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Aid and Growth: Have We Come Full Circle?

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Author Info
Channing Arndt (Department of Economics, University of Copenhagen)
Sam Jones (Department of Economics, University of Copenhagen)
Finn Tarp (Department of Economics, University of Copenhagen)

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Abstract

The micro-macro paradox has been revived. Despite broadly positive evaluations at the micro and meso-levels, recent literature has turned decidedly pessimistic with respect to the ability of foreign aid to foster economic growth. Policy implications, such as the complete cessation of aid to Africa, are being drawn on the basis of fragile evidence. This paper first assesses the aid-growth literature with a focus on recent contributions. The aid-growth literature is then framed, for the first time, in terms of the Rubin Causal Model, applied at the macroeconomic level. Our results show that aid has a positive and statistically significant causal effect on growth over the long run with point estimates at levels suggested by growth theory. We conclude that aid remains an important tool for enhancing the development prospects of poor nations.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 09-22.

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Length: 31 pages
Date of creation: Oct 2009
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Handle: RePEc:kud:kuiedp:0922

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Related research
Keywords: foreign aid; growth; aid effectiveness; causal effects;

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Find related papers by JEL classification:
O1 - Economic Development, Technological Change, and Growth - - Economic Development
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
F35 - International Economics - - International Finance - - - Foreign Aid
C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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