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Aid Volatility, Human Capital, and Growth

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  • Pierre-Richard Agénor
  • Nihal Bayraktar

Abstract

We study the effect of aid volatility on education outcomes and economic growth, in a model that focuses on a low-income economy where acquiring skills benefits from public subsidies partly financed through foreign aid. By creating uncertainty about the net return to education, a high degree of aid volatility mitigates agents’ incentives to invest in skills. If savings and growth depend on the composition of the labor force, aid volatility may have an adverse effect on the mean growth rates of investment and output. Panel data regressions for a group of aid-dependent countries provide robust evidence of a negative relationship between the volatility of education aid and schooling outcomes.

Suggested Citation

  • Pierre-Richard Agénor & Nihal Bayraktar, 2020. "Aid Volatility, Human Capital, and Growth," Journal of Human Capital, University of Chicago Press, vol. 14(3), pages 401-448.
    • Handle: RePEc:ucp:jhucap:doi:10.1086/710321
    DOI: 10.1086/710321
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    Cited by:

    1. Sèna Kimm Gnangnon, 2024. "The quality of Aid for Trade flows and economic complexity," International Economics and Economic Policy, Springer, vol. 21(4), pages 705-747, October.
    2. Gnangnon, Sèna Kimm, 2023. "The Quality of Aid for Trade Flows and Economic Complexity," EconStor Preprints 271538, ZBW - Leibniz Information Centre for Economics.
    3. King Yoong Lim & Pengfei Jia, 2019. "Police spending and economic stabilization in a monetary economy with crime and differential human capital," NBS Discussion Papers in Economics 2019/02, Economics, Nottingham Business School, Nottingham Trent University.
    4. Leighton Vaughan Williams & Chunping Liu & Hannah Gerrard, 2019. "How well do Elo-based ratings predict professional tennis matches?," NBS Discussion Papers in Economics 2019/03, Economics, Nottingham Business School, Nottingham Trent University.
    5. Lim, King Yoong, 2019. "Modelling the dynamics of corruption and unemployment with heterogeneous labour," Economic Modelling, Elsevier, vol. 79(C), pages 98-117.

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