The Effect of Aid on Growth : Evidence from a Quasi-Experiment
The literature on aid and growth has not found a convincing instrumental variable to identify the causal effects of aid. This paper exploits an instrumental variable based on the fact that since 1987, eligibility for aid from the International Deve...
| Main Authors: | , , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/05/19495112/effect-aid-growth-evidence-quasi-experiment http://hdl.handle.net/10986/18338 |
| Summary: | The literature on aid and growth has not
found a convincing instrumental variable to identify the
causal effects of aid. This paper exploits an instrumental
variable based on the fact that since 1987, eligibility for
aid from the International Development Association (IDA) has
been based partly on whether or not a country is below a
certain threshold of per capita income. The paper finds
evidence that other donors tend to reinforce rather than
compensate for reductions in IDA aid following threshold
crossings. Overall, aid as a share of gross national income
(GNI) drops about 59 percent on average after countries
cross the threshold. Focusing on the 35 countries that have
crossed the income threshold from below between 1987 and
2010, a positive, statistically significant, and
economically sizable effect of aid on growth is found. A one
percentage point increase in the aid to GNI ratio from the
sample mean raises annual real per capita growth in gross
domestic product by approximately 0.35 percentage points.
The analysis shows that the main channel through which aid
promotes growth is by increasing physical investment. |
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