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The Effects of Foreign Aid in Sub-Saharan Africa

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  • Robert Gillanders

Abstract

This paper contributes to the aid effectiveness debate by applying a vector autoregression model to a panel of Sub-Saharan African countries. This method avoids the need for instrumental variables and allows one to analyse the impact of foreign aid on human development and on economic development simultaneously. The full sample results indicate a small increase in economic growth following a fairly substantial aid shock. The size of the effect puts the result somewhere between the arguments of aid optimists and those of aid pessimists. Economic growth is found to respond more to aid shocks in groups defined by better economic policies, poor institutions and high aid dependence. Human development, for which I use the growth rate of life expectancy as a proxy, responds positively to aid shocks in democracies and in good institutional environments.

Suggested Citation

  • Robert Gillanders, 2011. "The Effects of Foreign Aid in Sub-Saharan Africa," Working Papers 201116, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201116
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    File URL: http://hdl.handle.net/10197/6374
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    References listed on IDEAS

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    1. Angus Deaton, 2010. "Instruments, Randomization, and Learning about Development," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 424-455, June.
    2. Michael A. Clemens & Steven Radelet & Rikhil R. Bhavnani & Samuel Bazzi, 2012. "Counting Chickens when they Hatch: Timing and the Effects of Aid on Growth," Economic Journal, Royal Economic Society, vol. 122(561), pages 590-617, June.
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    Cited by:

    1. Jones, Yakama Manty, 2013. "Testing the foreign aid-led growth hypothesis in West Africa," MPRA Paper 50361, University Library of Munich, Germany.
    2. Lof, Matthijs & Mekasha, Tseday Jemaneh & Tarp, Finn, 2015. "Aid and Income: Another Time-series Perspective," World Development, Elsevier, vol. 69(C), pages 19-30.
    3. Gravier-Rymaszewska, Joanna, 2012. "How Aid Supply Responds to Economic Crises: A Panel VAR Approach," WIDER Working Paper Series 025, World Institute for Development Economic Research (UNU-WIDER).
    4. repec:unu:wpaper:wp2012-25 is not listed on IDEAS
    5. Lof, Matthijs & Mekasha, Tseday Jemaneh & Tarp, Finn, 2015. "Rejoinder to Herzer, Nowak-Lehmann, Dreher, Klasen, and Martinez-Zarzoso (2014)," World Development, Elsevier, vol. 70(C), pages 397-399.
    6. Yakama Manty Jones, 2013. "Testing the Foreign Aid-led Growth Hypothesis in West Africa," Management Working Papers 3, Birkbeck Department of Management, revised Apr 2013.
    7. Ziesemer, Thomas, 2012. "The impact of development aid on education and health: Survey and new evidence from dynamic models," MERIT Working Papers 057, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. Herzer, Dierk & Nowak-Lehmann, Felicitas & Dreher, Axel & Klasen, Stephan & Martinez-Zarzoso, Inmaculada, 2015. "Comment on Lof, Mekasha, and Tarp (2014)," World Development, Elsevier, vol. 70(C), pages 389-396.

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    Keywords

    Foreign aid; Official Development Assistance (ODA); Economic development; Human development;

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