IDEAS home Printed from https://ideas.repec.org/a/oup/jafrec/v21y2012i1p65-93.html
   My bibliography  Save this article

Ethnic Fractionalisation and Aid Effectiveness

Author

Listed:
  • Roland Hodler
  • David S. Knight

Abstract

We test the hypothesis that the effect of foreign aid on economic growth is positive in ethnically homogenous countries, but decreasing in ethnic fractionalisation. Using panel data covering 114 aid-recipient countries over the period 1962 to 2001, and employing two-stage least squares and GMM estimation techniques, we find a strong support for this hypothesis. Our estimates suggest that foreign aid promotes growth in ethnically homogenous countries, while being ineffective or even harmful in many Sub-Saharan African countries and some ethnically fractionalised countries elsewhere. Copyright 2012 , Oxford University Press.

Suggested Citation

  • Roland Hodler & David S. Knight, 2012. "Ethnic Fractionalisation and Aid Effectiveness," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 21(1), pages 65-93, January.
  • Handle: RePEc:oup:jafrec:v:21:y:2012:i:1:p:65-93
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/jae/ejr036
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Francesco Caselli & Wilbur John Coleman II, 2013. "On The Theory Of Ethnic Conflict," Journal of the European Economic Association, European Economic Association, vol. 11, pages 161-192, January.
    2. Angeles, Luis & Neanidis, Kyriakos C., 2009. "Aid effectiveness: the role of the local elite," Journal of Development Economics, Elsevier, vol. 90(1), pages 120-134, September.
    3. Alesina, Alberto & Dollar, David, 2000. "Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
    4. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    5. Stephen Knack, 2001. "Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests," Southern Economic Journal, John Wiley & Sons, vol. 68(2), pages 310-329, October.
    6. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    7. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August.
    8. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1999. "Geography and Economic Development," International Regional Science Review, , vol. 22(2), pages 179-232, August.
    9. Hodler, Roland, 2006. "The curse of natural resources in fractionalized countries," European Economic Review, Elsevier, vol. 50(6), pages 1367-1386, August.
    10. Roland Hodler, 2007. "Rent seeking and aid effectiveness," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 525-541, October.
    11. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    12. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 42-65.
    13. Carl-Johan Dalgaard & Ola Olsson, 0. "Windfall Gains, Political Economy and Economic Development," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 17(suppl_1), pages -109.
    14. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
    15. Daron Acemoglu & James A. Robinson & Thierry Verdier, 2004. "Alfred Marshall Lecture: Kleptocracy and Divide-and-Rule: A Model of Personal Rule," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 162-192, 04/05.
    16. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    17. Chang, Charles C. & Fernández-Arias, Eduardo & Servén, Luis, 1998. "Measuring Aid Flows: A New Approach," IDB Publications (Working Papers) 1297, Inter-American Development Bank.
    18. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398, April.
    19. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 1, Center for International Development at Harvard University.
    20. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages 191-216, June.
    21. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
    22. Brautigam, Deborah A & Knack, Stephen, 2004. "Foreign Aid, Institutions, and Governance in Sub-Saharan Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 52(2), pages 255-285, January.
    23. Gallup, John L. & Sachs, Jeffrey D. & Mellinger, Andrew, "undated". "Geography and Economic Development," Instructional Stata datasets for econometrics geodata, Boston College Department of Economics.
    24. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    25. Simeon Djankov & Jose Montalvo & Marta Reynal-Querol, 2008. "The curse of aid," Journal of Economic Growth, Springer, vol. 13(3), pages 169-194, September.
    26. David Roodman, 2007. "The Anarchy of Numbers: Aid, Development, and Cross-Country Empirics," The World Bank Economic Review, World Bank Group, vol. 21(2), pages 255-277, May.
    27. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 01A, Center for International Development at Harvard University.
    28. Lane, Philip R & Tornell, Aaron, 1996. "Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-241, June.
    29. Gallup, John & Sachs, Jeffrey, 1999. "Geography and Economic Development," Harvard Institute for International Development (HIID) Papers 294434, Harvard University, Kennedy School of Government.
    30. Gallup, J.L. & Sachs, J.D. & Mullinger, A., 1999. "Geography and Economic Development," Papers 1, Chicago - Graduate School of Business.
    31. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Measuring Aid Flows: A New Approach," Research Department Publications 4146, Inter-American Development Bank, Research Department.
    32. Miguel, Edward & Gugerty, Mary Kay, 2005. "Ethnic diversity, social sanctions, and public goods in Kenya," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2325-2368, December.
    33. William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
    34. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
    35. La Porta, Rafael & Lopez-de-Silanes, Florencio & Vishny, Robert & Shleifer, Andrei, 1999. "The quality of government," Scholarly Articles 30747160, Harvard University Department of Economics.
    36. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    37. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maria Perrotta Berlin & Raj M. Desai & Anders Olofsgård, 2023. "Trading favors? UN Security Council membership and subnational favoritism in aid recipients," The Review of International Organizations, Springer, vol. 18(2), pages 237-258, April.
    2. Jinyang Cai & Zuting Zheng & Ruifa Hu & Carl E. Pray & Qianqian Shao, 2018. "Has International Aid Promoted Economic Growth in Africa?," African Development Review, African Development Bank, vol. 30(3), pages 239-251, September.
    3. Yonatan Dinku & Dereje Regasa, 2021. "Ethnic Diversity and Local Economies," South African Journal of Economics, Economic Society of South Africa, vol. 89(3), pages 348-367, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Angeles, Luis & Neanidis, Kyriakos C., 2009. "Aid effectiveness: the role of the local elite," Journal of Development Economics, Elsevier, vol. 90(1), pages 120-134, September.
    2. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages 191-216, June.
    3. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4415-4523, Elsevier.
    4. Sarantis Kalyvitis & Thanasis Stengos & Irene Vlachaki, 2012. "Are Aid Flows Excessive or Insufficient? Estimating the Growth Impact of Aid in Threshold Regressions," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(3), pages 298-315, July.
    5. Askarov, Zohid & Doucouliagos, Hristos, 2015. "Development Aid and Growth in Transition Countries," World Development, Elsevier, vol. 66(C), pages 383-399.
    6. Selaya, Pablo & Thiele, Rainer, 2008. "Aid and sectoral labour productivity," Kiel Working Papers 1468, Kiel Institute for the World Economy (IfW Kiel).
    7. Young, Andrew T. & Sheehan, Kathleen M., 2014. "Foreign aid, institutional quality, and growth," European Journal of Political Economy, Elsevier, vol. 36(C), pages 195-208.
    8. Coviello, Decio & Islam, Roumeen, 2006. "Does aid help improve economic institutions ?," Policy Research Working Paper Series 3990, The World Bank.
    9. Kourtellos, Andros & Tan, Chih Ming & Zhang, Xiaobo, 2007. "Is the relationship between aid and economic growth nonlinear?," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 515-540, September.
    10. Roland Hodler, 2007. "Rent seeking and aid effectiveness," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 525-541, October.
    11. Paul A. Raschky & Manijeh Schwindt, 2016. "Aid, Catastrophes and the Samaritan's Dilemma," Economica, London School of Economics and Political Science, vol. 83(332), pages 624-645, October.
    12. Mina Baliamoune-Lutz, 2012. "Do Institutions And Social Cohesion Enhance The Effectiveness Of Aid? New Evidence From Africa," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-19.
    13. Lessmann, Christian & Markwardt, Gunther, 2012. "Aid, Growth and Devolution," World Development, Elsevier, vol. 40(9), pages 1723-1749.
    14. Simeon Djankov & Jose Montalvo & Marta Reynal-Querol, 2008. "The curse of aid," Journal of Economic Growth, Springer, vol. 13(3), pages 169-194, September.
    15. Zohid Askarov & Hristos Doucouliagos, 2013. "Does aid improve democracy and governance? A meta-regression analysis," Public Choice, Springer, vol. 157(3), pages 601-628, December.
    16. Ziyoda Asatullaeva & Reza Fathollah Zadeh Aghdam & Nisar Ahmad & Laylo Tashpulatova, 2021. "The impact of foreign aid on economic development: A systematic literature review and content analysis of the top 50 most influential papers," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(4), pages 717-751, May.
    17. Tierney, Michael J. & Nielson, Daniel L. & Hawkins, Darren G. & Roberts, J. Timmons & Findley, Michael G. & Powers, Ryan M. & Parks, Bradley & Wilson, Sven E. & Hicks, Robert L., 2011. "More Dollars than Sense: Refining Our Knowledge of Development Finance Using AidData," World Development, Elsevier, vol. 39(11), pages 1891-1906.
    18. Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2005. "It Works; It Doesn't; It Can, But that Depends...: 50 Years of Controversy Over the Macroeconomic Impact of Development Aid," WIDER Working Paper Series RP2005-54, World Institute for Development Economic Research (UNU-WIDER).
    19. Keith Blackburn & Gonzalo F. Forgues-Puccio, 2011. "Foreign aid - a fillip for development or a fuel for corruption?," Centre for Growth and Business Cycle Research Discussion Paper Series 158, Economics, The University of Manchester.
    20. Ralf Hepp, 2005. "Can Debt Relief Buy Growth?," International Finance 0510003, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:jafrec:v:21:y:2012:i:1:p:65-93. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/csaoxuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.