Date Added: Dec 2009
Foreign aid's effectiveness in promoting economic growth remains mired in controversy. The authors examine the impact of the volatility of aid on economic growth, controlling for the level of aid. A four-year panel analysis is conducted encompassing 155 countries over the period 1966-2001. They find that once the volatility of aid is controlled for, aid has a positive impact on economic growth. Correspondingly, volatility of aid flows is found to be negatively related to growth. They found no significant link between investment and foreign aid, but a positive correlation between aid and consumption and a negative link between aid volatility and consumption.