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Does Foreign Aid Help Reduce Income Inequality?

  • Ma. Cecilia Calderón
  • Alberto Chong

    ()

The aim of this paper is to provide empirical evidence on the link between foreign aid and income inequality for the period 1973-2002. Since simple cross-country regressions cannot be taken as `true` time series findings, we also focus on dynamic panel data techniques, which allow accounting for potential simultaneity and heterogeneity problems. We do not find very robust evidence that foreign aid is conducive to the improvement of the distribution of income, even when the quality of institutions is taken into account. This finding is consistent with recent empirical research on aid and growth that shows that such a link is weak at best.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4437.

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Date of creation: Mar 2006
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Handle: RePEc:idb:wpaper:4437
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