.
- Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Growth. A Meta Study," Economics Working Papers 2005-13, School of Economics and Management, University of Aarhus.
- Kilby, Christopher, 2010. "Special focus: Foreign aid," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 1-2, February.
- M. Uður Karakaplan & Bilin Neyaptý & Selin Sayek, 2005.
"Aid and Foreign Direct Investment : International Evidence,"
Departmental Working Papers
0505, Bilkent University, Department of Economics.
- Ugur Karakaplan & Bilin Neyapti & Selin Sayek, 2005. "Aid and Foreign Direct Investment: International Evidence," Working Papers 2005/12, Turkish Economic Association.
- Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2006. "Controversies over the impact of development aid: it works; it doesn't; it can, but that depends …," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(7), pages 1031-1050.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman).
If references are entirely missing, you can add them using this form.