Foreign Financial Aid, Government Policies and Economic Growth: Does the Policy Setting in Developing Countries Matter?
Does foreign aid contribute to economic growth? If so, is the impact of aid conditional on good policies? This is a controversial issue. While the World Bank (1998) contends that the aid is effective only if recipient governments have good policies, others refute this view and argue that aid enhances economic growth regardless of the type of policies. This paper proposes new measures of policy that are more directly controlled by recipient governments. Using data from the World Bank, five panels of four-years covering the period 1974-1993 for 56 aid-receiving developing countries examine whether any significant relationship exists between foreign aid, government policies and economic growth. It is revealed that foreign aid has a positive impact on real growth per capita and this effect is not contingent upon the type of economic policies adopted by the recipient countries. It is also revealed that the log of the initial level of income is statistically significant, thus indicating conditional convergence among the countries in the sample, which contradicts the general findings of previous studies.
|Date of creation:||2005|
|Contact details of provider:|| Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 2601|
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: https://crawford.anu.edu.au/research/papers/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers 536, Harvard - Institute for International Development.
- Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
- Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, 01.
- Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1, October.
- Kwabena Gyimah-Brempong, 1992. "Aid and economic growth in LDCs: Evidence from Sub-Saharan Africa," The Review of Black Political Economy, Springer;National Economic Association, vol. 20(3), pages 31-52, March.
- Potiowsky, Thomas & Qayum, Abdul, 1992. "Effect of Domestic Capital Formation and Foreign Assistance on Rate of Economic Growth," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 45(2), pages 223-228.
- Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-389, September.
- Francesco Caselli & Gerardo Esquivel & Fernando Lefort, 1997. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Working Papers Central Bank of Chile 03, Central Bank of Chile.
- Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
- Eaton, Jonathan, 1989. "Foreign public capital flows," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 25, pages 1305-1386 Elsevier.
- Bruno, Michael & Ravallion, Martin & Squire, Lyn, 1996. "Equity and growth in developing countries : old and new perspectives on the policy issues," Policy Research Working Paper Series 1563, The World Bank.
- William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
- Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:idc:wpaper:idec05-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tom Kompas)
If references are entirely missing, you can add them using this form.