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Aid econometrics: Lessons from a stochastic growth model

Patrick Carter ()

Journal of International Money and Finance, 2017, vol. 77, issue C, 216-232

Abstract: This paper evaluates the standard empirical methods employed in the study of foreign aid, when the data generating process is a calibrated stochastic growth model in which aid recipients make optimal investment and consumption decisions. When recipients receive a stochastic flow of aid and wish to smooth consumption, standard methods fail to distinguish between the response to transient and permanent aid shocks, and hence yield misleading results concerning the object of interest to policy makers: the long-run impact of aid.

Keywords: Foreign aid; Stochastic growth model; Convergence; Local projections; Consumption smoothing (search for similar items in EconPapers)
JEL-codes: F35 C51 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Aid Econometrics: Lessons from a Stochastic Growth Model (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:77:y:2017:i:c:p:216-232

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