Open AccessOn The Empirics of Foreign Aid and Growth *
Author(s) -
Dalgaard CarlJohan,
Hansen Henrik,
Tarp Finn
Publication year - 2004
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/j.1468-0297.2004.00219.x
Subject(s) - economics , liberian dollar , productivity , aid effectiveness , affect (linguistics) , overlapping generations model , us dollar , inflow , macroeconomics , econometrics , exchange rate , economic growth , developing country , linguistics , philosophy , finance , physics , mechanics
The present paper re‐examines the effectiveness of foreign aid theoretically and empirically. Using a standard OLG model we show that aid inflows will in general affect long‐run productivity. The size and direction of the impact may depend on policies, ‘deep’ structural characteristics and the size of the inflow. The empirical analysis investigates these possibilities. Overall we find that aid has been effective in spurring growth, but the magnitude of the effect depends on climate‐related circumstances. Finally, we argue that the Collier‐Dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate.