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Aid Eff ectiveness: New Instrument, New Results?

  • Frot, Emmanuel

    ()

    (Stockholm Institute of Transition Economics)

  • Perrotta, Maria

    ()

    (Stockholm Institute of Transition Economics)

Despite a voluminous literature on the topic, the question of whether foreign aid leads to growth is still controversial. To observe the pure effect of aid, researchers used instruments that must be exogenous to growth and explain well aid flows. This paper argues that instruments used in the past do not satisfy these conditions. We propose a new instrument based on predicted aid quantity and argue that it is a significant improvement relative to past approaches. We find a significant and relatively big effect of aid: a one standard deviation increase in received aid is associated with a 1.6 percentage points higher growth rate.

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File URL: http://swopec.hhs.se/hasite/papers/hasite0011.pdf
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Paper provided by Stockholm Institute of Transition Economics, Stockholm School of Economics in its series SITE Working Paper Series with number 11.

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Length: 47 pages
Date of creation: 28 May 2009
Date of revision:
Handle: RePEc:hhs:hasite:0011
Contact details of provider: Postal: Stockholm Institute of Transition Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
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