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The impact of foreign aid on economic growth

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  • Martinez, Pablo

Abstract

The massive expenditures on foreign aid programs by developed nations and international institutions, in combination with the perceived lack of results from these disbursements, raise important questions as to the actual effectiveness of monetary assistance to less developed countries (LDCs). In this analysis, I focus on 104 low- and medium-development countries, and measure the impact that foreign aid has on their growth rates of gross domestic product, using dummy variables for geography and conflict in a geometric lag model. The results indicate that foreign aid donations do have a positive impact on the economic growth of the recipient nation. The effect is extremely modest, however, and other factors such as armed conflict and geography can easily mitigate this impact, in some cases to the extent that foreign aid becomes detrimental to economic growth. Further analysis of the results indicate that this impact is quickly felt, with half of the total impact of foreign aid felt in approximately six months

Suggested Citation

  • Martinez, Pablo, 2015. "The impact of foreign aid on economic growth," MPRA Paper 66588, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:66588
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    References listed on IDEAS

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    Cited by:

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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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