Does Aid work for Growth and Development?

By | February 7, 2011

Based on a thorough review of the professional research literature and a re-examination of key hypotheses, our answer is “yes”.

That is from Channing Arndt, Sam Jones, and  Finn Tarp, all of University of Copenhagen. They continue:

Our study represents the most carefully developed empirical strategy employed in the aid-growth literature to date. The results provide solid support for the view that the effect of aid on growth is positive in the long run. In sum, our findings suggest that an inflow on the order of 10 percent of GDP spurs the per capita growth rate by more than one percentage point per annum in the long run. These estimates are consistent with the view that foreign aid stimulates aggregate investment and may also contribute to productivity growth, despite some fraction of aid being allocated to consumption.

The bleak pessimism of much of the recent aid-growth literature is unjustified and the associated policy implications drawn from this literature are often inappropriate and unhelpful. Aid has been and remains an important tool for enhancing the development prospects of poor nations.

Read it in full at the website of the Nordic Africa Institute.

H/T Onafrica

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