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Foreign aid and long-run economic growth: empirical evidence for a panel of developing countries

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  • Georgios Karras

    (University of Illinois at Chicago, Chicago, USA)

Abstract

This paper investigates the relationship between foreign aid and growth in per capita GDP using annual data from the 1960 to 1997 period for a sample of 71 aid-receiving developing economies. The results show that the effect of foreign aid on economic growth is positive, permanent, statistically significant, and sizable: raising foreign aid by $20 per person of the receiving country results in a permanent increase in the growth rate of real GDP per capita by approximately 0.16 per cent. Using an alternative foreign-aid measure, a permanent increase in aid by 1 per cent of the receiving economy's GDP permanently raises the per capita growth rate by 0.14 to 0.26 per cent. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Georgios Karras, 2006. "Foreign aid and long-run economic growth: empirical evidence for a panel of developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(1), pages 15-28.
  • Handle: RePEc:wly:jintdv:v:18:y:2006:i:1:p:15-28
    DOI: 10.1002/jid.1187
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    Cited by:

    1. Ojiambo Elphas & Jacob Oduor & Mburu Tom & Wawire Nelson, 2015. "Working Paper 226 - Aid Unpredictability and Economic Growth in Kenya," Working Paper Series 2169, African Development Bank.
    2. repec:eee:jfpoli:v:74:y:2018:i:c:p:100-116 is not listed on IDEAS
    3. Larru, Jose Maria, 2006. "La ayuda al desarrollo: ¿reduce la pobreza?
      [Foreign Aid: reduce poverty? (in Spanish)]
      ," MPRA Paper 2341, University Library of Munich, Germany.
    4. Mary, Sebastien & Gomez y Paloma, Sergio, 2015. "Does Aid Decrease Child Mortality?," 2015 Conference, August 9-14, 2015, Milan, Italy 212231, International Association of Agricultural Economists.
    5. Fambon, Samuel, 2013. "Foreign Capital Inflow and Economic Growth in Cameroon," WIDER Working Paper Series 124, World Institute for Development Economic Research (UNU-WIDER).
    6. Ismail O. FASANYA & Adegbemi B.O ONAKOYA, 2012. "Does Foreign Aid Accelerate Economic Growth? An Empirical Analysis for Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 423-431.
    7. Frank Adusah-Poku, 2016. "Which Form of Foreign Capital Inflows Enhance Economic Growth? Empirical Evidence in Sub-Saharan Africa," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(10), pages 557-570, October.
    8. Chigbu Ezeji E. & Ubah Chijindu Promise & Chigbu Uzoamaka S., 2015. "Impact of Capital Inflows on Economic Growth of Developing Countries," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 1(7), pages 7-21, June.
    9. Hassen Abda Wako, 2018. "Aid, institutions and economic growth in sub†Saharan Africa: Heterogeneous donors and heterogeneous responses," Review of Development Economics, Wiley Blackwell, vol. 22(1), pages 23-44, February.
    10. P. B. Eregha, 2013. "Aid Flows and Growth Diagnosis: Empirical Evidence for A Panel of ECOWAS Countries," Economics Bulletin, AccessEcon, vol. 33(4), pages 2627-2633.
    11. Geetilaxmi MOHAPATRA & A. K. GIRI & Madhu SEHRAWAT, 2016. "Foreign aid, macroeconomic policies and economic growth nexus in India: An ARDL bounds testing approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 183-202, Winter.
    12. Hasret Balcioglu, 2016. "Foreign Aid and Economic Growth: A Panel Cointegration for Selected Turkic Republics," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(6), pages 17-23, June.
    13. 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.
    14. Gitaru, Kelvin, 2015. "Impact Of Foreign Aid On Economic Growth," MPRA Paper 68145, University Library of Munich, Germany, revised 30 Jun 2016.
    15. Mahmoud M. Sabra & Shaker Sartawi, 2015. "Development Impacts of Foreign Aid on Economic Growth, Domestic Savings and Dutch Disease Presence in Palestine," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(11), pages 532-542, November.
    16. Kargbo, Philip Michael, 2012. "Impact of Foreign Aid on Economic Growth in Sierra Leone: Empirical Analysis," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
    17. Garriga, Ana Carolina & Phillips, Brian John, 2014. "Foreign Aid as a Signal to Investors: Predicting FDI in Post-Conflict Countries," MPRA Paper 88643, University Library of Munich, Germany.
    18. Debasish Kumar Das & Champa Bati Dutta, 2013. "Global Financial Crisis And Foreign Development Assistance Shocks In Least Developing Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 1-41, June.
    19. Young, Andrew T. & Sheehan, Kathleen M., 2014. "Foreign aid, institutional quality, and growth," European Journal of Political Economy, Elsevier, vol. 36(C), pages 195-208.
    20. Geetilaxmi MOHAPATRA & A. K. GIRI & Madhu SEHRAWAT, 2016. "Foreign aid, macroeconomic policies and economic growth nexus in India: An ARDL bounds testing approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 183-202, Winter.
    21. Feeny, Simon & Fry, Tim R.L., 2014. "How sustainable is the macroeconomic impact of foreign aid?," Journal of Policy Modeling, Elsevier, vol. 36(6), pages 1066-1081.
    22. Hassan, Mai, 2017. "The impact of the shadow economy on aid and economic development nexus in Egypt," MPRA Paper 80990, University Library of Munich, Germany.
    23. 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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