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Aid, Policies, and Growth in Developing Countries: A New Look at the Empirics

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  • Eskander Alvi

    (Department of Economics, Western Michigan University, Kalamazoo, MI 49008, USA)

  • Debasri Mukherjee

    ()
    (Department of Economics, Western Michigan University, Kalamazoo, MI 49008, USA)

  • Elias Kedir Shukralla

    (Department of Economics, STLCC-Meramec, 1133 Big Bend Boulevard, St. Louis, MO 63122, USA)

Abstract

The relationship between foreign aid and economic growth has been the subject of much controversy. A recent theme suggesting that aid promotes growth, but only in a good policy environment has ratcheted up that debate. In this paper, we assess the importance of policy and aid in generating growth when the aid, policy, and growth relationship is nonlinear. This allows us to examine the varying effects of aid and policy in different data segments, which we do without imposing any particular structure on the underlying relationship. We find that policy is an important determinant of growth. We also find partial corroboration of the view that aid is growth enhancing in a good policy environment, and some evidence of diminishing returns to aid. These findings suggest that nonlinearities if not appropriately addressed fail to capture the detailed underlying dynamics and thereby mask some key features of the aid-policy-growth relationship.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 74 (2008)
Issue (Month): 3 (January)
Pages: 693-706

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Handle: RePEc:sej:ancoec:v:74:3:y:2008:p:693-706

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Cited by:
  1. James B. Ang, 2009. "Financial Liberalization And The Aid Growth Relationship In India," Development Research Unit Working Paper Series 10-09, Monash University, Department of Economics.
  2. Lessmann, Christian & Markwardt, Gunther, 2009. "Aid, growth and decentralization," Dresden Discussion Paper Series in Economics 09/09, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  3. Unbreen Qayyum, 2013. "Institutional Quality, Conflict and Aid Dependency," PIDE-Working Papers 2013:94, Pakistan Institute of Development Economics.
  4. Muhammad Javid & Abdul Qayyum, 2011. "Foreign Aid and Growth Nexus in Pakistan: The Role of Macroeconomic Policies," PIDE-Working Papers 2011:72, Pakistan Institute of Development Economics.
  5. Lessmann, Christian & Markwardt, Gunther, 2012. "Aid, Growth and Devolution," World Development, Elsevier, vol. 40(9), pages 1723-1749.
  6. Armah, Stephen E. & Nelson, Carl H., 2008. "Is Foreign Aid Beneficial for Sub-Saharan Africa? A Panel Data Analysis," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6356, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Nowak-Lehmann D., Felicitas & Martínez-Zarzoso, Inmaculada & Herzer, Dierk & Klasen, Stephan & Dreher, Axel, 2009. "The search for a long-run aid and growth relationship: Pitfalls and findings," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 23, Verein für Socialpolitik, Research Committee Development Economics.
  8. Debasri Mukherjee & Elias Shukralla & Eskander Alvi, 2008. "Foreign Aid, Growth, Policy And Reform," Economics Bulletin, AccessEcon, vol. 15(6), pages 1-9.
  9. Qayyum, Unbreen & Din, Musleh-ud & Haider, Adnan, 2014. "Foreign aid, external debt and governance," Economic Modelling, Elsevier, vol. 37(C), pages 41-52.
  10. Shankar Ghimire & Debasri Mukherjee & Eskander Alvi, 2013. "Sectoral Aid-for-Trade and Sectoral Exports: A Seemingly Unrelated Regression Analysis," Economics Bulletin, AccessEcon, vol. 33(4), pages 2744-2755.

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