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Recipient country's 'policies' and the effect of foreign aid on economic growth in developing countries: additional evidence

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  • Rati Ram

    (Illinois State University, Normal, IL, USA)

Abstract

This note adds to the research which questions the recent influential view that recipient country's 'policies' play an important role in the effect of foreign aid on economic growth in developing countries. In the first step, the almost universal practice of imposing the constraint of equality on parameters of bilateral and multilateral aid is relaxed and it is shown that 'policy' has no role in the effect of aid even in those cases where the usual constrained models do show such an effect. In addition, many cases are noted where there is no indication of recipient country's policies having any role in the effect of aid on growth even in the usual constrained specifications. These cases employ not merely the Burnside-Dollar 'policy' index, which almost all scholars have used, but also two other broader measures. It is thus concluded that there is little empirical evidence to support the widely-disseminated view that redirecting aid toward countries with 'good' policies leads to more growth and greater poverty reduction in developing countries. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Rati Ram, 2004. "Recipient country's 'policies' and the effect of foreign aid on economic growth in developing countries: additional evidence," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(2), pages 201-211.
  • Handle: RePEc:wly:jintdv:v:16:y:2004:i:2:p:201-211
    DOI: 10.1002/jid.1071
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    File URL: http://hdl.handle.net/10.1002/jid.1071
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    References listed on IDEAS

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    1. Collier, Paul & Dollar, David, 2001. "Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet International Development Goals," World Development, Elsevier, vol. 29(11), pages 1787-1802, November.
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    Cited by:

    1. Qayyum, Unbreen & Din, Musleh-ud & Haider, Adnan, 2014. "Foreign aid, external debt and governance," Economic Modelling, Elsevier, vol. 37(C), pages 41-52.
    2. Unbreen Qayyum, 2013. "Institutional Quality, Conflict and Aid Dependency," PIDE-Working Papers 2013:94, Pakistan Institute of Development Economics.
    3. Tony Addison & George Mavrotas & Mark McGillivray, 2005. "Development assistance and development finance: evidence and global policy agendas," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(6), pages 819-836.
    4. Patrick Guillaumont & Laurent Wagner, 2014. "Aid Effectiveness for Poverty Reduction: Lessons from Cross‑country Analyses, with a Special Focus on Vulnerable Countries," Revue d’économie du développement, De Boeck Université, vol. 22(HS01), pages 217-261.
    5. Patrick GUILLAUMONT, 2009. "Aid effectiveness for poverty reduction: macroeconomic overview and emerging issues," Working Papers P05, FERDI.
    6. repec:spr:revint:v:12:y:2017:i:2:d:10.1007_s11558-017-9270-7 is not listed on IDEAS
    7. repec:bla:rdevec:v:21:y:2017:i:3:p:627-663 is not listed on IDEAS
    8. Antipin, Jan-Erik & Mavrotas, George, 2006. "On the Empirics of Aid and Growth: A Fresh Look," WIDER Working Paper Series 005, World Institute for Development Economic Research (UNU-WIDER).
    9. Tony Addison & George Mavrotas & Mark McGillivray, 2005. "Aid to Africa: an unfinished agenda," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 989-1001.
    10. Łukasz Marć, 2017. "The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 627-663, August.
    11. Derek Headey, 2008. "Geopolitics and the effect of foreign aid on economic growth: 1970-2001," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(2), pages 161-180.
    12. Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2006. "Controversies over the impact of development aid: it works; it doesn't; it can, but that depends …," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(7), pages 1031-1050.
    13. Lukasz Marc, 2012. "New Evidence on Fungibility at the Aggregate Level," Tinbergen Institute Discussion Papers 12-083/2, Tinbergen Institute.
    14. Askarov, Zohid & Doucouliagos, Hristos, 2015. "Development Aid and Growth in Transition Countries," World Development, Elsevier, vol. 66(C), pages 383-399.
    15. Saima Liaqat & Temesgen Kifle & Mohammad Alauddin, 2016. "Aid-Macroeconomic Policy Environment- Growth Nexus: Evidence from Selected Asian Countries," Discussion Papers Series 565, School of Economics, University of Queensland, Australia.

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