The Return to Foreign Aid

Carl-Johan Dalgaard and Henrik Hansen

No 05-04, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper investigates the marginal productivity of investment in the world’s poorest economies. The aim is to estimate the return on investments financed by foreign aid as well as by domestic resource mobilization, using crosscountry aggregate data. In practice the return on both investment categories can be expected to vary considerably across countries and time. As a consequence we develop a correlated random coefficients approach to the issue at hand, which allows us to estimate the average aggregate rate of return on “aid investments” and “domestic investments”. Across a wide array of estimators our principal finding is remarkably robust; the average aggregate gross return on “aid investments” falls in a 20-30 percent range, roughly the same as the return on investments funded by other sources than aid. This finding is well in accord with micro estimates of the economic return to aid.

Keywords: productivity; foreign aid; random coefficients; panel data (search for similar items in EconPapers)
JEL-codes: C23 F35 O47 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2005-03
New Economics Papers: this item is included in nep-afr and nep-dev
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: The Return to Foreign Aid (2017)
Working Paper: The Return to Foreign Aid (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0504

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