Aid, Policies, and Growth

Abstract

No AccessPolicy Research Working Papers25 Jun 2013Aid, Policies, and GrowthAuthors/Editors: David Dollar, Craig BurnsideDavid Dollar, Craig Burnsidehttps://doi.org/10.1596/1813-9450-1777SectionsAboutPDF (0.1 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:June 1997 Aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies. Aid appears not to affect policies systematically either for good or for ill. Any tendency for aid to reward good policies has been overwhelmed by donorsë pursuit of their own strategic interests. Burnside and Dollar use a new database on foreign aid to examine the relationships among foreign aid, economic policies, and growth of per capita GDP. In panel growth regressions for 56 developing countries and six four-year periods (1970-93), they find that the policies that have a great effect on growth are those related to fiscal surplus, inflation, and trade openness. They construct an index for those three policies and have that index interact with foreign aid. They have instruments for both aid and aid interacting with policies. They find that aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies. In the presence of poor policies, aid has no positive effect on growth. This result is robust in a variety of specifications, which include or exclude middle-income countries, include or exclude outliers, and treat policies as exogenous or endogenous. They examine the determinants of policy and find no evidence that aid has systematically affected policies, either for good or for ill. They estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors' pursuit of their own strategic interests. In a counterfactual, they reallocate aid, reducing the role of donor interests and increasing the importance of policy. Such a reallocation would have a large positive effect on developing countries' growth rates. This paper - a product of the Macroeconomics and Growth Division, Policy Research Department - is part of a larger effort in the department to study the effectiveness of foreign aid. The study was funded by the Bank's Research Support Budget under research project Economic Policies and the Effectiveness of Foreign Aid (RPO 681-70). Previous bookNext book FiguresreferencesRecommendeddetailsCited byAid Effectiveness and Donor Preferences6 September 2014The TACIS Program in Russia, Ukraine, and Central Asia, 1992–20073 September 2014AID EFFECTIVENESS AND DONOR PREFERENCES: EUROPEAN AID SYSTEMS IN THE FORMER SOVIET UNION, 1992-2007Journal of International Development, Vol.25, No.122 July 2011Donor financing of basic education: Opportunities and constraintsInternational Journal of Educational Development, Vol.30, No.5What is Poverty Reduction?SSRN Electronic Journal View Published: November 1999 Copyright & Permissions Related RegionsAfricaLatin America & CaribbeanRelated CountriesBrazilTimor-LesteRelated TopicsEducationFinance and Financial Sector DevelopmentGenderHealth Nutrition and PopulationMacroeconomics and Economic GrowthPoverty ReductionSocial Protections and Labor KeywordsADJUSTMENT POLICIESCAPITAL MARKETSDEVELOPED COUNTRIESDEVELOPING COUNTRIESECONOMIC ACTIVITYFINANCIAL INSTITUTIONSGLOBAL ECONOMYGROWTHGROWTH RATEGROWTH RATESGROWTH REGRESSIONSNEOCLASSICAL GROWTH MODELPOLICY RESEARCHPOOR COUNTRIESPOOR POLICIESPOVERTYPOVERTY REDUCTIONSTRUCTURAL ADJUSTMENTTRADE LIBERALIZATIONTRADE OPENNESS PDF DownloadLoading ...