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Aid and Growth: Have We Come Full Circle?

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  • Channing Arndt
  • Sam Jones
  • Finn Tarp

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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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number WIDER Discussion Paper 2009-05.

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Length: 38 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:unu:wpaper:2009-05

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

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References

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Citations

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Cited by:
  1. Patrick GUILLAUMONT & Laurent WAGNER, 2014. "Aid effectiveness for poverty reduction: lessons from cross-country analyses, with a special focus on vulnerable countries," Working Papers P96, FERDI.
  2. Subhayu Bandyopadhyay & Sajal Lahiri & Javed Younas, 2013. "Financing growth: foreign aid vs. foreign loans," Working Papers 2013-031, Federal Reserve Bank of St. Louis.
  3. Ruerd RUBEN, 2012. "Dimensionner l'aide au développement : ce que nous enseigne l'évaluation. Dimensioning Development Aid: Some Lessons from Evaluation," Revue d’économie du développement, De Boeck Université, vol. 26(4), pages 95-123.
  4. Patrick GUILLAUMONT, 2011. "Making Development Financing in LDCs More Conducive to Development," Working Papers P18, FERDI.
  5. Quibria, M.G., 2012. "Microcredit and Poverty Alleviation: Can microcredit close the deal?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  6. Mosley, Paul, 2012. "Fiscal Composition and Aid Effectiveness: A Political-Economy Model," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  7. Tony Addison & Channing Arndt & Finn Tarp, 2011. "The Triple Crisis and the Global Aid Architecture," African Development Review, African Development Bank, vol. 23(4), pages 461-478, December.
  8. Alan Gelb, 2010. "How Can Donors Create Incentives for Results and Flexibility for Fragile States? A Proposal for IDA," Working Papers id:3233, eSocialSciences.
  9. Roe, Alan R., 2011. "Aid and the Fiscal and Monetary Responses to Dutch Disease," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  10. Felicitas Nowak-Lehmann & Inmaculada Martínez-Zarzoso & Dierk Herzer & Stephan Klasen & Adriana Cardozo, 2013. "Does foreign aid promote recipient exports to donor countries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(3), pages 505-535, September.
  11. Doucouliagos, Hristos & Paldam, Martin, 2011. "The ineffectiveness of development aid on growth: An update," European Journal of Political Economy, Elsevier, vol. 27(2), pages 399-404, June.
  12. Patrick GUILLAUMONT, 2011. "Making Development Financing in LDCs More Conducive to Development," Working Papers P18, FERDI.
  13. Tadesse, Tasew, 2011. "Foreign aid and economic growth in Ethiopia," MPRA Paper 33953, University Library of Munich, Germany, revised 20 Sep 2011.
  14. Era Dabla-Norris & Camelia Minoiu & Luis-Felipe Zanna, 2010. "Business Cycle Fluctuations, Large Shocks, and Development Aid," IMF Working Papers 10/240, International Monetary Fund.

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