Can the new aid-growth models be replicated
The recent literature on the aid-growth relation discusses two competing models: The Good Policy Model, where the key feature is policy times aid, and the Medicine Model, where the key feature is aid squared. Both have been reached on a sample of about 1/3 of the available data. We present a base model, to replicate both models on that data set. It is then replicated on as much of the available data as possible. Within the sample the Good Policy Model proves fragile, while the Medicine Model is more robust. Neither model replicates outside the original data sample. Further, we apply a semi-parametric regression technique to test for an unknown functional form of the aid-growth relation. It rejects that aid is statistically significant. Thus the evidence in favor of an aid-growth relationship - let alone a nonlinear one - is weak.
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Research Department Publications
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