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On the Simultaneity Problem in the Aid and Growth Debate

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  • Markus Bruckner

    ()
    (School of Economics, University of Adelaide)

Abstract

This paper shows that foreign aid has a signicant positive average effect on real per capita GPD growth if, and only if, the quantitatively large negative reverse causal effect of per capita GDP growth on foreign aid is adjusted for in the growth regression. Instrumental variables estimates yield that a 1 percentage point increase in GDP per capita growth decreased foreign aid by over 4 percent. Adjusting for this quantitatively large, negative reverse causal effect of economic growth on foreign aid yields that a 1 percent increase in foreign aid increased real per capita GDP growth by around 0.1 percentage points.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2011-01.pdf
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Bibliographic Info

Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2011-01.

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Length: 40 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:adl:wpaper:2011-01

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Postal: Adelaide SA 5005
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/
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Keywords: aid allocation; aid effectiveness; economic growth; simultaneity;

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References

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  1. J. de Ree & E. Nillesen, 2006. "Aiding violence or peace? : the impact of foreign aid on the risk of civil conflict in Sub-Saharan Africa," Working Papers 06-09, Utrecht School of Economics.
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Cited by:
  1. Dang, Hai-Anh & Knack, Steve & Rogers, Halsey, 2009. "International aid and financial crises in donor countries," Policy Research Working Paper Series 5162, The World Bank.
  2. 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).
  3. Olivier Cadot & Ana M. Fernandes & Julien Gourdon & Aaditya Mattoo, 2011. "Where to Spend the Next Million? Applying Impact Evaluation to Trade Assistance," World Bank Publications, The World Bank, number 16358, October.
  4. Ferro, Esteban & Portugal-Perez, Alberto & Wilson, John S., 2011. "Aid to the services sector : does it affect manufacturing exports ?," Policy Research Working Paper Series 5728, The World Bank.
  5. Martine Audibert & Pascale Combes Motel & Alassane Drabo, 2013. "Health capital depreciation effects on development: theory and measurement," Working Papers halshs-00832877, HAL.
  6. Addison, Tony & Singhal, Saurabh & Tarp, Finn, 2013. "Aid to Africa: The changing context," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  7. Brückner, Markus & Gradstein, Mark, 2013. "Effects of transitory shocks to aggregate output on consumption in poor countries," Journal of International Economics, Elsevier, vol. 91(2), pages 343-357.
  8. Adolfo Barajas & Ralph Chami & Christian Ebeke & Sampawende J.-A. Tapsoba, 2012. "Workers’ Remittances," IMF Working Papers 12/251, International Monetary Fund.
  9. Andrea Filippo Presbitero, 2013. "Aid and Vulnerability," Mo.Fi.R. Working Papers 88, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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