Foreign aid and ecological outcomes in poorer countries: an empirical analysis

Abstract

This article examines the relationship between foreign aid and ecological harm in developing countries. The study covers three types of ecological injury: carbon dioxide damage, water pollution and net deforestation. Results based on an empirical model where aid and injury are jointly determined, suggest that aid flows affect ecological conditions in poorer countries as well as being the result of these conditions.

Acknowledgements

An earlier version of this article was presented at the 2006 Canadian Economics Association meeting in Montreal. We thank seminar participants for useful comments.

Notes

¹ Arvin et al. (2006) limit the measure of their ecology to carbon dioxide emissions. Utilizing a Granger causality test, they found some evidence of a causal link between the level of aid given by donors and emissions in developing economies.

³ Global warming in recent decades is clearly attributable to greenhouse gas emissions. Furthermore, by all account, the most important greenhouse gas is CO₂. Anthropogenic CO₂ emissions rose from 14 gigatons a year in 1980 to 16 gigatons in 1990 and 24 gigatons in 1997. Loss and deterioration in the quality of life, loss of biodiversity, as well as economic losses are some of the costs of the climate change. According to Conceicao (2003), if the concentration of CO₂ in the atmosphere reaches twice the pre-industrial era, annual global damage would be 1.5–2% of global gross domestic product.

² The data is an unbalanced panel. The list of countries is available from the authors upon request. Unless otherwise stated, the source for all the data is World Bank (2005).

⁴ This does not include depletion and degradation of natural resources.

⁵ Experiments with a number of other variables in both Equations 1 and 2 were performed, but did not yield improved results.