On the Empirics of Foreign Aid and Growth

Bibliographic Data

ID9717338
AuthorsCarl‐Johan Dalgaard (University of Copenhagen and EPRU), Henrik Hansen (0000-0002-0752-2915, University of Copenhagen and DERG), Finn Tarp (0000-0002-6247-4370, University of Copenhagen and DERG)
Year2004
Volume114
Issue496
PagesF191-F216
Publication date2004-06-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/j.1468-0297.2004.00219.x
OpenAlexW2151568976
LanguageEN
Citations received110
References cited50

This paper takes a fresh look at three issues in the aid effectiveness debate. First, we assess the theoretical case for foreign aid. Using an endogenous growth version of the standard overlapping generations model, we show that aid can be an effective policy tool in spurring growth in poor countries. This model also furnishes a theoretical foundation for the approach taken in many empirical studies. Second, we demonstrate that cross-country data, which underpin traditional cross-section based conclusions about the aid-growth link, are fully consistent with the positive evidence on aid effectiveness that emerge from recent panel-based regressions. Third, we reexamine the case for policy-based conditionality. Our empirical analysis suggests that aid is generally effective, even in “bad” environments. However, the degree to which aid enhances growth depends on climate-related circumstances

Affect (linguistics · Aid effectiveness · Developing country · Economic growth · Economics · Exchange rate · Geography · Inflow · International economics · Liberian dollar · Macroeconomics · Overlapping generations model · Productivity · Us dollar · Finance · Fiscal Policy and Economic Growth · International Development and Aid · Poverty, Education, and Child Welfare