Foreign aid and long-run economic growth: empirical evidence for a panel of developing countries



This paper investigates the relationship between foreign aid and growth in per capita GDP using annual data from the 1960 to 1997 period for a sample of 71 aid-receiving developing economies. The results show that the effect of foreign aid on economic growth is positive, permanent, statistically significant, and sizable: raising foreign aid by $20 per person of the receiving country results in a permanent increase in the growth rate of real GDP per capita by approximately 0.16 per cent. Using an alternative foreign-aid measure, a permanent increase in aid by 1 per cent of the receiving economy's GDP permanently raises the per capita growth rate by 0.14 to 0.26 per cent. Copyright © 2006 John Wiley & Sons, Ltd.