Forced to Freedom? Empirical Relations between Aid and Economic Freedom
AbstractThe paper explores the relationships between economic freedom on the one side and development aid and IMF credit as approximation for conditional aid on the other side. After a short review of current literature on the issue of economic development, economic freedom, aid, and IMF credit, the paper develops a simple panel regression model to evaluate the relationship between “economic freedom” as dependent variable and “aid” and “IMF credit” as independent variables. The estimation is based upon data taken from the World Bank’s World Development Indicators and the Heritage Index of Economic Freedom. In contrast to previous research, our results allow the rejection of the hypothesis that IMF credit increases economic freedom and that aid is not contributing to economic freedom. The estimation results suggest that, firstly, aid is positively correlated with economic freedom, and secondly, that IMF credit is negatively correlated with economic freedom. Taking IMF credit as proxy for conditional aid, we conclude that for the period of observation it could not be shown that countries can be forced to economic freedom by aid conditions.
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Bibliographic InfoPaper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 8.
Date of creation: May 2006
Date of revision:
aid; economic freedom; IMF credit; economic development;
Other versions of this item:
- Kronthaler, Franz & Knedlik, Tobias, 2007. "Forced to Freedom? Empirical relations between aid and economic freedom," Proceedings of the German Development Economics Conference, GÃ¶ttingen 2007 19, Verein für Socialpolitik, Research Committee Development Economics.
- F35 - International Economics - - International Finance - - - Foreign Aid
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
- P10 - Economic Systems - - Capitalist Systems - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-20 (All new papers)
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