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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. Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
  2. 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.
  3. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  4. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
  5. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  6. Patrick GUILLAUMONT & Lisa CHAUVET, 1999. "Aid and Performance: A Reassessment," Working Papers 199910, CERDI.
  7. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  8. 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.
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