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Regime changes, economic policies and the effect of aid on growth

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  • Muhammed Islam
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    Abstract

    This study finds that on average aid has little impact on economic growth, although a robust finding is that aid promotes growth only in a politically stable environment irrespective of the quality of the country's economic policies. Aid is ineffective in an unstable environment even in the presence of good policies. The results, however, indicate that policy is more effective in promoting growth when supported by increased aid flows rather than aid being more effective in good policy environment. The empirical results also provide some tentative support for the presence of an aid Laffer curve in the politically stable countries. The allocation of aid is found to be influenced by the country size and its state of development, rather than the quality of policy.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/00220380500187828
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

    Volume (Year): 41 (2005)
    Issue (Month): 8 ()
    Pages: 1467-1492

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    Handle: RePEc:taf:jdevst:v:41:y:2005:i:8:p:1467-1492

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    References

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    1. Nehru, Vikram & Swanson, Eric & Dubey, Ashutosh, 1995. "A new database on human capital stock in developing and industrial countries: Sources, methodology, and results," Journal of Development Economics, Elsevier, vol. 46(2), pages 379-401, April.
    2. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
    3. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
    4. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
    5. Lensink, Robert & White, Howard, 1999. "Are there negative returns to aid?," Research Report 99E60, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    6. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    7. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    8. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
    9. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
    10. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
    11. repec:fth:coluec:625 is not listed on IDEAS
    12. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    13. Muhammed N. Islam & Stanley L. Winer, 2004. "Tinpots, Totalitarians (and Democrats): An Empirical Investigation of the Effects of Economic Growth on Civil Liberties and Political Rights," Public Choice, Springer, vol. 118(3_4), pages 289-323, 03.
    14. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
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    Cited by:
    1. Lessmann, Christian & Markwardt, Gunther, 2010. "Fiscal federalism and foreign transfers: does inter-jurisdictional competition increase foreign aid effectiveness?," Dresden Discussion Paper Series in Economics 10/10, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
    2. Unbreen Qayyum, 2013. "Institutional Quality, Conflict and Aid Dependency," PIDE-Working Papers 2013:94, Pakistan Institute of Development Economics.
    3. Tadesse, Tasew, 2011. "Foreign aid and economic growth in Ethiopia," MPRA Paper 33953, University Library of Munich, Germany, revised 20 Sep 2011.
    4. Lessmann, Christian & Markwardt, Gunther, 2012. "Aid, Growth and Devolution," World Development, Elsevier, vol. 40(9), pages 1723-1749.
    5. Qayyum, Unbreen & Musleh ud, Din & Haider, Adnan, 2012. "Foreign Aid, External Debt and Governance," MPRA Paper 40260, University Library of Munich, Germany.
    6. Patrick Guillaumont, 2011. "Aid effectiveness for poverty reduction:macroeconomic overview and emerging issues," Working Papers halshs-00554285, HAL.
    7. Christian Lessmann & Gunther Markwardt, 2010. "Decentralization and Foreign Aid Effectiveness: Do Aid Modality and Federal Design Matter in Poverty Alleviation?," CESifo Working Paper Series 3035, CESifo Group Munich.
    8. 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).
    9. 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.

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