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Direct & Indirect Effects of Aid Volatility on Growth: Do Stronger Institutions Play a Role?

Jay Kathavate

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a political economy model to analyze the direct and indirect effects of aid volatility on growth and the outcome of higher institutional quality on the effect of aid volatility on growth. Using time-series cross section data for 77 countries from 1984-2007, the effects of aid volatility on growth are empirically tested. It is concluded that the relationship between growth aid volatility is significantly negative and dependent on the level of institutional quality. The results are robust to additional covariates, alternate sub-samples, non-linearities, different period averages and various computations of aid volatility.

Keywords: Foreign aid volatility; Institutional quality; Indirect effects of aid volatility; political economy of aid volatility (search for similar items in EconPapers)
JEL-codes: F35 O43 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg
Date: 2013-03-18
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