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Recipient country's 'policies' and the effect of foreign aid on economic growth in developing countries: additional evidence

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Author Info
Rati Ram (Illinois State University, Normal, IL, USA)
Abstract

This note adds to the research which questions the recent influential view that recipient country's 'policies' play an important role in the effect of foreign aid on economic growth in developing countries. In the first step, the almost universal practice of imposing the constraint of equality on parameters of bilateral and multilateral aid is relaxed and it is shown that 'policy' has no role in the effect of aid even in those cases where the usual constrained models do show such an effect. In addition, many cases are noted where there is no indication of recipient country's policies having any role in the effect of aid on growth even in the usual constrained specifications. These cases employ not merely the Burnside-Dollar 'policy' index, which almost all scholars have used, but also two other broader measures. It is thus concluded that there is little empirical evidence to support the widely-disseminated view that redirecting aid toward countries with 'good' policies leads to more growth and greater poverty reduction in developing countries. Copyright © 2004 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jid.1071
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 16 (2004)
Issue (Month): 2 ()
Pages: 201-211
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Handle: RePEc:wly:jintdv:v:16:y:2004:i:2:p:201-211

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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.:
  1. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 17-41, August. [Downloadable!] (restricted)
  2. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  4. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February. [Downloadable!] (restricted)
  5. Rati Ram, 2003. "Roles of Bilateral and Multilateral Aid in Economic Growth of Developing Countries," Kyklos, Blackwell Publishing, vol. 56(1), pages 95-110, February.
  6. John Hudson & Paul Mosley, 2001. "Aid policies and growth: in search of the holy grail," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(7), pages 1023-1038. [Downloadable!]
  7. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September. [Downloadable!] (restricted)
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  8. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Addison, Tony & Mavrotas, George & McGillivray, Mark, 2005. "Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals," Working Papers RP2005/09, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  2. McGillivray, Mark, 2006. "Aid Allocation and Fragile States," Working Papers DP2006/01, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  3. Addison, Tony & Mavrotas, George & McGillivray, Mark, 2005. "Development Assistance and Development Finance: Evidence and Global Policy Agendas," Working Papers RP2005/23, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  4. Tony Addison & George Mavrotas & Mark McGillivray, 2005. "Aid to Africa: an unfinished agenda," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 989-1001. [Downloadable!]
  5. Derek Headey, 2008. "Geopolitics and the effect of foreign aid on economic growth: 1970-2001," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(2), pages 161-180. [Downloadable!]
  6. 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. [Downloadable!]
  7. Tony Addison & George Mavrotas & Mark McGillivray, 2005. "Development assistance and development finance: evidence and global policy agendas," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(6), pages 819-836. [Downloadable!]
  8. Antipin, Jan-Erik & Mavrotas, George, 2006. "On the Empirics of Aid and Growth: A Fresh Look," Working Papers RP2006/05, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  9. McGillivray, Mark & Feeny, Simon & Hermes, Niels & Lensink, Robert, 2005. "It Works; It Doesn't; It Can, But That Depends?: 50 Years of Controversy over the Macroeconomic Impact of Development Aid," Working Papers RP2005/54, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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