Ethnic Fractionalisation and Aid Effectiveness

Roland Hodler and David S. Knight

Journal of African Economies, 2012, vol. 21, issue 1, pages 65-93

Abstract: We test the hypothesis that the effect of foreign aid on economic growth is positive in ethnically homogenous countries, but decreasing in ethnic fractionalisation. Using panel data covering 114 aid-recipient countries over the period 1962 to 2001, and employing two-stage least squares and GMM estimation techniques, we find a strong support for this hypothesis. Our estimates suggest that foreign aid promotes growth in ethnically homogenous countries, while being ineffective or even harmful in many Sub-Saharan African countries and some ethnically fractionalised countries elsewhere. Copyright 2012 , Oxford University Press.

Date: 2012
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