Wamboye, Evelyn (2012): Quantity or quality? foreign aid implications on economic growth in least developed countries.
Download (1MB) | Preview
Using panel data for the period of 1975-2011, this study attempts to answer the question of whether the quantity or quality of foreign aid matters to economic growth of least developed countries (LDCs). Quality effects are captured using different specifications of both bilateral and multilateral aid. The quantity effects are measured by the squared term on the aid variable. The timing of effects between aid and growth are controlled for using both short term (annual) and long term (5-year averaged) panel data. Issues of endogeneity, measurement bias, simultaneity and reverse causality are addressed. Generally, after controlling for trade, fiscal and monetary policies and other institutional factors, results from this study support the conclusion that quantity rather than quality of aid matters for economic growth of LDCs. These results are robust to different samples and estimation techniques. Nonetheless, the study does not discount the importance of the quality of aid, rather, emphasizes that regardless of the type of aid flows, quantity and continuous flow is important for LDCs.
|Item Type:||MPRA Paper|
|Original Title:||Quantity or quality? foreign aid implications on economic growth in least developed countries|
|Keywords:||Foreign aid, economic growth, LDCs, SGMM|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
F - International Economics > F3 - International Finance > F35 - Foreign Aid
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O19 - International Linkages to Development ; Role of International Organizations
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
|Depositing User:||Evelyn Wamboye|
|Date Deposited:||18. Jun 2012 04:12|
|Last Modified:||13. Feb 2013 21:52|
Acemoglu, Daron., Johnson Simon., and Robinson James. A., 2002. “Reversal of Fortune: Geography and institutions in the making of the modern World income distribution”. Quarterly Journal of Economics, Vol.117 (4), pp.1231-1294
Arellano, Manuel., and Olympia Bover, 1995. “Another Look at the Instrumental Variables Estimation of Error-Components Models”. Journal of Econometrics, Vol. 68 (1), pp. 29–51
Baliamoune-Lutz, Mina & Ndikumana, Léonce, 2007. "The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries,"MPRA Paper 6189, University Library of Munich, Germany
Barro, Robert J. 1994. “Democracy and Growth”. NBER Work paper No. 4909
Barro, Robert J. 1991. "Economic Growth in a Cross Section of Countries," Quarterly Journal of Economics, Vol. 106 (2) pp. 407—433.
Barro, Robert J. and Jong—Wha Lee. 1994. "Sources of Economic Growth," Carnegie—Rochester Conference Series on Public Policy.
Becker, Gary S. and Robert J. Barro. 1988. "A Reformulation of the Economic Theory of Fertility," Quarterly Journal of Economics, Vol. 103 (1). pp 1—25.
Behrman, Jere R. 1990. "Women's Schooling and Non-Market Productivity: A Survey and a Reappraisal," unpublished paper, University of Pennsylvania.
Bloom, David E. and Sachs, Jeffery. D. 1998. 'Geography, demography and economic growth in Africa', Brookings Papers on Economic Activity. Economic Studies Program, The Brookings Institution vol. 29 (2), pp. 207-296.
Blundell, Richard and Stephen Bond. 1998. “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models,” Journal of Econometrics, Vol. 87 (1). pp. 115–143.
Bobba, Matteo. and Powell, Andrew., 2007, “Aid and Growth: Politics Matters.” Inter-American Development Bank. Working Paper No.601
Boone, Peter. 1996. “Politics and the effectiveness of foreign aid.” European Economic Review. Vol 40 (2), pp 289-329.
Burnside, Craig and David Dollar. 2000. “Aid, Policies, and Growth.” American Economic Review. Vol.90 (4), pp. 847-868.
Commitment to development index (CDI, 2011), Center for Global Development. http://www.cgdev.org/section/initiatives/_active/cdi/
Clemens, Michael A., Steven Radelet, and Rikhil R. Bhavnani and Samuel Bazzi. 2011 “Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth”. Forthcoming in Economic Journal.
Clemens, Michael. A., Radelet, Steven. & Bhavnani, Rikhil., 2004, “Counting chickens when they hatch: The short-term effect of aid on growth,” Center for Global Development. Working Paper No. 44
Collier, Paul and David Dollar. 2002. “Aid allocation and poverty reduction.” European Economic Review.Vol 46 (8), pp. 1475- 1500.
Dalgaard, Carl-Johan and Henrik Hansen. 2001. “On aid, growth and good policies.” Journal of Development Studies. Vol. 37 (6), pp. 17-41.
Dalgaard, Carl-Johan and Henrik Hansen and Finn Tarp. 2004. “On The Empirics of Foreign Aid and Growth” Economic Journal, Vol. 114 (496), pp. F191 - F216.
Easterly, William. 2007a, “Are aid agencies improving?,” Economic Policy, Vol. 22(52), pp. 633–678.
Easterly, William, 2007b, “Was development assistance a mistake?,” American Economic Review Papers and Proceedings, Vol. 97(2), pp. 328–332.
Easterly, William. (2006) “Reliving the 1950s: The Big Push, Poverty Traps, and Takeoffs in Economic Development”. Journal of Economic Growth, Vol. 11 (4), pp. 289-318
Easterly, William. 2005. “What did structural adjustment adjust? The association of policies and growth with repeated IMF and World Bank adjustment loans,” Journal of Development Economics, Vol. 76(1), pp. 1–22.
Easterly, William (2003) “Can Foreign Aid Buy Growth?” Journal of Economic Perspectives 17 (3): pp. 23–48.
Easterly, William and Levine, Ross. 2003. “Tropics, germs, and crops: the role of endowments in economic development.” Journal of Monetary Economics. 50(1).
Easterly, William, Ross Levine, and David Roodman. 2004 “Aid, Policies, and Growth: Comment”. American Economic Review. Vol 94 (3), pp 774-780.
Easterly, William and Sergio Rebelo. 1993. "Fiscal Policy and Economic Growth: An Empirical Investigation," Journal of Monetary Economics, Vol. 32 (3) pp 417—458.
European Commission. 2005. “EU Strategy for Africa: Towards a Euro-African pact to accelerate Africa's development”. Communication from the Commission to the Council. The European Parliament and the European Economic and Social Committee, Brussels, October 12 2005.
Fischer, Stanley. 1993. "The Role of Macroeconomic Factors in Growth." Journal of Monetary Economics Vol. 32(3). Pp. 485-512.
Galor, O. & Weil, D. 1996. “The gender gap, fertility and growth”. American Economic Review, Vol. 86, 374-387.
Galor, O. & Weil, D. 2000. “Population, technology, and growth: from Malthusian stagnation to demographic transition and beyond.” American Economic Review, Vol. 90, 806-828.
Gomanee, Karuna., Girma, Sourafel. & Morrisey, Oliver., 2002, “Aid and growth: Accounting for Transmission Mechanisms in sub-Saharan Africa,” Paper presented at the University of Oxford “Understanding Poverty and Growth in sub-Saharan Africa” Conference (March 18-19).
Guillaumont, Patrick and Lisa Chauvet. 2001. “Aid and performance: A Reassessment”. Journal of Development Studies, Vol. 37 (6), pp 66-92.
Hansen, Henrik and Finn Tarp. 2001. “Aid and growth regressions.” Journal of Development Economics, Vol. 64 (2), pp 547- 570.
Headey, Derek.D., 2007, “Geopolitics and the effect of foreign aid on economic growth: 1970–2001,” Journal of International Development, Vol. 20(2), pp. 161–180.
IMF and World Bank. (2005). Global monitoring report 2005: millennium development Goals: from consensus to momentum. Washington DC: Washington, IMF and World Bank.
Islam, Nazrul, 1995. “Growth Empirics: A Panel Data Approach”. The Quarterly Journal of Economics, Vol.110 (4), 1127-1170.
King, Robert G. and Ross Levine (1993). "Finance, Entrepreneurship, and Growth: Theory and Evidence," Journal of Monetary Economics, Vol. 32 (3), pp 513—542.
Kumar Manmohan S., and Jaejoon Woo. 2010. Public Debt and Growth. International Monetary Fund. WP/10/174.
Lensink, Robert and Howard White. 2001. “Are there negative returns to aid?” Journal of development Studies, Vol. 37 (6), pp 42-65.
Lensink, Robert and Oliver Morrissey. 2000. “Aid instability as a measure of uncertainty and the positive impact of aid on growth.” Journal of Development Studies, Vol. 36 (3), pp. 31-49.
Masters, William and McMillan, Margaret. 2001. 'Climate and scale in economic growth', Journal of Economic Growth, Vol. 6, pp. 167-86.
Minoiu, Camelia and Sanjay G. Reddy. 2009. “Development Aid and Economic Growth: A Positive Long Run Relation”. IMF. WP/09/118.
Moreira, Sandrina.B., 2005. “Evaluating the Impact of Foreign Aid on Economic Growth: A Cross-Country Study”. Journal of Economic Development, Vol.30 (2), pp 25-48.
Radelet, Steven, Michael Clemens and Rikhil Bhavnani. 2005. “Aid and Growth”. Finance and Growth: A Quarterly Magazine of the IMF. Vol.42 (3).
Rajan, Raghuram G. and Arvind Subramanian, Aid and Growth: 2008. “What Does the Cross-Country Evidence Really Show?” The Review of Economics and Statistics, Vol. 90 (4), pp 643-665.
Roodman, David. 2004. “The Anarchy of Numbers: Aid, Development, and Cross-country Empirics” Center for Global Development, Washington, DC.
Sachs, Jeffrey.D. 2005. The End of Poverty: Economic Possibilities for Our Time. New York: The Penguin Press
Sachs, Jeffrey. D. 2003. “Institutions don't rule: direct effects of geography on per capita income”, NBER Working Paper W9490.
Sachs, Jeffrey. D. 2001. 'Tropical underdevelopment', NBER Working Paper W8119.
Sachs, Jeffrey D. and Andrew Warner. 1995. "Economic Reform and the Process of Global Integration." Brookings Papers on Economic Activity (1): 1- 118.
Sala-i-Martin, Xavier., Gernot Doppelhofer, and Ronald I. Miller, 2004. Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach. American Economic Review, Vol. 94 (4), pp. 813–35.
Schultz, T. Paul. 1989. "Returns to Women's Education," The World Bank, Population, Health, and Nutrition Department. Background paper 89/001,
United Nations Development Report. 2005. Human Development Report 2005. New York: United Nations.
Wacziarg, Romain and Karen Horn Welch. 2003 “Trade Liberalization and Growth: New Evidence,”Mimeo, Stanford University.
World Bank. 2005. Meeting the Challenge of Africa’s Development: A World Bank group Action Plan, Africa Region. Washington DC: The World Bank.