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Thresholds in Aid Effectiveness

Listed author(s):
  • Laurent Wagner

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I)

Is the big push hypothesis consistent with capacity constraints in the study of aid effectiveness? Big push hypothesis suggests the existence of a minimum threshold below which aid is not effective, while the constraints referred to by the concept of absorptive capacity suggests the existence of another threshold above which aid is no longer effective. This paper addresses the issue of multiple thresholds characterizing the aid/growth relationship. Using a semiparametric econometric method we do find that aid become effective only above a critical level but also become detrimental to growth for higher value of aid flows. We also investigate how the quality of economic policies and vulnerability modifies the level of those two thresholds. We finally propose a dynamic explanation of the aid/growth relationship.

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Paper provided by HAL in its series Working Papers with number halshs-00556696.

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Date of creation: 17 Jan 2011
Handle: RePEc:hal:wpaper:halshs-00556696
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00556696
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  1. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
  2. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, vol. 79(1), pages 99-106, April.
  3. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
  4. Rachid LAAJAJ & Patrick GUILLAUMONT, 2006. "When instability increases the effectiveness of aid projects," Working Papers 200637, CERDI.
  5. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
  6. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
  7. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
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