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Aid–Growth Nexus and Corruption

Author

Listed:
  • Shah Birendra Narayan

    (Hannam University, 34546 Daejeon, South Korea)

  • Hwang Jinyoung

    (Department of Economics, Hannam University, Hannam Ro 70, Daeduck Gu, 34430 Daejeon, South Korea)

  • Akdede Sacit Hadi

    (Department of Economics, Bakircay Universitesi, Seyrek Mevki Menemen İzmir, Menemen, 35665 Izmir, İzmir, Türkiye)

Abstract

Using data on 71 aid recipient countries over the period 2000–2019, this study examines the effect of the size and composition of foreign aid (Official Development Assistance, ODA) on economic growth. The size of ODA is positively correlated with growth, and the impact of an increase in ODA on growth decreases when ODA reaches a certain level. The influence of the composition of ODA in terms of grants and loans on growth is estimated differently depending on sample selection. The sample is divided into two sub-samples based on the median of the corruption perception index. The regression results show that grants have a positive and significant impact on growth without sample selection. However, loans have a positive and significant impact on growth in the sub-sample of less corrupt countries, but a negative and significant impact on growth in the sub-sample of more corrupt countries. Therefore, the results suggest that ODA is useful for inducing growth in the early stages of development. However, improvement in the economic environment in terms of reduced corruption is required to increase the positive impact of ODA in the form of loans on growth.

Suggested Citation

  • Shah Birendra Narayan & Hwang Jinyoung & Akdede Sacit Hadi, 2023. "Aid–Growth Nexus and Corruption," Review of Economics, De Gruyter, vol. 74(3), pages 251-264, November.
    • Handle: RePEc:lus:reveco:v:74:y:2023:i:3:p:251-264:n:2
    DOI: 10.1515/roe-2022-0041
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