What type of economic growth does foreign aid support?

Abstract

This article contributes to the aid effectiveness literature by investigating the type of economic growth that foreign aid spurs. The impact of foreign on agricultural growth and industrial growth is examined. Results provide strong evidence to suggest that foreign aid is effective at increasing the former in recipient countries.

Notes

¹ A few studies have been inconclusive in their findings (Easterly, 2003; Easterly et al., 2003). McGillivray et al. (2006) provides an extensive review of the literature

² Roodman (2004) finds that the Dalgaard et al. (2004) specification appears to be the most robust. The Hansen and Tarp (2001) specification also performed well, overall.

³ Hansen and Tarp (2001) used the GMM estimator suggested by Arellano and Bond (1991). The GMM systems estimator is preferred here as it has been shown to be perform better for small samples; see Blundell et al. (2000).