Recent literature contains many stories of how foreign aid affects economic growth. All the stories hinge on the statistical significance in cross-country regressions of a quadratic term involving aid. Among the stories are that aid raises growth (on average) 1) in countries where economic policies are good; 2) in countries where policies are good and a civil war recently ended; 3) in all countries, but with diminishing returns; 4) in countries outside the tropics; 5) in countries with difficult economic environments, characterized by declining or volatile terms of trade, natural disasters, or low population; or 6) when aid increases in countries experiencing negative export price shocks. The diversity of results prima facie suggests that many are fragile. Easterly et al. (2004) find the aid-policy story (Burnside and Dollar, 2000) to be fragile in the face of an expansion of the data set in years and countries. The present study expands that analysis by applying more tests, and to more studies. Each test involves altering just one aspect of the regressions. All 19 tests are derived from sources of variation that are minimally arbitrary. Twelve derive from specification differences between studies, what Leamer (1983) calls “whimsy.” Three derive from doubts about the appropriateness of the definition of one variable in one study. The remaining four derive from the passage of time, which allows sample expansion. This design allows an examination of the role of “whimsy” in the results that are tested while minimizing “whimsy” in the testing itself. Among the stories examined, the aid-policy link proves weakest, while the aid-tropics link is most robust.
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Length: 64 pages Date of creation: 06 Dec 2004 Date of revision: Handle: RePEc:wpa:wuwpdc:0412003
Note: Type of Document - pdf; pages: 64. Center for Global Development Working Paper 32, revised 2004 Contact details of provider: Web page: http://129.3.20.41
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Craig Burnside & David Dollar, 2000.
"Aid, Policies, and Growth,"
American Economic Review,
American Economic Association, vol. 90(4), pages 847-868, September.
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Other versions:
Lensink, Robert & White, Howard, 1999.
"Are there negative returns to aid?,"
Research Report
99E60, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
[Downloadable!]
Cited by: (explanations, 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.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.