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The Effects of Foreign Aid in Sub-Saharan Africa

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Author Info

  • Robert Gillanders

    (University College Dublin)

Abstract

This paper contributes to the aid effectiveness debate by applying a vector autore- gression model to a panel of Sub-Saharan African countries. This method avoids the need for instrumental variables and allows one to analyse the impact of foreign aid on human development and on economic development simultaneously. The full sample results indicate a small increase in economic growth following a fairly substantial aid shock. The size of the effect puts the result somewhere between the arguments of aid optimists and those of aid pessimists. Economic growth is found to respond more to aid shocks in groups defined by better economic policies, poor institutions and high aid dependence. Human development, for which I use the growth rate of life expectancy as a proxy, responds positively to aid shocks in democracies and in good institutional environments.

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File URL: http://www.ucd.ie/t4cms/WP11_16.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 201116.

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Length: 31 pages
Date of creation: 23 Aug 2011
Date of revision:
Handle: RePEc:ucn:wpaper:201116

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Related research

Keywords: Foreign Aid; Economic Growth; Human Development; Panel VAR;

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References

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  1. Gomanee, Karuna & Morrissey, Oliver & Mosley, Paul & Verschoor, Arjan, 2005. "Aid, Government Expenditure, and Aggregate Welfare," World Development, Elsevier, vol. 33(3), pages 355-370, March.
  2. Henrik Hansen & Derek Headey, 2010. "The Short-Run Macroeconomic Impact of Foreign Aid to Small States: An Agnostic Time Series Analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 877-896.
  3. Mark McGillivray & Farhad Noorbakhsh, . "Aid, Conflict and Human Development," Working Papers 2007_03, Business School - Economics, University of Glasgow.
  4. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  5. Osei, Robert & Morrissey, Oliver & Lloyd, Tim, 2005. "The Fiscal Effects of Aid in Ghana," Working Paper Series RP2005/61, World Institute for Development Economic Research (UNU-WIDER).
  6. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages F191-F216, 06.
  7. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  8. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Measuring Aid Flows: A New Approach," Research Department Publications 4146, Inter-American Development Bank, Research Department.
  9. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
  10. Karuna Gomanee & Sourafel Girma & Oliver Morrissey, 2006. "Aid, Public Spending and Human Welfare: Evidence from Quantile Regressions," Working Papers id:761, eSocialSciences.
  11. Angus Deaton, 2010. "Instruments, randomization, and learning about development," Working Papers 1224, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  12. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
  13. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
  14. Alessandro Rebucci, 2003. "On the Heterogeneity Bias of Pooled Estimators in Stationary VAR Specifications," IMF Working Papers 03/73, International Monetary Fund.
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Citations

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Cited by:
  1. Jones, Yakama Manty, 2013. "Testing the foreign aid-led growth hypothesis in West Africa," MPRA Paper 50361, University Library of Munich, Germany.
  2. Gravier-Rymaszewska, Joanna, 2012. "How Aid Supply Responds to Economic Crises: A Panel VAR Approach," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Ziesemer, Thomas, 2012. "The impact of development aid on education and health: Survey and new evidence from dynamic models," MERIT Working Papers 057, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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