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The Anarchy of Numbers: Aid, Development, and Cross-country Empirics—Revised July 2004

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  • David Roodman

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Abstract

Contemporary econometric literature has generated a large number of stories of the relationship between how much foreign aid a countries receives and how it grows. All the stories hinge on the statistical significance in cross-country regressions of a quadratic term involving aid. Among the stories are that aid raises growth (on aver-age) 1) in countries where economic policies are good; 2) in countries where policies are good and a civil war recently ended; 3) in all countries, but with diminishing returns; 4) in countries outside the tropics; 5) in countries with difficult economic environments, characterized by declining or volatile terms of trade, natural disasters, or low population; or 6) when aid increases in countries experiencing negative export price shocks. The diversity of results prima facie suggests that many are fragile. Easterly et al. (2004) find the aid-policy story (Burnside and Dollar, 2000) to be fragile in the face of an expansion of the data set in years and countries. The present study expands that analysis by applying more tests, and to more studies. Each test involves altering just one aspect of the regressions. All 19 tests are derived from sources of variation that are minimally arbitrary. Twelve derive from specification differences between studies, what Leamer (1983) calls “whimsy.” Three derive from doubts about the appropriateness of the definition of one variable in one study. The remaining four derive from the passage of time, which allows sample expansion. This design allows an examination of the role of “whimsy” in the results that are tested while minimizing “whimsy” in the testing itself. Among the stories examined, the aid-policy link proves weakest, while the aid-tropics link is most robust.

Suggested Citation

  • David Roodman, 2003. "The Anarchy of Numbers: Aid, Development, and Cross-country Empirics—Revised July 2004," Working Papers 32, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:32
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    File URL: http://www.cgdev.org/content/publications/detail/2745
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    Cited by:

    1. Agénor, Pierre-Richard & Bayraktar, Nihal & El Aynaoui, Karim, 2008. "Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction," Journal of Development Economics, Elsevier, vol. 86(2), pages 277-295, June.
    2. Bazoumana Ouattara, 2007. "Foreign Aid, Public Savings Displacement and Aid Dependency in Cote d'Ivoire: An Aid Disaggregation Approach," Oxford Development Studies, Taylor & Francis Journals, vol. 35(1), pages 33-46.
    3. Philipp Harms & Matthias Lutz, 2004. "The Macroeconomic Effects of Foreign Aid: A Survey," University of St. Gallen Department of Economics working paper series 2004 2004-11, Department of Economics, University of St. Gallen.
    4. Pettersson, Jan, 2003. "Democracy, Consolidation and Growth," Research Papers in Economics 2002:16, Stockholm University, Department of Economics, revised 15 Dec 2004.
    5. Tadesse, Tasew, 2011. "Foreign aid and economic growth in Ethiopia," MPRA Paper 33953, University Library of Munich, Germany, revised 20 Sep 2011.

    More about this item

    Keywords

    foreign aid; economic development; cross-country empirics;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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