Christopoulos, Dimitris and Siourounis, Gregorios and Vlachaki, Irene (2010): Democratic Reforms, Foreign Aid and Production Inefficiency.
This is the latest version of this item.
Download (366Kb) | Preview
We construct an endogenous growth model and we employ empirical analysis to investigate the link between foreign aid and production efficiency in the presence of different political orientations of the recipient country. Using a panel of 124 countries from 1971 to 2007 and the production frontier toolbox, we document that regardless of income stratum, decade and type, foreign aid is associated with higher production inefficiency and that this inefficiency is reduced considerably if countries switch to democratic governance. Our study contributes to the aid literature by pointing to the institutional enhancement of the recipient countries through initially the adoption of democratic ruling practices.
|Item Type:||MPRA Paper|
|Original Title:||Democratic Reforms, Foreign Aid and Production Inefficiency|
|Keywords:||Democratic reforms, foreign aid, production inefficiency, translog function|
|Subjects:||F - International Economics > F3 - International Finance > F35 - Foreign Aid
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics
|Depositing User:||Dimitris Christopoulos|
|Date Deposited:||02. Jul 2010 13:39|
|Last Modified:||19. Feb 2013 10:53|
Acemoglu, D., Johnson, S., and J. Robinson (2005): “Institutions as the Fundamental Cause of Long-Run Growth”, in Aghion, P. and Durlauf, S. (eds.) Handbook of Economic Growth (Amsterdam: North-Holland).
Alesina, A. and D. Dollar (2000): “Who Gives Foreign Aid To Whom And Why”, Journal of Economic Growth 5(1): 33–63.
Alvarez, A.M., Amsler, C., Orea, L., and Schmidt, P. (2006): “Interpreting and testing the scaling property in models where inefficiency depends on firm characteristics”, Journal of Productivity Analysis 25, 201–212.
Angeles, L. and K.C. Neanidis, (2009): “Aid effectiveness: the role of the local elite”, Journal of Development Economics 90(1): 120–134.
Barro, R.J. (1996): “Democracy and growth”, Journal of Economic Growth 1(1): 1–27.
Barro, R.J. (1997): “Determinants of Economic Growth: A Cross-Country Empirical Study”, Cambridge, MA: MIT Press.
Battese, G.E., Coelli, T.J. (1995): “A model for technical efficiency effects in a stochastic frontier production function for panel data”, Empirical Economics 20, 325–332.
Boone, P. (1996): “Politics and the Effectiveness of Foreign Aid”, European Economic Review 40 (2): 289–329.
Bueno de Mesquita, B., J.D. Morrow, R. Siverson and A. Smith (2001): “Political Competition and Economic Growth”, Journal of Democracy 12 (1): 58–72.
Burnside, C. and D. Dollar (2000): “Aid, policies and growth”, The American Economic Review 90, 5,847–868.
Chickering, L.A., and M. Salahdine (1991): The Silent Revolution: The Informal Sector in Five Asian and Near Eastern Countries, ICS Press, San Francisco.
Christopoulos, D. and León-Ledesma, M. (2009): “Efficiency and frontier technology in the aftermath of recessions: international evidence”, Department of Economics, University of Kent, School of Economics Discussion Paper 09/22.
Clemens, M.A., S. Radelet and R. Bhavnani (2004): “Counting Chickens when They Hatch: The Short Term Effect of Aid on Growth”, Working Paper No. 44, Center for Global Development.
Dalgaard, C., H. Hansen, F. Tarp (2004): “On the Empirics of Foreign Aid and Growth”, Economic Journal, 114, 496: 191–216.
Doucouliagos, H., Paldam, M. (2008): “Aid Effectiveness on Growth: A meta study”, European Journal of Political Economy 24, 1–24.
Drine, I. and M.S. Nabi (2010): “Public external debt, informality and production efficiency in developing countries”, Economic Modelling 27(2): 487-495.
Easterly, W. and R. Levine (2001): “It’s not factor accumulation: Stylised facts and growth models”, World Bank Economic Review 15, 177–219.
Eaton, J. and S. Kortum (1999): “International patenting and technology diffusion: Theory and evidence”, International Economic Review 40, 537–570.
Friedman, E., Johnson, S., Kaufmann, D., and P. Zoido-Lobaton (2000): “Dodging the grabbing hand: the determinants of unofficial activity in 69 countries”, Journal of Public Economics 76(3), 459–493.
Giavazzi, F. and G. Tabellini (2005): “Economic and political liberalizations”, Journal of Monetary Economics 52(7): 1297–1330.
Greene, W.H. (2005): “Reconsidering heterogeneity in panel data estimators of the stochastic frontier model”, Journal of Econometrics 126, 269–303.
Griffith, R., Redding, S., Van Reenen, J. (2004): “Mapping the two faces of R&D: Productivity growth in a panel of OECD industries”, Review of Economics and Statistics 86, 883–895.
Grosskopf, S. (1993): “Efficiency and productivity”, In: Fried, L.C., Schmidt, H.O., Schmidt, S.S. (Eds.), The Measurement of Productive Efficiency, Techniques and Applications, Oxford University Press, New York.
Jondraw, J., Lovell, C.A.K., Materov, I., and P. Schmidt (1982): “On the estimation of technical inefficiency in stochastic production function model”, Journal of Econometrics 19, 233–238.
Hall, R.E., and C.I. Jones (1999): “Why do some countries produce so much more output per worker than others”, Quarterly Journal of Economics 114, 83–116.
Hansen, H. and F. Tarp (2001): “Aid and Growth Regressions”, Journal of Development Economics 64: 547–70.
Henry, M., Kneller, R., and C. Milner (2009): “Trade, technology transfer and national efficiency in developing countries”, European Economic Review 53, 237–254.
Heston, A., Summers, R., and B. Aten (2009): Penn World Table Version 6.3, Pennsylvania, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania.
Huntington, S. (1968): Political Order in Changing Societies. New Haven: Yale University Press.
Johnson, S., Kaufmann, D., Shleifer, A., (1997): “The unofficial economy in transition”, Brookings Papers on Economic Activity 2, 159–239.
Kanbur, R. (2006): “The Economics of International Aid”, in S.C. Kolm and J.M. Ythier (eds.), Handbook of the Economics of Giving, Altruism and Reciprocity, Elsevier.
Keller, W. (2000): “Do trade patterns and technology flows affect productivity growth”, World Bank Economic Review 14, 17–47.
Keller, W. (2002): “Geographic localisation of international technology diffusion”, American Economic Review 92, 120–142.
Keller, W. (2004): “International technology diffusion”, Journal of Economic Literature 42, 752–782.
Kneller, R. and Stevens, A. (2003): “The specification of aggregate production function in the presence of inefficiency”, Economics Letters 81, 223–226.
Kumbhakar, S. and H.J. Wang (2005): “Estimation of Growth Convergence Using a Stochastic Production Frontier Approach”, Economics Letters 88, 300–305.
Loayza, N. (1997): The economics of the informal sector: a simple model and some empirical evidence from Latin America, World Bank Policy Research Working Paper 1727, World Bank, Washington, DC.
Marshall, M.G., and K. Jaggers (2004): Polity IV Project: Political Regime Characteristics and Transitions, 1800-2004 Dataset Users’ Manual, Center for Global Policy School of Public Policy, George Mason University, Arlington, VA. Dataset available at: http://www.cidcm.umd.edu/polity.
Munck, G.L. and Verkuilen, J. (2002): “Conceptualizing and measuring democracy: evaluating alternative indices”, Comparative Political Studies, 35(1), 5–34.
Nehru, V., and A. Dhareshwar (1993): “A new data base on physical capital stock: sources, methodology and results”, Revista de Análisis Económico 8, 37–59.
Olson, M. (1982): The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities. New Haven: Yale University Press.
Olson, M. (1993): “Dictatorship, Democracy, and Development”, American Political Science Review 87: 567–576.
Papaioannou, E. and G. Siourounis (2008a): “Democratization and Growth”, Economic Journal 118(10): 1520–1551.
Papaioannou, E. and G. Siourounis (2008b): “Economic and Social Factors Driving the Third Wave of Democratization”, Journal of Comparative Economics 36(3), 365–387.
Prescott, E., (1998): Needed: “A theory of total factor productivity”, International Economic Review 39, 525–551.
Przeworski, A., M.E. Alvarez, J.A. Cheibub, J. Antonio, and F. Limongi (2000): Democracy and Development: Political Institutions and Well-Being in the World, 1950-1990, Cambridge: Cambridge University Press.
Przeworski, A. and F. Limongi (1993): “Political Regimes and Economic Growth.” Journal of Economic Perspectives 7(3), 51–69.
Rajan, R.G. and A. Subramanian (2008): “Aid and Growth: What Does the Cross-Country Evidence Really Show?”, The Review of economics and Statistics 90(4), 643–665.
Rajan, R.G. and A. Subramanian (2010): “Aid, Dutch Disease, and Manufacturing Growth, forthcoming in the Journal of Development Economics.
Ram, R. (2003): “Roles of Bilateral and Multilateral Aid in Economic Growth of Developing Countries”, Kyklos 56(1), 95–110.
Schneider, E., and D. Enste (2000): “Shadow economies: size, causes, and consequences”, Journal of Economic Literature 38(1): 77–114.
Sirowy, L. and A. Inkeles (1990): “The Effects of Democracy on Economic Growth and Inequality: A Review”, Studies in Comparative International Development 25 (1), 126–157.
Temple, J. (1999): “The new growth evidence”, Journal of Economic Literature 37, 112–156.
Wright, J. (2008): “To Invest or Insure? How Authoritarian Time Horizons Impact Foreign Aid Effectiveness”, Comparative Political Studies 41(7), 971–1000.
Available Versions of this Item
- Democratic Reforms, Foreign Aid and Production Inefficiency. (deposited 02. Jul 2010 13:39) [Currently Displayed]