IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/32062.html
   My bibliography  Save this paper

Effectiveness of foreign aid in Small Island Developing States

Author

Listed:
  • Bah, El-hadj M.
  • Ward, Jeremy

Abstract

Global flows of Official Development Assistance are large and there is a large literature devoted to testing the effectiveness of these large flows. While among the poorest and the top recipients of foreign aid, Small Island Developing States (SIDS) are usually left out in the aid effectiveness literature. This paper seeks to remedy this by testing the main conditionality models of the literature using a sample of 37 SIDS. We also specify a new model that best fit the data for these countries. The general result is that aid has a positive and significant effect on growth in a number of specifications. However, we do not find supporting evidence that aid is effective only in countries with good policies or there is a threshold above which it has diminishing returns. Instead, we find, in our preferred specification, that aid is effective in the presence of sufficiently good governmental and social institutions.

Suggested Citation

  • Bah, El-hadj M. & Ward, Jeremy, 2011. "Effectiveness of foreign aid in Small Island Developing States," MPRA Paper 32062, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32062
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/32062/1/MPRA_paper_32062.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Rene Teboul & Emmanuelle Moustier, 2001. "Foreign aid and economic growth: the case of the countries south of the Mediterranean," Applied Economics Letters, Taylor & Francis Journals, vol. 8(3), pages 187-190.
    2. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    3. Hristos Doucouliagos & Martin Paldam, 2006. "Aid Effectiveness on Accumulation: A Meta Study," Kyklos, Wiley Blackwell, vol. 59(2), pages 227-254, May.
    4. Claudia R. Williamson, 2008. "Foreign Aid and Human Development: The Impact of Foreign Aid to the Health Sector," Southern Economic Journal, Southern Economic Association, vol. 75(1), pages 188-207, July.
    5. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
    6. Tun Lin Moe, 2008. "An empirical investigation of relationships between official development assistance (ODA) and human and educational development," International Journal of Social Economics, Emerald Group Publishing, vol. 35(3), pages 202-221, February.
    7. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
    8. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 42-65.
    9. Hristos Doucouliagos & Martin Paldam, 2010. "Conditional aid effectiveness: A meta-study," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 391-410.
    10. 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.
    11. Carsten Hefeker, 2006. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 241-252, May.
    12. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    13. Hristos Doucouliagos & Martin Paldam, 2009. "The Aid Effectiveness Literature: The Sad Results Of 40 Years Of Research," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 433-461, July.
    14. Tito Cordella & Giovanni Dell'Ariccia, 2007. "Budget Support Versus Project Aid: A Theoretical Appraisal," Economic Journal, Royal Economic Society, vol. 117(523), pages 1260-1279, October.
    15. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398, April.
    16. Izabela Jelovac & Frieda Vandeninden, 2008. "How should donors give foreign aid? Project aid versus budget support," Post-Print halshs-00293130, HAL.
    17. Charles Kenny, 2008. "What is effective aid? How would donors allocate it?," The European Journal of Development Research, Taylor and Francis Journals, vol. 20(2), pages 330-346.
    18. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages 191-216, June.
    19. Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, EconWPA.
    20. Jeffrey D. Sachs, 2003. "Institutions Don't Rule: Direct Effects of Geography on Per Capita Income," NBER Working Papers 9490, National Bureau of Economic Research, Inc.
    21. Robert G. Murphy & Nicholas G. Tresp, 2006. "Government Policy and the Effectiveness of Foreign Aid," Boston College Working Papers in Economics 647, Boston College Department of Economics, revised 29 Aug 2006.
    22. H. Ada & Elizabeth Roberts & Robert Elliott & David Bell & Anthony Scott, 2006. "Comparing the New Earnings Survey (NES) and the Labour Force Survey (LFS): An Analysis of the differences between the data sets and their implications for the pattern of geographical pay in the UK," Regional Studies, Taylor & Francis Journals, vol. 40(6), pages 645-665.
    23. Laurent Wagner, 2007. "Thresholds in Aid Effectiveness," Post-Print hal-00177460, HAL.
    24. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    25. Simon Feeny & Mark McGillivray, 2010. "Aid and Growth in Small Island Developing States," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 897-917.
    26. Kosack, Stephen, 2003. "Effective Aid: How Democracy Allows Development Aid to Improve the Quality of Life," World Development, Elsevier, vol. 31(1), pages 1-22, January.
    27. David Roodman, 2007. "Macro Aid Effectiveness Research: A Guide for the Perplexed," Working Papers 135, Center for Global Development.
    28. Boriana Yontcheva & Nadia Masud, 2005. "Does Foreign Aid Reduce Poverty? Empirical Evidence from Nongovernmental and Bilateral Aid," IMF Working Papers 05/100, International Monetary Fund.
    29. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-4.
    30. Jeff Dayton-Johnson & John Hoddinott, 2003. "Aid, policies and growth, redux," Department of Economics at Dalhousie University working papers archive redux2, Dalhousie, Department of Economics.
    31. Rao, B. Bhaskara & Sharma, Kanaiah Lal & Singh, Rup, 2007. "Estimating aid-growth equations: the case of Pacific Island countries," MPRA Paper 4554, University Library of Munich, Germany.
    32. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    33. Vlad Pavlov & Craig Sugden, 2006. "Aid and Growth in the Pacific Islands," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 20, pages 38-55, November.
    34. William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
    35. Shih-Chou Kao & Chuan-Ching Ho & Ying-Chin Ho, 2006. "Transforming the exponential by minimizing the sum of the absolute differences," Journal of Applied Statistics, Taylor & Francis Journals, vol. 33(7), pages 691-702.
    36. Mark McGillivray & Farhad Noorbakhsh, "undated". "Aid, Conflict and Human Development," Working Papers 2007_03, Business School - Economics, University of Glasgow.
    37. Josepa Miquel-Florensa, 2007. "Aid Effectiveness: A comparison of Tied and Untied Aid," Working Papers 2007_3, York University, Department of Economics.
    38. Craig Burnside & David Dollar, 2004. "Aid, Policies, and Growth: Reply," American Economic Review, American Economic Association, vol. 94(3), pages 781-784, June.
    39. Aleš Bulíř & A Javier Hamann, 2007. "Volatility of Development Aid: An Update," IMF Staff Papers, Palgrave Macmillan, vol. 54(4), pages 727-739, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Foreign aid; Small Island Developing States; Aid effectiveness;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:32062. 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: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.