Aid Econometrics: Lessons from a Stochastic Growth Model

Patrick Carter ()

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

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: C51 F35 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-05-22
New Economics Papers: this item is included in nep-ore
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Citations: View citations in EconPapers (4)

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Journal Article: Aid econometrics: Lessons from a stochastic growth model (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:15/659

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