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Aid instability as a measure of uncertainty and the positive impact of aid on growth

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  • Robert Lensink
  • Oliver Morrissey

Abstract

This article contributes to the literature on aid and economic growth. We posit that uncertainty, measured as the instability of aid receipts, will influence the relationship between aid and investment, how recipient governments respond to aid, and will capture the fact that some countries are especially vulnerable to shocks. When we account for uncertainty (which is negative and significant), we find that aid has a significant positive effect on growth, largely due to its effect on the volume of investment. The finding that uncertainty of aid receipts reduces the effectiveness of aid is robust. When the regression is estimated for the sub-sample of African countries these findings hold, although the effectiveness of aid appears weaker than for the full sample.

Suggested Citation

  • Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
  • Handle: RePEc:taf:jdevst:v:36:y:2000:i:3:p:31-49
    DOI: 10.1080/00220380008422627
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