Working Paper: NBER ID: w11513
Authors: Raghuram G. Rajan; Arvind Subramanian
Abstract: We examine the effects of aid on growth in cross-sectional and panel data—after correcting for the possible bias that poorer (or stronger) growth may draw aid contributions to recipient countries. Even after this correction, we find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings suggest that for aid to be effective in the future, the aid apparatus will have to be rethought.
Keywords: aid; growth; economic development; cross-country evidence
JEL Codes: F35; O11; O19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Aid does not work better in countries with better policies (F35) | Economic growth (O00) |
| Lower growth (O41) | Higher aid inflows (F35) |
| Aid inflows (F35) | Economic growth (O00) |
| Increase in aid by 1% of GDP (F35) | Decrease in growth by approximately 0.1% per year (O49) |