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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.
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