Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2010-01-04
Number: 10-002/2
Author-Name: Michal Chervin
Author-Workplace-Name: University of Amsterdam
Author-Name: Sweder van Wijnbergen
Author-Workplace-Name: University of Amsterdam
Title: Economic Growth and the Volatility of Foreign Aid
Abstract: Foreign aid’s effectiveness in promoting economic growth remains mired in controversy.We 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. We 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. We 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. But our results also indicate that aid has become a source of volatility rather than insuring against it, and in that way may have become inimical to economic growth.
Classification-JEL: O4, O11, O19
Keywords: foreign aid, volatility, economic growth
File-Url: https://papers.tinbergen.nl/10002.pdf
File-Format: application/pdf
File-Size: 260161 bytes
Handle: RePEc:tin:wpaper:20100002