Aid Eff ectiveness: New Instrument, New Results?
AbstractDespite a voluminous literature on the topic, the question of whether foreign aid leads to growth is still controversial. To observe the pure effect of aid, researchers used instruments that must be exogenous to growth and explain well aid flows. This paper argues that instruments used in the past do not satisfy these conditions. We propose a new instrument based on predicted aid quantity and argue that it is a significant improvement relative to past approaches. We find a significant and relatively big effect of aid: a one standard deviation increase in received aid is associated with a 1.6 percentage points higher growth rate.
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Bibliographic InfoPaper provided by Stockholm Institute of Transition Economics, Stockholm School of Economics in its series SITE Working Paper Series with number 11.
Length: 47 pages
Date of creation: 28 May 2009
Date of revision:
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Postal: Stockholm Institute of Transition Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
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Foreign aid; growth; instrumental variables; GMM;
Find related papers by JEL classification:
- F35 - International Economics - - International Finance - - - Foreign Aid
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
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- Knack, Stephen, 2012. "When do donors trust recipient country systems ?," Policy Research Working Paper Series 6019, The World Bank.
- Knack, Stephen, 2013. "Building or bypassing recipient country systems : are donors defying the Paris declaration ?," Policy Research Working Paper Series 6423, The World Bank.
- Olofsgård, Anders & Perrotta, Maria & Frot, Emmanuel, 2012. "Aid Motivation in Early and Mature Partnerships: Is there a difference?," SITE Working Paper Series 17, Stockholm Institute of Transition Economics, Stockholm School of Economics.
- Olofsgård, Anders & Perrotta, Maria & Frot, Emmanuel, 2013. "Aid E ectiveness in Times of Political Change: Lessons from the Post-Communist Transition," SITE Working Paper Series 25, Stockholm Institute of Transition Economics, Stockholm School of Economics.
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