Aid effectiveness on growth: A meta study
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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