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Aid and growth in Sub-Saharan Africa: accounting for transmission mechanisms

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  • Karuna Gomanee

    (Regent's Business College, London, UK)

  • Sourafel Girma

    (Business School, University of Nottingham, UK)

  • Oliver Morrissey

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

Abstract

This paper is a contribution to the literature on aid and growth. Despite an extensive empirical literature in this area, existing studies have not addressed directly the mechanisms via which aid should affect growth. We identify investment as the most significant transmission mechanism, and also consider effects through financing imports and government consumption spending. With the use of residual generated regressors, we achieve a measure of the total effect of aid on growth, accounting for the effect via investment. Pooled panel results for a sample of 25 Sub-Saharan African countries over the period 1970 to 1997 point to a significant positive effect of foreign aid on growth, ceteris paribus. On average, each one percentage point increase in the aid|GNP ratio contributes one-quarter of one percentage point to the growth rate. Africa's poor growth record should not therefore be attributed to aid ineffectiveness. 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: 1055-1075

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Handle: RePEc:wly:jintdv:v:17:y:2005:i:8:p:1055-1075

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

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  1. Alberto Alesina & Sule Ozler & Nouriel Roubini & Phillip Swagel, 1992. "Political Instability and Economic Growth," NBER Working Papers 4173, National Bureau of Economic Research, Inc.
  2. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, April.
  3. Karuna Gomanee & Sourafel Girma & Oliver Morrissey, 2006. "Aid, Public Spending and Human Welfare: Evidence from Quantile Regressions," Working Papers id:761, eSocialSciences.
  4. Gomanee, Karuna & Girma, Sourafel & Morrissey, Oliver, 2005. "Aid and Growth in Sub-Saharan Africa: Accounting for Transmission Mechanisms," Working Paper Series RP2005/60, World Institute for Development Economic Research (UNU-WIDER).
  5. 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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  10. Oliver Morrissey, 2004. "Conditionality and Aid Effectiveness Re-evaluated," The World Economy, Wiley Blackwell, vol. 27(2), pages 153-171, 02.
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  17. Gomanee, Karuna & Morrissey, Oliver & Mosley, Paul & Verschoor, Arjan, 2005. "Aid, Government Expenditure, and Aggregate Welfare," World Development, Elsevier, vol. 33(3), pages 355-370, March.
  18. Englebert, Pierre, 2000. "Solving the Mystery of the AFRICA Dummy," World Development, Elsevier, vol. 28(10), pages 1821-1835, October.
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