The impact of foreign aid on economic growth

Pablo Martinez

MPRA Paper from University Library of Munich, Germany

Abstract: The massive expenditures on foreign aid programs by developed nations and international institutions, in combination with the perceived lack of results from these disbursements, raise important questions as to the actual effectiveness of monetary assistance to less developed countries (LDCs). In this analysis, I focus on 104 low- and medium-development countries, and measure the impact that foreign aid has on their growth rates of gross domestic product, using dummy variables for geography and conflict in a geometric lag model. The results indicate that foreign aid donations do have a positive impact on the economic growth of the recipient nation. The effect is extremely modest, however, and other factors such as armed conflict and geography can easily mitigate this impact, in some cases to the extent that foreign aid becomes detrimental to economic growth. Further analysis of the results indicate that this impact is quickly felt, with half of the total impact of foreign aid felt in approximately six months

Keywords: foreign aid; growth; developing countries (search for similar items in EconPapers)
JEL-codes: E02 F35 F63 (search for similar items in EconPapers)
Date: 2015-09-10
New Economics Papers: this item is included in nep-gro and nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:66588

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