On the simultaneity problem in the aid and growth debate
Article first published online: 5 JUL 2011
Copyright © 2011 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 28, Issue 1, pages 126–150, January/February 2013
How to Cite
Brückner, M. (2013), On the simultaneity problem in the aid and growth debate. J. Appl. Econ., 28: 126–150. doi: 10.1002/jae.1259
- Issue published online: 21 JAN 2013
- Article first published online: 5 JUL 2011
- Manuscript Revised: 9 MAY 2011
- Manuscript Received: 10 AUG 2010
This paper shows that foreign aid has a significant positive average effect on real per capita gross domestic product (GDP) growth if, and only if, the quantitatively large negative reverse causal effect of per capita GDP growth on foreign aid is adjusted for in the growth regression. Instrumental variables estimates show that a 1 percentage point increase in GDP per capita growth decreased foreign aid by over 4%. Adjusting for this quantitatively large, negative reverse causal effect of economic growth on foreign aid shows that a 1% increase in foreign aid increased real per capita GDP growth by around 0.1 percentage points. Copyright © 2011 John Wiley & Sons, Ltd.