We would like to thank Nikolaj Malchow-Møller for valuable criticism that led to significant improvements of the manuscript. In addition, we would also like to thank Jacob Gyntelberg, Rasmus Heltberg, Jens Kovsted, and Oliver Morrissey for many useful comments and suggestions. The usual disclaimer applies. The activities of EPRU (Economic Policy Research Unit) are financed through a grant from The Danish National Research Foundation.
On The Empirics of Foreign Aid and Growth†
Article first published online: 27 MAY 2004
The Economic Journal
Volume 114, Issue 496, pages F191–F216, June 2004
How to Cite
Dalgaard, C.-J., Hansen, H. and Tarp, F. (2004), On The Empirics of Foreign Aid and Growth. The Economic Journal, 114: F191–F216. doi: 10.1111/j.1468-0297.2004.00219.x
- Issue published online: 27 MAY 2004
- Article first published online: 27 MAY 2004
The present paper re-examines the effectiveness of foreign aid theoretically and empirically. Using a standard OLG model we show that aid inflows will in general affect long-run productivity. The size and direction of the impact may depend on policies, ‘deep’ structural characteristics and the size of the inflow. The empirical analysis investigates these possibilities. Overall we find that aid has been effective in spurring growth, but the magnitude of the effect depends on climate-related circumstances. Finally, we argue that the Collier-Dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate.