| Summary: | The way out of the quagmire, he argued, was for econometricians to explore larger regions of "specification space," systematically analyzing the relationship between assumptions and conclusions. Their evidence: the statistical significance in crosscountry panel growth regressions of an interaction term of total aid received and an indicator of the quality of recipient economic policies (aid  policy). Section I reviews the approaches and conclusions of the studies that are tested for robustness, section II describes the tests, and section III reports the results. The DAC considers a loan concessional if it has a grant element of at least 25 percent of the loan value, using a 10 percent discount rate. In contrast, EDA includes development loans, regardless of how concessional (for example, it includes loans on nearcommercial terms by the World Bank to middle-income countries such as Brazil), but counts only their grant element--that is, their net present value. 264 THE WORLD BANK ECONOMIC REVIEW diversity of conclusions about the slope of growth with respect to aid at the margin (table 2 illustrates these conclusions for the 20 largest aid recipients in 1998). Simple Correlations of Aid and Good Policy Measures, Four-Year Periods, on Available Observations EDA/real GDP EDA/real GDP ODA/real GDP ODA/exchange rate GDP 1.00 0.97 0.78 Inflation, budget balance, Sachs-Warner Inflation, budget balance, Sachs-Warner Inflation, Sachs-Warner CPIA 1.00 0.98 0.53 1.00 0.52 ODA/real GDP ODA/exchange rate GDP 1.00 0.82 Inflation, Sachs-Warner 1.00 CPIA 1.00 EDA, effective development assistance; ODA, net official development assistance; CPIA, World Bank's Country Policy Applying the Hadi procedure directly to a full, many-dimensioned data set typically identified 20 percent or more of observations as outliers. 275 ODA/ exchange rate GDP 0.05* (1.96) 275 INFL, BB, SACW INFL, SACW 0.29*** (3.12) 296 CPIA 20.03 (20.25) 264 12-year 0.06 (0.60) 96 Aid  policy Daid  negative shock Observations Aid  policy Observations Post-conflict 1 ÂAid  policy Observations Aid Aid2 Daid D(aid2) Observations 0.10* (1.70) 0.04*** (3.17) 234 0.14** (2.15) 344 0.18*** (3.92) 344 0.90*** (4.22) 20.02*** (23.83) 20.70*** (24.91) 0.01*** (3.64) 213 0.12* (1.84) 337 0.18*** (3.89) 337 0.03 (0.47) 0.02 (1.12) 242 0.02 ( Coefficients on Key Terms under Data Set Modifying Tests Original data set Specification Burnside and Dollar (2000) Collier and Dehn (2001) Key term Aid  policy Observations Aid  policy DAid  negative shock Observations Aid  policy Observations Post-coflict  aid  policy Observations Aid Aid2 DAid DAid 2 Observations Aid Aid  tropical area Observations Aid  environment Observations Full sample 0.19*** (2.61) 270 0.10* (1.70) 0.04*** (3.17) 234 0.14** (2.15) 344 0.18*** (3.92) 344 0.90***
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