Aid effectiveness on growth: A meta study

doi:10.1016/j.ejpoleco.2007.06.002

European Journal of Political Economy

Volume 24, Issue 1, March 2008, Pages 1-24

https://doi.org/10.1016/j.ejpoleco.2007.06.002 Get rights and content

Abstract

The aid effectiveness literature contains about 100 papers that see aid as a treatment given to poor countries to generate development. 68 of these papers provide a total of 543 comparable estimates of the effect of aid on growth, which are the data of our meta-analysis. We consider two questions: (Q1) Are the estimates converging to a clear result over time as aid agencies gain experience, models become better and data accumulates? We find that the results do have a positive average, but it is small, insignificant and falling. (Q2) Can we identify the main factors that explain the large differences in the results? We find that much of the variation between studies can be attributed to publication outlet, institutional affiliation, data and specification differences. However, some of the difference between studies is real. In particular, the aid-growth effect is stronger for Asian countries. The meta-analysis indicates also the existence of indirect channels, which need to be further explored.

Section snippets

Introduction: Two questions to a literature

At present the annual flow of development aid to poor countries amounts to more than US$100 billion, and the average recipient country receives about 71/2% of its GDP in aid.¹ The basic (alleged) reason aid is given is to generate development, so that poverty can be reduced.

Thus, aid is a treatment given to poor countries in order to generate development. Many have asked the AE-question: Is aid effective?

The AEL, some puzzles, theory and models

After a thorough search we found 97 empirical macroeconomic studies of the effect of development aid.⁴ Papers available after 1st of January 2005 are not included. The entire list for the 97 papers can be found in Doucouliagos and Paldam (2006c). In this paper we concentrate on 68 of these studies that contain μh-terms of the type given in Table 1. The basic model is

Three data sets and Q1: Do the estimated aid-growth effects converge?

The data we wish to submit to our analysis is the population of the 68 aid-growth studies listed in Appendix A.¹⁷ We claim that they are virtually every study that contains a reduced form macro estimate of the aid-growth effect, μ.

Q2: Explaining the pattern in the results

In the previous section it was shown that there is a positive, but statistically insignificant association between development aid and economic growth. In this section we use meta-regression analysis (MRA) to take a closer look at the variation in the empirical aid-growth results and identify some of the sources of these differences. Meta-regression analysis is gaining widespread appeal among economists, and the AEL is fertile ground for its application. Recent examples include Gorg and Strobl

Summary

The AEL (aid effectiveness literature) has accumulated a large pool of evidence on aid-savings, aid-investment, aid-growth and aid-conditionality effects. The majority of the authors seem to agree that aid has a small positive effect on growth. The aim of this paper was to apply the methods of meta-analysis to the entire aid-growth effects literature to see if that conclusion is justified. We used the population of 68 aid-growth studies as our data set. Our conclusions are depressing: Taking

Acknowledgements

Our cooperation was supported by the Aarhus University Research Foundation. Pia Wichmann Christensen has been a very competent research assistant. Tryggvi Thor Herbertsson, Peter Sandholt Jensen and Allan Würtz are thanked for the discussions inspiring this paper. Useful comments were received from seminar participants at the University of Aarhus, Deakin University, Hendrix College, the Kiel Institute of World Economics, Bar Ilan Universities, as well as from the Public Choice Society 2006

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⁴³: Available from WP series, Department of Economics, University of Aarhus or http://www.martin.paldam.dk.

View full text

Aid effectiveness on growth: A meta study

Abstract

Section snippets

Introduction: Two questions to a literature

The AEL, some puzzles, theory and models

Three data sets and Q1: Do the estimated aid-growth effects converge?

Q2: Explaining the pattern in the results

Summary

Acknowledgements

Labour Economics

European Journal of Political Economy

Economics Letters

European Journal of Political Economy

Journal of International Economics

Economic growth in a cross section of countries

Quarterly Journal of Economics

Economic Growth

Dissent on Development: Studies and Debates in Development Economics

Time-series minimum-wage studies: a meta-analysis

American Economic Review

Does Aid Work?

Foreign assistance and economic development

American Economic Review

Master List of the AEL: The Aid Effectiveness Literature

Greed and grievance in civil war

Why do rates of (b)—convergence differ? A meta-regression analysis

Scottish Journal of Political Economy

What do unions do to productivity? A meta-analysis

Industrial Relations

Conditional Aid Effectiveness. A Meta Study

Aid effectiveness on accumulation, a meta study

Kyklos

Explaining development aid allocation by growth. A meta study

The Elusive Quest for Growth. Economists' Adventures and Misadventures in the Tropics

An Introduction to the Bootstrap

Bias in meta-analysis detected by a simple, graphical test

British Medical Journal

Foreign economic aid: means and objectives

Yale Review