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Aid and Growth: Have We Come Full Circle?

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  • Channing Arndt

    (Department of Economics, University of Copenhagen)

  • Sam Jones

    (Department of Economics, University of Copenhagen)

  • Finn Tarp

    (Department of Economics, University of Copenhagen)

Abstract

The micro-macro paradox has been revived. Despite broadly positive evaluations at the micro and meso-levels, recent literature has turned decidedly pessimistic with respect to the ability of foreign aid to foster economic growth. Policy implications, such as the complete cessation of aid to Africa, are being drawn on the basis of fragile evidence. This paper first assesses the aid-growth literature with a focus on recent contributions. The aid-growth literature is then framed, for the first time, in terms of the Rubin Causal Model, applied at the macroeconomic level. Our results show that aid has a positive and statistically significant causal effect on growth over the long run with point estimates at levels suggested by growth theory. We conclude that aid remains an important tool for enhancing the development prospects of poor nations.

Suggested Citation

  • Channing Arndt & Sam Jones & Finn Tarp, 2009. "Aid and Growth: Have We Come Full Circle?," Discussion Papers 09-22, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0922
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    More about this item

    Keywords

    foreign aid; growth; aid effectiveness; causal effects;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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