On the Simultaneity Problem in the Aid and Growth Debate

Markus Brückner

No 2011-01, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: This paper shows that foreign aid has a signicant positive average effect on real per capita GPD growth if, and only if, the quantitatively large negative reverse causal effect of per capita GDP growth on foreign aid is adjusted for in the growth regression. Instrumental variables estimates yield that a 1 percentage point increase in GDP per capita growth decreased foreign aid by over 4 percent. Adjusting for this quantitatively large, negative reverse causal effect of economic growth on foreign aid yields that a 1 percent increase in foreign aid increased real per capita GDP growth by around 0.1 percentage points.

Keywords: aid allocation; aid effectiveness; economic growth; simultaneity (search for similar items in EconPapers)
JEL-codes: O1 O2 O4 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011-01
New Economics Papers: this item is included in nep-dev and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: On the simultaneity problem in the aid and growth debate (2013)
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