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Aid Eff ectiveness: New Instrument, New Results?

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Author Info

  • Frot, Emmanuel

    ()
    (Stockholm Institute of Transition Economics)

  • Perrotta, Maria

    ()
    (Stockholm Institute of Transition Economics)

Abstract

Despite 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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File URL: http://swopec.hhs.se/hasite/papers/hasite0011.pdf
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Bibliographic Info

Paper provided by Stockholm Institute of Transition Economics, Stockholm School of Economics in its series SITE Working Paper Series with number 11.

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Length: 47 pages
Date of creation: 28 May 2009
Date of revision:
Handle: RePEc:hhs:hasite:0011

Contact details of provider:
Postal: Stockholm Institute of Transition Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Phone: (+46 8) 736 9670
Fax: (+46 8) 31 64 22
Web page: http://www.hhs.se/site/
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Related research

Keywords: Foreign aid; growth; instrumental variables; GMM;

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Cited by:
  1. Knack, Stephen, 2013. "Building or bypassing recipient country systems : are donors defying the Paris declaration ?," Policy Research Working Paper Series, The World Bank 6423, The World Bank.
  2. Knack, Stephen, 2012. "When do donors trust recipient country systems ?," Policy Research Working Paper Series, The World Bank 6019, The World Bank.
  3. Olofsgård, Anders & Perrotta, Maria & Frot, Emmanuel, 2012. "Aid Motivation in Early and Mature Partnerships: Is there a difference?," SITE Working Paper Series, Stockholm Institute of Transition Economics, Stockholm School of Economics 17, Stockholm Institute of Transition Economics, Stockholm School of Economics.
  4. 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, Stockholm Institute of Transition Economics, Stockholm School of Economics 25, Stockholm Institute of Transition Economics, Stockholm School of Economics.

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