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Does Foreign Aid Reduce Poverty? Empirical Evidence From Nongovernmental and Bilateral Aid

  • Boriana Yontcheva
  • Nadia Masud
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    This paper assesses the effectiveness of foreign aid in reducing poverty through its impact on human development indicators. We use a dataset of both bilateral aid and NGO aid flows. Our results show that NGO aid reduces infant mortality and does so more effectively than official bilateral aid. The impact on illiteracy is less significant. We also test whether foreign aid reduces government efforts in achieving developmental goals and find mixed evidence of a substitution effect.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17973
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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/100.

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    Length: 31
    Date of creation: 01 May 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/100
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    1. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
    2. 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.
    3. Stephen Bond & Frank Windmeijer, 2002. "Finite Sample Inference for GMM Estimators in Linear Panel Data Models," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C6-3, International Conferences on Panel Data.
    4. Alexander Pivovarsky & Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson, 2003. "Foreign Aid and Revenue Response; Does the Composition of Aid Matter?," IMF Working Papers 03/176, International Monetary Fund.
    5. Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies.
    6. Hansen, Henrik & Tarp, Finn, 1999. "Aid Effectiveness Disputed," MPRA Paper 62290, University Library of Munich, Germany.
    7. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
    8. Burnside, Craig & Dollar, David, 1998. "Aid, the incentive regime, and poverty reduction," Policy Research Working Paper Series 1937, The World Bank.
    9. Clark, John, 1995. "The state, popular participation, and the voluntary sector," World Development, Elsevier, vol. 23(4), pages 593-601, April.
    10. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
    11. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
    12. Susan Rose-Ackerman, 1996. "Altruism, Nonprofits, and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 701-728, June.
    13. Svensson, Jakob, 1998. "Foreign aid and rent-seeking," Policy Research Working Paper Series 1880, The World Bank.
    14. Paul Mosley & John Hudson & Arjan Verschoor, 2004. "Aid, Poverty Reduction and the 'New Conditionality'," Economic Journal, Royal Economic Society, vol. 114(496), pages F217-F243, 06.
    15. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    16. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    17. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
    18. Meyer, Carrie A., 1995. "Opportunism and NGOs: Entrepreneurship and green north-south transfers," World Development, Elsevier, vol. 23(8), pages 1277-1289, August.
    19. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    20. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
    21. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    22. Devarajan, Shantayanan & Swaroop, vinaya, 1998. "The implications of foreign aid fungibility for development assistance," Policy Research Working Paper Series 2022, The World Bank.
    23. Murshed, S Mansoob & Sen, Somnath, 1995. "Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of Asymmetric Information," Economic Journal, Royal Economic Society, vol. 105(429), pages 498-509, March.
    24. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May.
    25. Easterly, William, 1999. "The ghost of financing gap: testing the growth model used in the international financial institutions," Journal of Development Economics, Elsevier, vol. 60(2), pages 423-438, December.
    26. Robert Lensink & Howard White, 2000. "Aid allocation, poverty reduction and the Assessing Aid report," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 399-412.
    27. Anna Fruttero & Varun Gauri, 2003. "Location decisions and nongovernmental organization motivation : evidence from rural Bangladesh," Policy Research Working Paper Series 3176, The World Bank.
    28. 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.
    29. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc.
    30. Paul Mosley & John Hudson & Sara Horrell, 1992. "Aid, the public sector and the market in less developed countries: A return to the scene of the crime," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(2), pages 139-150, 03.
    31. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 42-65.
    32. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, vol. 79(1), pages 99-106, April.
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