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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.

Suggested Citation

  • Markus Bruckner, 2011. "On the Simultaneity Problem in the Aid and Growth Debate," School of Economics and Public Policy Working Papers 2011-01, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2011-01
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2011-01.pdf
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    References listed on IDEAS

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    1. de Ree, Joppe & Nillesen, Eleonora, 2009. "Aiding violence or peace? The impact of foreign aid on the risk of civil conflict in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 88(2), pages 301-313, March.
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    More about this item

    Keywords

    aid allocation; aid effectiveness; economic growth; simultaneity;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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