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The Macroeconomic Effects of Foreign Aid: A Survey

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  • Philipp Harms
  • Matthias Lutz

Abstract

Research on the macroeconomic effects of aid has expanded rapidly in recent years. In this paper, we provide a survey of this literature. We start by reviewing some theoretical models that suggest a positive impact of aid on investment and growth. We then discuss the empirical evidence, giving particular attention to the role of institutions and policies in determining aid effectiveness. As a general conclusion, we suggest adopting a more disaggregate perspective with respect both to different types of aid and to various aspects of governance.

Suggested Citation

  • Philipp Harms & Matthias Lutz, 2004. "The Macroeconomic Effects of Foreign Aid: A Survey," University of St. Gallen Department of Economics working paper series 2004 2004-11, Department of Economics, University of St. Gallen.
    • Handle: RePEc:usg:dp2004:2004-11
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    Cited by:

    1. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2008. "Does US aid buy UN general assembly votes? A disaggregated analysis," Public Choice, Springer, vol. 136(1), pages 139-164, July.
    2. Peter Nunnenkamp & Rainer Thiele, 2006. "Targeting Aid to the Needy and Deserving: Nothing But Promises?," The World Economy, Wiley Blackwell, vol. 29(9), pages 1177-1201, September.
    3. Hassen Abda Wako, 2018. "Aid, institutions and economic growth in sub†Saharan Africa: Heterogeneous donors and heterogeneous responses," Review of Development Economics, Wiley Blackwell, vol. 22(1), pages 23-44, February.
    4. Rainer Thiele & Peter Nunnenkamp & Axel Dreher, 2007. "Do Donors Target Aid in Line with the Millennium Development Goals? A Sector Perspective of Aid Allocation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(4), pages 596-630, December.
    5. Thiele, Rainer & Nunnenkamp, Peter & Dreher, Axel, 2006. "Sectoral aid priorities: Are donors really doing their best to achieve the millennium development goals?," Kiel Working Papers 1266, Kiel Institute for the World Economy (IfW Kiel).
    6. Heng Hokmeng & Pahlaj Moolio, 2015. "The Impact of Foreign Aid on Economic Growth in Cambodia: A Co-integration Approach," KASBIT Business Journals (KBJ), Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 8(1), pages 4-25, May.
    7. Liao, Hongwei & Chi, Yedi & Zhang, Jiarui, 2020. "Impact of international development aid on FDI along the Belt and Road," China Economic Review, Elsevier, vol. 61(C).
    8. Philipp Harms & Michael Rauber, 2004. "Foreign aid and developing countries' creditworthiness," Working Papers 04.05, Swiss National Bank, Study Center Gerzensee.
    9. Derek Headey, 2005. "Foreign Aid and Foreign Policy: How donors undermine the effectiveness of overseas development assistance," CEPA Working Papers Series WP052005, School of Economics, University of Queensland, Australia.
    10. Rishav Bista, 2006. "Foreign aid policy and its growth effect in Nepal," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 3(1), pages 109-140, Julio-Dic.
    11. repec:zbw:ifwkie:3881 is not listed on IDEAS
    12. Innocent .U. Duru & Bartholomew .O.N. Okafor & Millicent Adanne Eze & Gabriel .O. Ebenyi, 2020. "Foreign Aid and Economic Growth: Empirical Evidence from Nigeria," Growth, Asian Online Journal Publishing Group, vol. 7(1), pages 35-50.
    13. Usman Ugboga Koku & Oduor Isaiah Otieno & Edward Kisiang’ani, 2022. "Theoretical Debate on the Development Aid in Africa," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(12), pages 520-528, December.
    14. Hoda Abd El Hamid Ali, 2013. "Foreign Aid and Economic Growth in Egypt: A Cointegration Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 743-751.
    15. Afees Adebare SALISU* & Fidelis O.OGWUMIKE**, 2010. "Aid-Macroeconomic Policy Environment and Growth:Evidence From Sub-Saharan Africa," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 20, pages 1-12.
    16. Rishav Bista, 2006. "Foreign aid policy and its growth effect in Nepal," EconoQuantum, Revista de Economia y Negocios, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 3(1), pages 109-141, Julio - D.
    17. Wako, Hassen, 2011. "Effectiveness of foreign aid in sub-Saharan Africa: Does disaggregating aid into bilateral and multilateral components make a difference?," MPRA Paper 72617, University Library of Munich, Germany.

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    More about this item

    Keywords

    foreign aid; economic growth; institutions; governance;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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