Economic Growth and the Volatility of Foreign Aid
AbstractForeign aid’s effectiveness in promoting economic growth remains mired in controversy.We examine the impact of the volatility of aid on economic growth, controlling for the level of aid. A four-year panel analysis is conducted encompassing 155 countries over the period 1966-2001. We find that once the volatility of aid is controlled for, aid has a positive impact on economic growth. Correspondingly, volatility of aid flows is found to be negatively related to growth. We found no significant link between investment and foreign aid, but a positive correlation between aid and consumption and a negative link between aid volatility and consumption. But our results also indicate that aid has become a source of volatility rather than insuring against it, and in that way may have become inimical to economic growth.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-002/2.
Date of creation: 04 Jan 2010
Date of revision:
Contact details of provider:
Web page: http://www.tinbergen.nl
foreign aid; volatility; economic growth;
Find related papers by JEL classification:
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-DEV-2010-05-15 (Development)
- NEP-FDG-2010-05-15 (Financial Development & Growth)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(373), pages 41-55, March.
- Raghuram G. Rajan & Arvind Subramanian, 2005.
"Aid and Growth: What Does the Cross-Country Evidence Really Show?,"
NBER Working Papers
11513, National Bureau of Economic Research, Inc.
- Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
- Raghuram G. Rajan, 2005. "Aid and Growth: What Does The Cross-Country Evidence Really Show?," Working Papers id:54, eSocialSciences.
- C. S. Adam & S. A. O'Connell, 1999. "Aid, Taxation and Development in Sub-Saharan Africa," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 11(3), pages 225-253, November.
- Bleaney, Michael F., 1996. "Macroeconomic stability, investment and growth in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 48(2), pages 461-477, March.
- Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004.
"Counting chickens when they hatch: The short-term effect of aid on growth,"
International Finance, EconWPA
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers, Center for Global Development 44, Center for Global Development.
- Naude, Wim, 2009. "The Global Economic Crisis after One Year: Is a New Paradigm for Recovery in Developing Countries Emerging?," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER UNU Policy Brie, World Institute for Development Economic Research (UNU-WIDER).
- Bah, El-hadj M. & Ward, Jeremy, 2011. "Effectiveness of foreign aid in Small Island Developing States," MPRA Paper 32062, University Library of Munich, Germany.
- Kathavate, Jay & Mallik, Girijasankar, 2012. "The impact of the Interaction between institutional quality and aid volatility on growth: theory and evidence," Economic Modelling, Elsevier, Elsevier, vol. 29(3), pages 716-724.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).
If references are entirely missing, you can add them using this form.