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Aid and Growth: What Does The Cross-Country Evidence Really Show?

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Author Info
Raghuram G. Rajan ()

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Abstract

We examine the effects of aid on growth--in cross-sectional and panel data--after correcting for the bias that aid typically goes to poorer countries, or to countries after poor performance. Even after this correction, we find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings, which relate to the past, do not imply that aid cannot be beneficial in the future. But they do suggest that for aid to be effective in the future, the aid apparatus will have to be rethought. Our findings raise the question: what aspects of aid offset what ought to be the indisputable growth enhancing effects of resource transfers? Thus, our findings support efforts under way at national and international levels to understand and improve aid effectiveness.

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Paper provided by esocialsciences.com in its series Working Papers with number id:54.

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Date of creation: 2005
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Handle: RePEc:ess:wpaper:id:54

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Related research
Keywords: AID; DEVELOPING COUNTRIES; PERFORMANCE;

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References listed on IDEAS
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.:
  1. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, vol. 79(1), pages 99-106, April. [Downloadable!] (restricted)
  2. Kraay, Aart, 2004. "When is growth pro-poor? Cross-country evidence," Policy Research Working Paper Series 3225, The World Bank. [Downloadable!]
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  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. David Roodman, 2004. "The Anarchy of Numbers: Aid, Development, and Cross-country Empirics," Development and Comp Systems 0412003, EconWPA. [Downloadable!]
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  5. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 1-118. [Downloadable!]
  6. William Easterly, 2003. "National Policies and Economic Growth: A Reappraisal," Working Papers 27, Center for Global Development. [Downloadable!]
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  7. Craig Burnside & David Dollar, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September. [Downloadable!] (restricted)
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  8. Johnson, Paul & Durlauf, Steven N & Temple, Johnathan R. W., 2004. "Growth Econometrics," Vassar College Department of Economics Working Paper Series 61, Vassar College Department of Economics. [Downloadable!]
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    • Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677 Elsevier. [Downloadable!] (restricted)
  9. Raghuram Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," IMF Working Papers 05/126, International Monetary Fund. [Downloadable!]
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  10. William R. Hauk & Romain Wacziarg, 2004. "A Monte Carlo Study of Growth Regressions," NBER Technical Working Papers 0296, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
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  12. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. repec:att:wimass:1920418 is not listed on IDEAS
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  15. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Jeffrey A. Frankel & David Romer, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June. [Downloadable!] (restricted)
  17. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September. [Downloadable!]
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  18. Robert J. Barro & Jong-Wha Lee, 2002. "IMF Programs: Who is Chosen and What Are the Effects?," NBER Working Papers 8951, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003. [Downloadable!]
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  20. Barry P. Bosworth & Susan M. Collins and Georgetown University, 2003. "The Empirics of Growth: An Update," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2003-2), pages 113-206. [Downloadable!]
  21. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer. [Downloadable!] (restricted)
  22. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September. [Downloadable!] (restricted)
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  23. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April. [Downloadable!] (restricted)
  24. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-83, May. [Downloadable!] (restricted)
  25. Alesina, Alberto & Dollar, David, 2000. " Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March. [Downloadable!] (restricted)
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  26. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development. [Downloadable!]
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  27. Francesco Giavazzi & Guido Tabellini, 2004. "Economic and Political Liberalizations," NBER Working Papers 10657, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  28. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September. [Downloadable!]
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