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What Is the Aggregate Economic Rate of Return to Foreign Aid?

Author

Listed:
  • Channing Arndt
  • Sam Jones
  • Finn Tarp

Abstract

In recent years, academic studies have been converging towards the view that foreign aid promotes aggregate economic growth. We employ a simulation approach to: (i) validate the coherence of empirical aid-growth studies published since 2008; and (ii) calculate plausible ranges for the rate of return to aid. Our results highlight the long run nature of aid-financed investments and the importance of channels other than accumulation of physical capital. We find the return to aid lies in ranges commonly accepted for public investments and there is little to justify the view that aid has had a significant pernicious effect on productivity.

Suggested Citation

  • Channing Arndt & Sam Jones & Finn Tarp, 2016. "What Is the Aggregate Economic Rate of Return to Foreign Aid?," World Bank Economic Review, World Bank Group, vol. 30(3), pages 446-474.
  • Handle: RePEc:oup:wbecrv:v:30:y:2016:i:3:p:446-474.
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    File URL: http://hdl.handle.net/10.1093/wber/lhv033
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    References listed on IDEAS

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    Cited by:

    1. Tseday Jemaneh Mekasha & Finn Tarp, 2019. "A Meta-Analysis of Aid Effectiveness: Revisiting the Evidence," Politics and Governance, Cogitatio Press, vol. 7(2), pages 5-28.
    2. Roger, Lionel, 2019. "A replication of "The long-run impact of foreign aid in 36 African countries: Insights from multivariate time series analysis" (Oxford Bulletin of Economics and Statistics, 2014)," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 13, pages 1-53.
    3. Carl-Johan Dalgaard & Henrik Hansen, 2017. "The Return to Foreign Aid," Journal of Development Studies, Taylor & Francis Journals, vol. 53(7), pages 998-1018, July.
    4. Rachel M. Gisselquist & Finn Tarp, 2019. "Aid Impact and Effectiveness: Introduction and Overview," Politics and Governance, Cogitatio Press, vol. 7(2), pages 1-4.
    5. Martin Ravallion, 2014. "On the Role of Aid in The Great Escape," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 967-984, December.
    6. Finn Tarp, 2018. "Vietnam: The dragon that rose from the ashes," WIDER Working Paper Series wp-2018-126, World Institute for Development Economic Research (UNU-WIDER).
    7. Finn Tarp, 2018. "Vietnam: The dragon that rose from the ashes," WIDER Working Paper Series 126, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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