posted on 2007-03-30, 12:44authored byKyriakos C. Neanidis, Dimitrios Varvarigos
We present evidence on the effects of aid transfers and their degree of volatility on economic growth and show that these effects can be categorised in relation to the allocation of foreign aid between productive and non-productive purposes. Using a stochastic endogenous growth model, we provide a theoretical rationalisation for our empirical evidence. Both the empirical and the theoretical analyses generate a pertinent conclusion: situations in which aid actually inhibits the recipient’s growth rate may appear if and only if aid is volatile. As a result, we conclude that it is only in conjunction with the presence of aid variability that aid allocation decisions determine whether aid hurts or promotes trend growth.
History
School
Business and Economics
Department
Economics
Pages
332568 bytes
Publication date
2007
Notes
This is a working paper. It is also available at: http://ideas.repec.org/p/lbo/lbowps/2007_07.html.