The Effects of Foreign Aid in Sub-Saharan Africa
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by School Of Economics, University College Dublin in its series Working Papers with number 201116.
Length: 31 pages
Date of creation: 23 Aug 2011
Date of revision:
Foreign Aid; Economic Growth; Human Development; Panel VAR;
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mark McGillivray & Farhad Noorbakhsh, . "Aid, Conflict and Human Development," Working Papers 2007_03, Business School - Economics, University of Glasgow.
- Hansen, Henrik & Headey, Derek, 2007.
"The Short-Run Macroeconomic Impact of Foreign Aid to Small States: An Agnostic Timeseries Analysis,"
Working Paper Series
UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- 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.
- Hansen, Henrik & Headey, Derek, 2009. "The short-run macroeconomic impact of foreign aid to small states: An agnostic time series analysis," IFPRI discussion papers 863, International Food Policy Research Institute (IFPRI).
- 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.
- 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.
- Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
- Collier, Paul & Dollar, David, 1999.
"Aid allocation and poverty reduction,"
Policy Research Working Paper Series
2041, The World Bank.
- Angus Deaton, 2010.
"Instruments, randomization, and learning about development,"
1224, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- Angus Deaton, 2010. "Instruments, Randomization, and Learning about Development," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 424-55, June.
- 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).
- Chang, Charles C. & Fernandez-Arias, Eduardo & Serven, Luis, 1999.
"Measuring aid flows : a new approach,"
Policy Research Working Paper Series
2050, The World Bank.
- Karuna Gomanee & Sourafel Girma & Oliver Morrissey, 2006.
"Aid, Public Spending and Human Welfare: Evidence from Quantile Regressions,"
- Karuna Gomanee & Sourafel Girma & Oliver Morrissey, 2005. "Aid, public spending and human welfare: evidence from quantile regressions," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(3), pages 299-309.
- 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.
- 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.
- Alessandro Rebucci, 2003. "On the Heterogeneity Bias of Pooled Estimators in Stationary VAR Specifications," IMF Working Papers 03/73, International Monetary Fund.
- William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
- Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001.
"On the Empirics of Foreign Aid and Growth,"
EPRU Working Paper Series
03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
- Jones, Yakama Manty, 2013. "Testing the foreign aid-led growth hypothesis in West Africa," MPRA Paper 50361, University Library of Munich, Germany.
- 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).
- 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).
- 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).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicolas Clifton).
If references are entirely missing, you can add them using this form.