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Growth, Debt Burdens and Alleviating Effects of Foreign Aid in Least Developed Countries

  • Bjerg, Christina

    (Department of Economics, Aarhus School of Business)

  • Bjørnskov, Christian

    ()

    (Department of Economics, Aarhus School of Business)

  • Holm, Anne

    (Department of Economics, Aarhus School of Business)

In this paper, we explore the potential growth effects of foreign aid when in conjunction with severe debt problems. We first argue that aid, when used to finance debt repayments, does not lead to Dutch Disease while still alleviating an economic problem. A set of empirical estimates show that while inflows of foreign aid in general are not associated with growth in a sample of 38 Least Developed Countries, an interaction term with the level of external debt is significant. We take this as suggestive evidence of an alleviating effect of aid in these countries and offer some tentative thoughts on the implications for future aid policies

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File URL: http://www.hha.dk/nat/wper/07-1_chbj.pdf
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Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 07-1.

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Length: 31 pages
Date of creation: 01 Jan 2007
Date of revision:
Handle: RePEc:hhs:aareco:2007_001
Contact details of provider: Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
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Web page: http://www.asb.dk/departments/nat.aspx

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  1. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
  2. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1999. "A Mixed Blessing," Macroeconomic Dynamics, Cambridge University Press, vol. 3(02), pages 204-225, June.
  3. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2006. "Does US Aid Buy UN General Assembly Votes? A Disaggregated Analysis," Kiel Working Papers 1275, Kiel Institute for the World Economy.
  4. Griffin, Keith B & Enos, J L, 1970. "Foreign Assistance: Objectives and Consequences," Economic Development and Cultural Change, University of Chicago Press, vol. 18(3), pages 313-27, April.
  5. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, World Bank Group, vol. 12(1), pages 29-58, January.
  6. Paul Collier & Anke Hoeffler, 2007. "Unintended Consequences: Does Aid Promote Arms Races?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(1), pages 1-27, 02.
  7. Hansen, Henrik & Tarp, Finn, 1999. "Aid Effectiveness Disputed," MPRA Paper 62290, University Library of Munich, Germany.
  8. Tomi Ovaska, 2003. "The Failure of Development Aid," Cato Journal, Cato Journal, Cato Institute, vol. 23(2), pages 175-188, Fall.
  9. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
  10. Francesco Caselli, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 535-568, 05.
  11. Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth; What Does the Cross-Country Evidence Really Show?," IMF Working Papers 05/127, International Monetary Fund.
  12. Christopher Adam & David Bevan, 2004. "Aid and the Supply Side: Public Investment, Export Performance and Dutch Disease in Low Income Countries," Economics Series Working Papers 201, University of Oxford, Department of Economics.
  13. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Accumulation. A Meta Study," Economics Working Papers 2005-12, School of Economics and Management, University of Aarhus.
  14. Hristos Doucouliagos & Martin Paldam, 2005. "Conditional Aid Effectiveness. A Meta Study," Economics Working Papers 2005-14, School of Economics and Management, University of Aarhus.
  15. William R. Hauk & Romain Wacziarg, 2004. "A Monte Carlo Study of Growth Regressions," NBER Technical Working Papers 0296, National Bureau of Economic Research, Inc.
  16. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
  17. Berlage, Lodewijk & Terweduwe, Dirk, 1988. "The classification of countries by cluster and by factor analysis," World Development, Elsevier, vol. 16(12), pages 1527-1545, December.
  18. Silvia Marchesi & Alessandro Missale, 2012. "How defensive were lending and aid to HIPC?," Working Papers 220, University of Milano-Bicocca, Department of Economics, revised Feb 2012.
  19. Chauvet, Lisa, 2003. "Socio-political instability and the allocation of international aid by donors," Economics Papers from University Paris Dauphine 123456789/5404, Paris Dauphine University.
  20. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Growth. A Meta Study," Economics Working Papers 2005-13, School of Economics and Management, University of Aarhus.
  21. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  22. J. Svensson, 1999. "Aid, Growth and Democracy," Economics and Politics, Wiley Blackwell, vol. 11(3), pages 275-297, November.
  23. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, August.
    • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1, August.
  24. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September.
  25. Stephen Knack, 2001. "Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests," Southern Economic Journal, Southern Economic Association, vol. 68(2), pages 310-329, October.
  26. World Bank, 2005. "World Development Indicators 2005," World Bank Publications, The World Bank, number 12425.
  27. Dollar, David & Easterly, William, 1999. "The search for the key : aid, investment, and policies in Africa," Policy Research Working Paper Series 2070, The World Bank.
  28. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  29. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  30. repec:wbk:wbpubs:12426 is not listed on IDEAS
  31. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
  32. Easterly, William, 2002. "How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief," World Development, Elsevier, vol. 30(10), pages 1677-1696, October.
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