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Measuring the Effect of Foreign Aidon Growth and Poverty Reduction or the Pitfalls of Interaction Variables

Author

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  • J. J. Polak
  • Joydeep Roy
  • Catherine A Pattillo

Abstract

Regressions in a number of recent papers written by staff members of the World Bank and the IMF rely on an interaction variable (IAV) to establish the effects of foreign aid on economic growth or the reduction of poverty. The common assumption in these papers is that if the coefficient of this IAV is statistically significant, then both of its components have a significant effect on the dependent variable. That assumption is not justified in its generality, and this paper develops two techniques that show a high probability that in at least two of the three studies analyzed one of the components of the IAV may not have a significant effect.

Suggested Citation

  • J. J. Polak & Joydeep Roy & Catherine A Pattillo, 2007. "Measuring the Effect of Foreign Aidon Growth and Poverty Reduction or the Pitfalls of Interaction Variables," IMF Working Papers 07/145, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/145
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    Cited by:

    1. Felicitas Nowak-Lehmann D. & Inmaculada Martínez-Zarzoso & Stephan Klasen & Dierk Herzer, 2009. "Aid and Trade - A Donor's Perspective," Journal of Development Studies, Taylor & Francis Journals, vol. 45(7), pages 1184-1202, August.
    2. Felicitas Nowak-Lehmann D. & Inmaculada Martínez-Zarzoso & Dierk Herzer & Stephan Klasen & Axel Dreher, 2009. "In Search for a Long-run Relationship between Aid and Growth: Pitfalls and Findings," Ibero America Institute for Econ. Research (IAI) Discussion Papers 196, Ibero-America Institute for Economic Research.
    3. Wako, Hassen, 2011. "Effectiveness of foreign aid in sub-Saharan Africa: Does disaggregating aid into bilateral and multilateral components make a difference?," MPRA Paper 72617, University Library of Munich, Germany.

    More about this item

    Keywords

    Economic growth; Development assistance; Foreign aid; interaction variables; growth; poverty reduction; paper; surveys; equation; correlation; standard deviation; And Poverty Reduction;

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