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Aid and Economic Growth: A Robust Approach

Author

Listed:
  • Kwabena Gyimah-Brempong

    () (Kwabena Gyimah-Brempong University of South Florida)

  • Jeffrey S. Racine

    () (Department of Economics McMaster University Hamilton, Ontario Canada)

Abstract

This paper uses panel data and the Local Linear Kernel Estimator (LLKE) to investigate the effects of aid on economic growth in developing countries. Specifically, we investigate the robustness of a popular parametric specification of the aid/economic growth relationship in Less Developed countries (LDCs). First, we find that aid has a significant impact on economic growth given the support of the sample data we use. However, the effect depends on how aid is measured. We find a positive growth effect when aid is measured asaidgni but no significant growth effect when aid is measured as aidpercap. Second, we find some evidence of increasing returns to aidgni. Finally, we find that a "good" policy environment increases the effectiveness of aid in LDCs, all things equal. The impact of the policy environment on growth varies according to how the policy environment is measured. Our results generally support the popular quadratic parametric specification of the aid/growth relationship. Our results have implications for aid policy and for research on the effectiveness of aid.

Suggested Citation

  • Kwabena Gyimah-Brempong & Jeffrey S. Racine, 2014. "Aid and Economic Growth: A Robust Approach," Journal of African Development, African Finance and Economic Association (AFEA), vol. 16(1), pages 1-35.
  • Handle: RePEc:afe:journl:v:16:y:2014:i:1:p:1-35
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Simplice Asongu & Uchenna EFOBI & Ibukun BEECROFT, 2015. "FDI, Aid, Terrorism: Conditional Threshold Evidence from Developing Countries," Working Papers of the African Governance and Development Institute. 15/019, African Governance and Development Institute..
    2. John Ssozi & Simplice A. Asongu, Phd & Voxi Amavilah, 2018. "The Effectiveness Of Development Aid For Agriculture In Sub-Saharan Africa," Working Papers 1 3005, Office Of The Chief Economist, Development Bank of Nigeria.
    3. Simplice Asongu & Oasis Kodila-Tedika, 2017. "Trade, aid and terror," International Journal of Development Issues, Emerald Group Publishing, vol. 16(1), pages 2-24, April.
    4. Asongu, Simplice A & Odhiambo, Nicholas Mbaya, 2019. "Foreign aid complementarities and inclusive human development in Africa," Working Papers 25397, University of South Africa, Department of Economics.
    5. Simplice A. Asongu Ph.D & Joseph Nnanna, . "Foreign Aid And Sustainable Inclusive Human Development In Africa," Journal of Economic and Sustainable Growth 2, Office Of The Chief Economist, Development Bank of Nigeria.
    6. Simplice A. Asongu & Jacinta C. Nwachukwu, 2018. "Increasing Foreign Aid for Inclusive Human Development in Africa," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(2), pages 443-466, July.
    7. Asongu, Simplice & Nwachukwu, Jacinta, 2015. "Foreign aid volatility and lifelong learning: demand-side empirics to a textual literature," MPRA Paper 67853, University Library of Munich, Germany.
    8. repec:bla:socsci:v:98:y:2017:i:1:p:282-298 is not listed on IDEAS
    9. G. Ardizzi & F. Crudu & C. Petraglia, 2015. "The Impact of Electronic Payments on Bank Cost Efficiency: Nonparametric Evidence," Working Paper CRENoS 201517, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    10. Simplice A. Asongu & Vanessa S. Tchamyou, 2019. "Foreign Aid, Education and Lifelong Learning in Africa," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(1), pages 126-146, March.
    11. Simplice A. Asongu & Jacinta C. Nwachukwu, 2017. "Foreign Aid and Inclusive Development: Updated Evidence from Africa, 2005–2012," Social Science Quarterly, Southwestern Social Science Association, vol. 98(1), pages 282-298, March.
    12. Simplice A. ASONGU & Jacinta NWACHUKWU & Nicholas BIEKPE, 2019. "Foreign Aid, Terrorism And Growth: Conditional Evidence From Quantile Regression," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 90(3), pages 457-486, September.
    13. Simplice A. Asongu & Joseph Nnanna, 2019. "Foreign aid, instability and governance in Africa," Working Papers of the African Governance and Development Institute. 19/022, African Governance and Development Institute..
    14. repec:bla:ecnote:v:48:y:2019:i:1:n:12121 is not listed on IDEAS
    15. Asongu, Simplice A & Nwachukwu, Jacinta C., 2015. "Foreign aid instability and bundled governance dynamics in Africa," MPRA Paper 71783, University Library of Munich, Germany.
    16. Simplice Asongu & Mohamed Jellal, 2016. "Foreign Aid Fiscal Policy: Theory and Evidence," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 58(2), pages 279-314, June.
    17. repec:gam:jsusta:v:11:y:2019:i:6:p:1538-:d:213683 is not listed on IDEAS
    18. Simplice Asongu, 2014. "A brief clarification to the questionable economics of foreign aid for inclusive human development," Working Papers of the African Governance and Development Institute. 14/028, African Governance and Development Institute..
    19. repec:dbn:journx:2002 is not listed on IDEAS
    20. Ssozi, John & Asongu, Simplice & Amavilah, Voxi, 2018. "The Effectiveness of Development Aid for Agriculture in Sub-Saharan Africa," MPRA Paper 88530, University Library of Munich, Germany.
    21. repec:bla:afrdev:v:30:y:2018:i:3:p:239-251 is not listed on IDEAS

    More about this item

    Keywords

    Aid; Economic Growth; Investment; Developing Countries; Robustness Tests; Nonparametric Regression; Policy;

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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