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What is the aggregate economic rate of return to foreign aid?

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  • Arndt, Channing
  • Jones, Sam
  • Tarp, Finn

Abstract

In recent years, academic studies have been converging towards the view that foreign aid promotes aggregate economic growth. We employ a simulation approach to: (i) validate the coherence of empirical aid-growth studies published since 2008; and calculate plausible ranges for the rate of return to aid. Our results highlight the long run nature of aid-financed investments and the importance of channels other than accumulation of physical capital. We find that the return to aid falls in ranges commonly accepted for public investments and there is little to justify the view that aid has a significant pernicious effect on productivity.

Suggested Citation

  • Arndt, Channing & Jones, Sam & Tarp, Finn, 2014. "What is the aggregate economic rate of return to foreign aid?," WIDER Working Paper Series 089, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp2014-089
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    References listed on IDEAS

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    Cited by:

    1. Tony Addison & Finn Tarp, 2015. "Lessons for Japanese foreign aid from research on aid's impact," WIDER Working Paper Series 056, World Institute for Development Economic Research (UNU-WIDER).
    2. Blessing Chiripanhura & Miguel Niño‐Zarazúa, 2015. "Aid, Political Business Cycles and Growth in Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 27(8), pages 1387-1421, November.
    3. repec:unu:wpaper:wp201558 is not listed on IDEAS
    4. Martin Ravallion, 2014. "On the Role of Aid in The Great Escape," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 967-984, December.
    5. repec:unu:wpaper:wp2015-58 is not listed on IDEAS

    More about this item

    Keywords

    foreign aid; rate of return; heterogeneity; simulation;

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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