On the Empirics of Foreign Aid and Growth

Carl-Johan Dalgaard, Henrik Hansen and Finn Tarp

No 03-13, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper takes a fresh look at two issues in the aid effectiveness debate. We begin by providing theoretical foundations for the various claims made with regard to the effectiveness of aid in stimulating long-run productivity. When foreign aid is modelled as an exogenous transfer of income or capital in a standard OLG model, aid wil in general impact on productivity. Moreover in this setting, the “returns to aid” may depend on both policy and structural characteristics. Next we reexamine the case for policy-based conditionality. Our empirical analysis suggests that aid is generally effective, even in “bad” environments. However, the degree to which aid enhances growth depends on climate-related circumstances. In light of this finding we argue that the Collier-Dollar allocation rule should be seriously reconsidered by donor agencies.

Pages: 28 pages
Date: 2001-12, Revised 2003-09
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Citations: View citations in EconPapers (57)

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Related works:
Journal Article: On The Empirics of Foreign Aid and Growth (2004)
Working Paper: On the Empirics of Foreign Aid and Growth (2002)
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