Konferenzbeitrag
Foreign Aid and Its Effect on Per-Capita Income (Growth) in Recipient Countries: Pitfalls and Findings from a Time Series Perspective
In this paper we investigate the effectiveness of development aid in recipient countries. Specifically, we analyze the relationship between per-capita income and foreign aid for a maximum of 131 recipient countries over the 1960 to 2006 period. We employ annual data and 5-year averages and, contrary to the previous literature, carefully examine the time-series properties of the data. The previous literature overlooks the non-existence of a long-run relationship between aid and growth and the presence of autocorrelated error terms. To address those problems, we apply panel time-series techniques (panel unit-root tests, panel cointegration tests, and panel dynamic feasible generalized least-squares estimation [DFGLS]). Estimations with DFGLS show that aid has an insignificant or minute negative significant impact on per-capita income. This holds for countries with both above- and below-average aid-to-GDP ratios, for different levels of human development, different income levels and different regions of the world. We also find that aid has a significantly positive (although small) impact on investment, but a significant negative impact on domestic savings (crowding out) and the real exchange rate (appreciation).
- Language
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Englisch
- Bibliographic citation
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Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Effectiveness of Foreign Aid ; No. B19-V1
- Classification
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Wirtschaft
Foreign Aid
Macroeconomic Analyses of Economic Development
Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
- Subject
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Foreign aid
real per-capita income
panel time-series techniques
dynamic feasible generalized linear least squares (DFGLS)
- Event
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Geistige Schöpfung
- (who)
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Nowak-Lehmann D., Felicitas
Martínez-Zarzoso, Inmaculada
Herzer, Dierk
Klasen, Stephan
Dreher, Axel
- Event
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Veröffentlichung
- (who)
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Verein für Socialpolitik
- (where)
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Frankfurt a. M.
- (when)
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2010
- Handle
- Last update
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10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Konferenzbeitrag
Associated
- Nowak-Lehmann D., Felicitas
- Martínez-Zarzoso, Inmaculada
- Herzer, Dierk
- Klasen, Stephan
- Dreher, Axel
- Verein für Socialpolitik
Time of origin
- 2010
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