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Foreign aid and productivity

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  • Ann Veiderpass

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Abstract

The Millennium Summit 2000 and the declaration of the Millennium Development Goals again brought to the fore questions on the importance of foreign aid. Consequently, the long debated question of whether or not foreign aid enhances economic growth and efficiency in resource use received renewed attention. However, consensus has still eluded researchers and policy makers. In spite of numerous studies, there is little evidence of a significant positive effect on the long-term growth of poor countries. While most previous studies have relied on simple cross country regressions, this study suggests a new approach, evaluating country performance in a production theory context using productivity as a measure, applying the non-parametric Malmquist Productivity Index and then linking this country performance to amount of foreign aid received. A balanced panel of 89 low and middle income countries from five different geographical categories is studied over a period of 11 years. By use of a novel visual test the countries are grouped into three categories, significant productivity decline, growth or no change. The different categories are based on confidence intervals resulting from bootstrapping. When linking country performance to aid in a more traditional way, a significant, but weak correlation is found. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Ann Veiderpass, 2015. "Foreign aid and productivity," Journal of Productivity Analysis, Springer, vol. 43(3), pages 249-258, June.
  • Handle: RePEc:kap:jproda:v:43:y:2015:i:3:p:249-258
    DOI: 10.1007/s11123-015-0440-4
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    References listed on IDEAS

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    1. Griffin, Keith B & Enos, J L, 1970. "Foreign Assistance: Objectives and Consequences," Economic Development and Cultural Change, University of Chicago Press, vol. 18(3), pages 313-327, April.
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    6. Simar, Leopold & Wilson, Paul W., 1999. "Estimating and bootstrapping Malmquist indices," European Journal of Operational Research, Elsevier, vol. 115(3), pages 459-471, June.
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    8. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    9. Steve Radelet, 2006. "A Primer on Foreign Aid," Working Papers 92, Center for Global Development.
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    More about this item

    Keywords

    Country comparison; Aid; Data envelopment analysis; Malmquist Productivity Index; Bootstrap; Confidence intervals; D24; O57;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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