TY - JOUR
T1 - Aid and growth regressions
AU - Hansen, Henrik
AU - Tarp, Finn
N1 - JEL Classification: O1, O2, C23
PY - 2001
Y1 - 2001
N2 - This paper examines the relationship between foreign aid and growth in real GDP per capita as it emerges from simple augmentations of popular cross country growth specifications. It is shown that aid in all likelihood increases the growth rate, and this result is not conditional on ‘good’ policy. There are, however, decreasing returns to aid, and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables. When investment and human capital are controlled for, no positive effect of aid is found. Yet, aid continues to impact on growth via investment. We conclude by stressing the need for more theoretical work before this kind of cross-country regressions are used for policy purposes.
AB - This paper examines the relationship between foreign aid and growth in real GDP per capita as it emerges from simple augmentations of popular cross country growth specifications. It is shown that aid in all likelihood increases the growth rate, and this result is not conditional on ‘good’ policy. There are, however, decreasing returns to aid, and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables. When investment and human capital are controlled for, no positive effect of aid is found. Yet, aid continues to impact on growth via investment. We conclude by stressing the need for more theoretical work before this kind of cross-country regressions are used for policy purposes.
U2 - 10.1016/S0304-3878(00)00150-4
DO - 10.1016/S0304-3878(00)00150-4
M3 - Journal article
SN - 0304-3878
VL - 64
SP - 547
EP - 570
JO - Journal of Development Economics
JF - Journal of Development Economics
IS - 2
ER -
