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The Impact of Aid on Growth an aid disaggregation approach

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  • Ouattara, Bazoumana
  • Strobl, Eric

Abstract

This paper investigates the impact of aid on growth. A clear departure from the vast majority of the existing literature is that we a disaggregate aid by functional classification. Using the GMM SYS approach to dynamic panel estimator we test the three main competing specifications in the aid and growth literature for a sample of aid recipient countries over the 1974-2001 period. Our results clearly show that the different categories of aid exert different effects on growth. Indeed, we find that project aid exerts a positive and significant impact on growth whilst financial programme aid generally impacts on growth negatively. Our results also show that the impact of non-financial aid, technical assistance grants and food aid, is statistically insignificant. We found, however, no evidence to suggest that policy enhances the growth effect of the aid categories. Our non-linearity tests suggest that only project aid is associated with diminishing returns. Finally, our results confirm the finding that climate related conditions affect the working of aid (project).

Suggested Citation

  • Ouattara, Bazoumana & Strobl, Eric, 2008. "The Impact of Aid on Growth an aid disaggregation approach," Proceedings of the German Development Economics Conference, Zurich 2008 31, Verein für Socialpolitik, Research Committee Development Economics.
    • Handle: RePEc:zbw:gdec08:31
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    References listed on IDEAS

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    1. Richard Blundell & Stephen Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
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    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • F3 - International Economics - - International Finance

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