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Aid and Growth: What Does the Cross-Country Evidence Really Show?
Author: Raghuram Rajan and Mr. Arvind Subramanian
Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 127
Language:
English
Publication Date:
01 Jun 2005
DOI:
https://doi.org/10.5089/9781451861464.001
ISBN:
9781451861464
ISSN:
1018-5941
Pages:
48
Keywords:
WP; coefficient estimate; GMM estimation method; least squares; aid-policy interaction term
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We examine the effects of aid on growth-- in cross-sectional and panel data--after correcting for the bias that aid typically goes to poorer countries, or to countries after poor performance. Even after this correction, we find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings, which relate to the past, do not imply that aid cannot be beneficial in the future. But they do suggest that for aid to be effective in the future, the aid apparatus will have to be rethought. Our findings raise the question: what aspects of aid offset what ought to be the indisputable growth enhancing effects of resource transfers? Thus, our findings support efforts under way at national and international levels to understand and improve aid effectiveness.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund

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