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Aid and growth. New evidence using an excludable instrument

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  • Langlotz, Sarah
  • Dreher, Axel

Abstract

We use an excludable instrument to test the effect of foreign aid on economic growth, in a sample of 73 countries over the 1966-2009 period. We interact donors legislature fractionalization with a recipient country s probability to receive aid. The results show fractionalization to increase donors aid budgets, representing the over-time variation of our instrument, while the probability to receive aid introduces variation across recipient countries. Controlling for country- and period-specific effects that absorb the levels of the interacted variables, the interaction provides a powerful and excludable instrument. Making use of this instrument, our results show that aid increases growth.

Suggested Citation

  • Langlotz, Sarah & Dreher, Axel, 2015. "Aid and growth. New evidence using an excludable instrument," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112878, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc15:112878
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    Cited by:

    1. Bluhm, Richard & Gassebner, Martin & Langlotz, Sarah & Schaudt, Paul, 2016. "Fueling Conflict? (De)Escalation and Bilateral Aid," Working Papers 0619, University of Heidelberg, Department of Economics.
    2. Gerd Müller & Andreas Freytag & Susanne Fricke & Franz Josef Radermacher & Axel Dreher & Sarah Langlotz & Werner Abelshauser & Matthias Wachter & Jennifer Howe, 2017. "Ein Marshallplan mit Afrika: Geeignetes Konzept für eine nachhaltige Entwicklung?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(04), pages 03-20, February.
    3. Axel Dreher & Steffen Lohmann, 2015. "Aid and growth at the regional level," Oxford Review of Economic Policy, Oxford University Press, vol. 31(3-4), pages 420-446.
    4. Freytag , Andreas & Pettersson, Jonatan & Schmied, Julian, 2016. "Debt Relief and Good Governance: New Evidence," Annual Conference 2016 (Augsburg): Demographic Change 145914, Verein für Socialpolitik / German Economic Association.
    5. Nimonka Bayale, 2018. "Aide et Croissance dans les pays de l'Union Economique et Mon{\'e}taire Ouest Africaine (UEMOA) : retour sur une relation controvers{\'e}e," Papers 1805.00435, arXiv.org.
    6. Langlotz, Sarah & Potrafke, Niklas, 2016. "Does development aid increase military expenditure?," Working Papers 0618, University of Heidelberg, Department of Economics.
    7. Nimonka Bayale, 2018. "Aide et Croissance dans les pays de l’Union Economique et Monétaire Ouest Africaine (UEMOA) : retour sur une relation controversée," Working Papers hal-01765313, HAL.
    8. Dutta, Nabamita & Williamson, Claudia R., 2016. "Aiding economic freedom: Exploring the role of political institutions," European Journal of Political Economy, Elsevier, vol. 45(S), pages 24-38.
    9. Sebastian Galiani & Stephen Knack & Lixin Colin Xu & Ben Zou, 2017. "The effect of aid on growth: evidence from a Quasi-experiment," Journal of Economic Growth, Springer, vol. 22(1), pages 1-33, March.
    10. repec:oup:wbecrv:v:32:y:2018:i:2:p:268-286. is not listed on IDEAS
    11. Axel Dreher & Valentin F. Lang & Sebastian Ziaja, 2017. "Foreign Aid in Areas of Limited Statehood," CESifo Working Paper Series 6340, CESifo Group Munich.
    12. repec:eee:wdevel:v:99:y:2017:i:c:p:320-334 is not listed on IDEAS
    13. Paul A. Raschky & Manijeh Schwindt, 2016. "Aid, Catastrophes and the Samaritan's Dilemma," Economica, London School of Economics and Political Science, vol. 83(332), pages 624-645, October.
    14. Lang, Valentin, 2016. "The Economics of the Democratic Deficit: The Effect of IMF Programs on Inequality," Working Papers 0617, University of Heidelberg, Department of Economics.
    15. Gao, Simin & Kirwan, Barrett E., 2017. "Does U.S. Food Aid Crowd Out Local Food Production?," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258406, Agricultural and Applied Economics Association.
    16. repec:eee:poleco:v:53:y:2018:i:c:p:186-204 is not listed on IDEAS
    17. Axel Dreher & Vera Z Eichenauer & Kai Gehring, 2018. "Geopolitics, Aid, and Growth: The Impact of UN Security Council Membership on the Effectiveness of Aid," World Bank Economic Review, World Bank Group, vol. 32(2), pages 268-286.
    18. Kai Gehring & Katharina Michaelowa & Axel Dreher & Franziska Spörri, 2015. "Do we know what we think we know? Aid fragmentation and effectiveness revisited," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 185, Courant Research Centre PEG.

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    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F35 - International Economics - - International Finance - - - Foreign Aid

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