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Aid, policies, and growth : revisiting the evidence

  • Burnside, Craig
  • Dollar, David

The authors revisit the relationship between aid and growth using a new data set focusing on the 1990s. The evidence supports the view that the impact of aid depends on the quality of state institutions and policies. The authors use an overall measure of institutions and policies popular in the empirical growth literature. The interaction of aid and institutional quality has a robust positive relationship with growth that is strongest in instrumental variable regressions. There is no support for the competing hypothesis that aid has the same positive effect everywhere.The authors also show that in the 1990s the allocation of aid to low-income countries favored those with better institutional quality. This"selectivity"is sensible if aid in fact is more productive in sound institutional and policy environments. The cross-country evidence on aid effectiveness is supported by other types of information as well: case studies, project-level evidence, and opinion polls support the view that corrupt institutions and weak policies limit the impact of financial assistance for development.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3251.

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Date of creation: 01 Mar 2004
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Handle: RePEc:wbk:wbrwps:3251
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  1. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  2. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  3. Anne Boschini & Anders Olofsg�rd, 2007. "Foreign aid: An instrument for fighting communism?," Journal of Development Studies, Taylor & Francis Journals, vol. 43(4), pages 622-648.
  4. Alesina, Alberto & Dollar, David, 2000. " Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
  5. Burnside, Craig & Dollar, David, 1998. "Aid, the incentive regime, and poverty reduction," Policy Research Working Paper Series 1937, The World Bank.
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