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Aid Effectiveness: Opening the Black Box

  • Channing Arndt
  • Sam Jones
  • Finn Tarp

Controversy over the aggregate impact of foreign aid has focused on reduced form estimates of the aid-growth link. The causal chain, through which aid affects developmental outcomes including growth, has received much less attention. We address this gap by: (i) specifying a structural model of the main relationships; (ii) estimating the impact of aid on a range of final and intermediate outcomes; and (iii) quantifying a simplied representation of the full structural form, where aid impacts on growth through key intermediate outcomes. A coherent picture emerges: aid stimulates growth and reduces poverty through physical capital investment and improvements in health.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/wp2011/wp2011-44.pdf
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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Working Paper WP2011/44.

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Length: 30 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:unu:wpaper:wp2011-44
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  1. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  2. Tarp, Finn, 2006. "Aid and Development," MPRA Paper 13171, University Library of Munich, Germany.
  3. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
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  5. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
  6. James Heckman, 2008. "Econometric causality," CeMMAP working papers CWP01/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  7. Dreher, Axel & Nunnenkamp, Peter & Thiele, Rainer, 2008. "Does Aid for Education Educate Children? Evidence from Panel Data," Open Access Publications from Kiel Institute for the World Economy 28827, Kiel Institute for the World Economy (IfW).
  8. Karuna Gomanee & Sourafel Girma & Oliver Morrissey, 2006. "Aid, Public Spending and Human Welfare: Evidence from Quantile Regressions," Working Papers id:761, eSocialSciences.
  9. Tseday Jemaneh Mekasha & Finn Tarp, 2013. "Aid and Growth: What Meta-Analysis Reveals," Journal of Development Studies, Taylor & Francis Journals, vol. 49(4), pages 564-583, April.
  10. Hansen, Henrik & Tarp, Finn, 2000. "Aid and Growth Regressions," MPRA Paper 62288, University Library of Munich, Germany.
  11. Arndt Channing & Jones Sam & Tarp Finn, 2010. "Aid, Growth, and Development: Have We Come Full Circle?," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-29, December.
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  13. Alexander Pivovarsky & Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson, 2003. "Foreign Aid and Revenue Response: Does the Composition of Aid Matter?," IMF Working Papers 03/176, International Monetary Fund.
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  15. Rati Ram, 2006. "Growth Elasticity of Poverty: Alternative Estimates and a Note of Caution," Kyklos, Wiley Blackwell, vol. 59(4), pages 601-610, November.
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  17. van de Walle, Dominique & Mu, Ren, 2007. "Fungibility and the flypaper effect of project aid: Micro-evidence for Vietnam," Journal of Development Economics, Elsevier, vol. 84(2), pages 667-685, November.
  18. Carl-Johan Dalgaard & Henrik Hansen, 2005. "The Return to Foreign Aid," Discussion Papers 05-04, University of Copenhagen. Department of Economics.
  19. Pagan, Adrian, 1979. "Some consequences of viewing LIML as an iterated Aitken estimator," Economics Letters, Elsevier, vol. 3(4), pages 369-372.
  20. Daniel Cohen & Marcelo Soto, 2007. "Growth and human capital: good data, good results," Journal of Economic Growth, Springer, vol. 12(1), pages 51-76, March.
  21. Mishra, Prachi & Newhouse, David, 2009. "Does health aid matter?," Journal of Health Economics, Elsevier, vol. 28(4), pages 855-872, July.
  22. Michaelowa, Katharina, 2004. "Aid Effectiveness Reconsidered: Panel Data Evidence for the Education Sector," HWWA Discussion Papers 264, Hamburg Institute of International Economics (HWWA).
  23. Todd Moss & Gunilla Pettersson & Nicolas van de Walle, 2006. "An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa," Working Papers 74, Center for Global Development.
  24. Filmer, Deon & Pritchett, Lant, 1998. "Estimating wealth effects without expenditure data - or tears : with an application to educational enrollments in states of India," Policy Research Working Paper Series 1994, The World Bank.
  25. Fassil Fanta & Mukti Upadhyay, 2009. "Poverty reduction, economic growth and inequality in Africa," Applied Economics Letters, Taylor & Francis Journals, vol. 16(18), pages 1791-1794.
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