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Aid, public spending and human welfare: evidence from quantile regressions

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  • Karuna Gomanee

    (Regents Business School, UK)

  • Sourafel Girma

    (School of Economics, Leicester University, Leicester, UK)

  • Oliver Morrissey

    (School of Economics, University of Nottingham, Nottingham, UK)

Abstract

Does aid contribute to human development other than by increasing growth? In doing so, is aid more or less effective in poorer countries (those with low levels of aggregate welfare)? This paper addresses these issues, assessing if there is cross-country aggregate evidence for an effect of aid on welfare levels. We posit that aid can enhance human development by financing public expenditures that increase welfare indicators. Using quantile regressions, we report evidence that aid is associated with higher human development (the Human Development Index) and lower infant mortality (both indicators of aggregate welfare). Where there are differences across quantiles, aid is more effective in countries below the median of the welfare distribution, i.e. with lower levels of human development. Insofar as aggregate welfare is (inversely) correlated with poverty, we find evidence that aid can make a positive contribution to alleviating poverty, and that the effect appears to be greater in countries with lower levels of human development indicators. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jid.1163
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 17 (2005)
Issue (Month): 3 ()
Pages: 299-309

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Handle: RePEc:wly:jintdv:v:17:y:2005:i:3:p:299-309

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Web page: http://www3.interscience.wiley.com/journal/5102/home

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  1. Gupta, Sanjeev & Verhoeven, Marijn & Tiongson, Erwin R., 2002. "The effectiveness of government spending on education and health care in developing and transition economies," European Journal of Political Economy, Elsevier, vol. 18(4), pages 717-737, November.
  2. Mark McGillivray & Oliver Morrissey, 2000. "Aid fungibility in Assessing Aid: red herring or true concern?," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 413-428.
  3. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  4. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  5. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," The Journal of Development Studies, Taylor and Francis Journals, vol. 36(3), pages 31-49.
  6. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 66-92.
  7. Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
  8. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
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Citations

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Cited by:
  1. Stefano Paternostro & Anand Rajaram & Erwin R. Tiongson, 2007. "How Does the Composition of Public Spending Matter?," Oxford Development Studies, Taylor and Francis Journals, vol. 35(1), pages 47-82.
  2. Okada, Keisuke & Samreth, Sovannroeun, 2012. "The effect of foreign aid on corruption: A quantile regression approach," Economics Letters, Elsevier, vol. 115(2), pages 240-243.
  3. Roberto Burguet & Marcelo Soto, 2011. "Seeds of hope: Assessing the effect of development aid on the reduction of child mortality," UFAE and IAE Working Papers 890.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Patrick Guillaumont, 2011. "Aid effectiveness for poverty reduction:macroeconomic overview and emerging issues," Working Papers halshs-00554285, HAL.
  5. Mogues, Tewodaj & Ayele, Gezahegne & Paulos, Zelekawork & Fan, Shenggen, 2006. "How Effective is Public Spending? Public Investment Composition and Rural Welfare in Ethiopia," 2006 Annual meeting, July 23-26, Long Beach, CA 21258, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Yousuf, Ahmed Sadek, 2012. "Impact of Health Aid on Infant Mortality Rate," MPRA Paper 42945, University Library of Munich, Germany, revised 12 Oct 2012.
  7. Maureen Mackintosh & Kwadwo Mensah & Leroi Henry & Michael Rowson, 2006. "Aid, restitution and international fiscal redistribution in health care: implications of health professionals' migration," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(6), pages 757-770.
  8. Yousuf, Ahmed Sadek, 2012. "Assessing Impact of Health Oriented Aid on Infant Mortality Rates," EconStor Preprints 67391, ZBW - German National Library of Economics.
  9. Dierk Herzer & Oliver Morrissey, . "The Long-Run Effect of Aid on Domestic Output," Discussion Papers 09/01, University of Nottingham, CREDIT.
  10. Mesplé-Somps, Sandrine & Gubert, Flore & Chauvet, Lisa, 2010. "Are Remittances More Effective Than Aid to Reduce Child Mortality? An Empirical Assessment Using Inter and Intra-Country Data," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/4301, Université Paris-Dauphine.
  11. Ralf Hepp, 2005. "Health Expenditures Under the HIPC Debt Initiative," International Finance 0510005, EconWPA.
  12. Jan Pettersson, 2007. "Child Mortality: Is Aid Fungibility in Pro-Poor Expenditure Sectors Decisive?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(4), pages 673-693, December.
  13. Karuna Gomanee & Sourafel Girma & Oliver Morrissey, 2005. "Aid and growth in Sub-Saharan Africa: accounting for transmission mechanisms," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 1055-1075.
  14. Robert Gillanders, 2011. "The Effects of Foreign Aid in Sub-Saharan Africa," Working Papers 201116, School Of Economics, University College Dublin.
  15. Ziesemer, Thomas, 2012. "The impact of development aid on education and health: Survey and new evidence from dynamic models," UNU-MERIT Working Paper Series 057, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology.
  16. Channing Arndt & Sam Jones & Finn Tarp, 2011. "Aid Effectiveness: Opening the Black Box," Working Papers UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).

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