Kiel Working Papers, Kiel Institute for World Economics
No 1296:
Aid and Growth Accelerations: An Alternative Approach to Assess the Effectiveness of Aid
Jonas Dovern and Peter Nunnenkamp
Abstract: It continues to be heavily disputed whether foreign aid
promotes economic growth in developing countries. In most cross-country
regressions, aid is considered effective only if it shifts recipient
countries to a significantly higher and sustainable growth path. We apply
an alternative approach which is less demanding, based on the concept of
temporary growth accelerations suggested by Hausmann, Pritchett and Rodrik.
In assessing what can reasonably be expected from the donors’ modest aid
efforts, we do not only employ aggregate aid data but we also differentiate
between major aid categories, including grants, loans and so-called
short-impact aid. It turns out that aid flows have a small but
significantly positive effect on the conditional probability of growth
accelerations. This result holds across different estimation methods.
Short-impact aid is found to be more effective in this respect, while we
reject the view that grants are superior to loans. To the contrary, we find
a stronger effect of loans. Furthermore, aid has become more effective
during the second half of our sample. Typically, however, the significance
of results crucially depends on the criteria applied to identify growth
accelerations.
Keywords: Aid Effectiveness, Growth Accelerations, Grants versus Loans, Short-Impact Aid; (follow links to similar papers)
JEL-Codes: F35,; O11; (follow links to similar papers)
26 pages, September 2006
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