SITE Working Paper Series,
Stockholm School of Economics, Stockholm Institute of Transition Economics

Abstract: Despite a voluminous literature on the topic, the question of whether foreign aid leads to growth is still controversial. To observe the pure effect of aid, researchers used instruments that must be exogenous to growth and explain well aid flows. This paper argues that instruments used in the past do not satisfy these conditions. We propose a new instrument based on predicted aid quantity and argue that it is a significant improvement relative to past approaches. We find a significant and relatively big effect of aid: a one standard deviation increase in received aid is associated with a 1.6 percentage points higher growth rate.

Keywords: Foreign aid; growth; instrumental variables; GMM

JEL-codes: F35; O11

47 pages, May 28, 2009

Full text files

hasite0011.pdf  Full text

Download statistics

• Stockholm School of Economics, Stockholm Institute of Transition Economics
• Ordering Working Papers
• Instructions for Authors
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Dominick Nilsson ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:hasite:0011This page generated on 2024-09-13 22:14:53.