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The allocation of volatile aid and economic growth: evidence and a suggestive theory

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posted on 30.03.2007, 12:44 by Kyriakos 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.

ISSN

1750-4171

Language

en

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