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Aid and Local Growth in Malawi

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  • Daniel Chris Khomba
  • Alex Trew

Abstract

We study the local impact of foreign aid allocated to districts and constituencies in Malawi over the period 1999–2013 using a highly detailed new aid database that includes annual disbursements at each project location. First, we show using household panel surveys that growth in light density is a good proxy for growth in per capita consumption. Second, we introduce a new dataset that permits a novel instrumental variables strategy. We find a consistent and quantitatively significant relationship between aid and growth. Constituency-level regressions point to a larger effect than at district level, suggesting that aid is associated with some relocation of activity across space but not enough to make the net effect zero. The effect on growth is at its highest immediately after its disbursement, and falls to close to zero in subsequent years, implying that foreign aid has a level effect on incomes but does not stimulate sustained growth. Aid delivered as a grant is positively related with growth, while that given as a loan is not.

Suggested Citation

  • Daniel Chris Khomba & Alex Trew, 2022. "Aid and Local Growth in Malawi," Journal of Development Studies, Taylor & Francis Journals, vol. 58(8), pages 1478-1500, August.
    • Handle: RePEc:taf:jdevst:v:58:y:2022:i:8:p:1478-1500
    DOI: 10.1080/00220388.2022.2032668
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    Cited by:

    1. Durevall, Dick & Isaksson, Ann-Sofie, 2022. "Aid and child health Local effects of aid on stunting in Malawi," Working Papers in Economics 830, University of Gothenburg, Department of Economics.
    2. Heinzel, Mirko & Reinsberg, Bernhard, 2024. "Trust funds and the sub-national effectiveness of development aid: evidence from the World Bank," LSE Research Online Documents on Economics 122593, London School of Economics and Political Science, LSE Library.
    3. Michael Appiah‐Kubi & Jeneshia Jarrett, 2023. "Chinese aid and crime: Evidence from Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(7), pages 1619-1647, October.
    4. Lanati, Mauro & Sanfilippo, Marco & Santi, Filippo, 2023. "Aid and internal migration in Malawi," World Development, Elsevier, vol. 162(C).
    5. Tim Röthel, 2023. "Budget support to the health sector—The right choice for strong institutions? Evidence from panel data," Review of Development Economics, Wiley Blackwell, vol. 27(2), pages 735-770, May.
    6. Heinzel, Mirko & Reinsberg, Bernhard, 2024. "Trust funds and the sub-national effectiveness of development aid: Evidence from the World Bank," World Development, Elsevier, vol. 179(C).

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