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The puzzle of aid and growth: any role for investment?

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  • Nicola Limodio

Abstract

This paper explores the relationship between aid and growth, through the explicit inclusion of the investment component. We construct a new database, which adds to the previous papers’ variables (policy, institutional quality and civil unrest) some capital accumulation indicators. Partly based on the main literature, a simultaneous equations model is constructed to account for endogeneity and different methods are applied for a robustness check. Although in line with previous literature, in this paper we find that the capital accumulation process is a significant and fundamental channel to understand the link between development assistance and growth. In low-income countries aid effectiveness seems to be significantly lower.

Suggested Citation

  • Nicola Limodio, 2012. "The puzzle of aid and growth: any role for investment?," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(1), pages 1-26, January.
  • Handle: RePEc:taf:irapec:v:26:y:2012:i:1:p:1-26
    DOI: 10.1080/02692171.2011.557050
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