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Aid and Economic Growth: A Robust Approach

Kwabena Gyimah-Brempong and Jeffrey Racine ()

Department of Economics Working Papers from McMaster University

Abstract: This paper uses panel data and the Local Linear Kernel Estimator (LLKE) to investigate the effects of aid on economic growth in developing countries. Specifically, we investigate the robustness of a popular parametric specification of the aid/economic growth relationship in Less Developed countries (LDCs). First, we find that aid has a significant impact on economic growth given the support of the sample data we use. However, the effect depends on how aid is measured. We find a positive growth e ect when aid is measured as aidgni but no signi cant growth effect when aid is measured as aidpercap. Second, we find some evidence of increasing returns to aidgni. Finally, we find that a "good" policy environment increases the effectiveness of aid in LDCs, all things equal. The impact of the policy environment on growth varies according to how the policy environment is measured. Our results generally support the popular quadratic parametric specification of the aid/growth relationship. Our results have implications for aid policy and for research on the effectiveness of aid.

Keywords: aid; economic growth; investment; developing countries; robustness test; non-parametric regression; policy impacts (search for similar items in EconPapers)
JEL-codes: F35 F43 O O1 O53 O54 O55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-gro
Date: 2014-03
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