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Aid heterogeneity: looking at aid effectiveness from a different angle

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  • George Mavrotas

    (UNU-WIDER, Helsinki, Finland)

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    Abstract

    The paper uses an aid disaggregation approach to examine the impact of different aid modalities on the fiscal sector of the aid-recipient country. It uses time-series data on different types of development aid (project aid, programme aid, technical assistance and food aid) for Uganda, an important aid recipient in recent years, to estimate a model of fiscal response in the presence of aid which combines aid heterogeneity and endogenous aid. The empirical findings clearly suggest the importance of the above approach for delving deeper into aid effectiveness issues since different aid categories have different effects on key fiscal variables-an impact that could not be revealed if a single figure for aid were employed. Project and food aids appear to cause a reduction in public investment whereas programme aid and technical assistance are positively related to public investment. The same applies for government consumption. A negligible impact on government tax and non-tax revenues, and a strong displacement of government borrowing are also found. Copyright © 2005 John Wiley & Sons, Ltd.

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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): 8 ()
    Pages: 1019-1036

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    Handle: RePEc:wly:jintdv:v:17:y:2005:i:8:p:1019-1036

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

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    1. George Mavrotas & Bazoumana Ouattara, 2010. "The Composition of Aid and the Fiscal Sector in an Aid-Recipient Economy: A Model," Working Papers id:3213, eSocialSciences.
    2. Susana Franco-Rodriguez, & Mark McGillivray, & Oliver Morrissey, . "Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid," Discussion Papers 98/2, University of Nottingham, CREDIT.
    3. 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.
    4. Pack, Howard & Pack, Janet Rothenberg, 1990. "Is Foreign Aid Fungible? The Case of Indonesia," Economic Journal, Royal Economic Society, vol. 100(399), pages 188-94, March.
    5. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May.
    6. Levy, Victor, 1987. "Anticipated Development Assistance, Temporary Relief Aid, and," Economic Journal, Royal Economic Society, vol. 97(386), pages 446-58, June.
    7. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
    8. Mavrotas, George & Ouattara, Bazoumana, 2003. "Aid Disaggregation, Endogenous Aid and the Public Sector in Aid-Recipient Economies: Evidence from C.te d'Ivoire," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
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    11. 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.
    12. Binh, Tran-Nam & McGillivray, Mark, 1993. "Foreign aid, taxes and public investment A comment," Journal of Development Economics, Elsevier, vol. 41(1), pages 173-176, June.
    13. Susana Franco-Rodriguez, 2000. "Recent developments in fiscal response with an application to Costa Rica," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 429-441.
    14. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November.
    15. George Mavrotas, 2002. "Foreign aid and fiscal response: Does aid disaggregation matter?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(3), pages 534-559, September.
    16. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September.
    17. Tarp, Finn, 2006. "Aid and Development," MPRA Paper 13171, University Library of Munich, Germany.
    18. Paul Collier & David Dollar, 2004. "Development effectiveness: what have we learnt?," Economic Journal, Royal Economic Society, vol. 114(496), pages F244-F271, 06.
    19. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    20. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
    21. 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.
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    Cited by:
    1. Dreher, Axel & Nunnenkamp, Peter & Thiele, Rainer, 2008. "Does Aid for Education Educate Children? Evidence from Panel Data," Open Access Publications from Kiel Institute for the World Economy 28827, Kiel Institute for the World Economy (IfW).
    2. George Mavrotas & Peter Nunnenkamp, 2007. "Foreign Aid Heterogeneity: Issues and Agenda," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(4), pages 585-595, December.
    3. Patrick Guillaumont & Sylviane Guillaumont Jeanneney, 2010. "Big Push versus Absorptive Capacity: How to Reconcile the Two Approaches," Working Papers id:3000, eSocialSciences.
    4. Feeny, Simon & McGillivray, Mark, 2009. "Aid and Public Sector Fiscal Behaviour in Failing States," MPRA Paper 21801, University Library of Munich, Germany.
    5. Stijn Claessens & Danny Cassimon, 2007. "Empirical evidence on the new international aid architecture," WEF Working Papers 0026, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
    6. Tejashree Sayanak & Sajal Lahiri, 2009. "Foreign Aid as Prize: Incentives for a Pro-Poor Policy," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 403-415, 08.
    7. Elizabeth Asiedu & Boaz Nandwa, 2007. "On the Impact of Foreign Aid in Education on Growth: How Relevant is the Heterogeneity of Aid Flows and the Heterogeneity of Aid Recipients?," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200701, University of Kansas, Department of Economics.
    8. Iimi, Atsushi & Ojima, Yasuhisa, 2008. "Complementarities between grants and loans," Journal of the Japanese and International Economies, Elsevier, vol. 22(1), pages 109-141, March.
    9. Laura Metzger & Isabel Günther, 2013. "Analyzing Effectiveness of Development Aid Projects: Evaluation Ratings or Project Indicators?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 154, Courant Research Centre PEG.
    10. Ruerd RUBEN, 2012. "Dimensionner l'aide au développement : ce que nous enseigne l'évaluation. Dimensioning Development Aid: Some Lessons from Evaluation," Revue d’économie du développement, De Boeck Université, vol. 26(4), pages 95-123.
    11. Bazoumana Ouattara & Eric Strobl, 2008. "Aid, Policy and Growth: Does Aid Modality Matter?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(2), pages 347-365, July.
    12. Djajic, Slobodan, 2008. "Foreign Aid, Infrastructure Development, and Welfare: An Intertemporal Analysis," Working Paper Series RP2008/64, World Institute for Development Economic Research (UNU-WIDER).

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