Aid flows are included into the standard cross-country catch-up relation. Robust¬ness of the result is tested by changing time periods and by adding extra variables. The main results are: Absolute conver¬gence and absolute aid effec¬ti¬ve¬ness are both rejected. While conditional convergence is accepted, conditional aid effecti¬ve¬ness is found to be weak. The two relations are largely inde¬pendent. However, aid has a clear activity effect in the short run. Finally, we try to divide the countries into an A-group where aid is effective and a B-group where it harms. Several criteria of division were explored, but none were very successful – the most satisfactory is the one that divides countries according to their level of development.
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Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number
2005-16.
Find related papers by JEL classification: C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data F35 - International Economics - - International Finance - - - Foreign Aid O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
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