Measuring the Effect of Foreign Aid on Growth and Poverty Reduction or the Pitfalls of Interaction Variables

15 Pages Posted: 23 Aug 2007

See all articles by Catherine A. Pattillo

Catherine A. Pattillo

International Monetary Fund (IMF) - Research Division

Jacques Polak

International Monetary Fund (IMF)

Joydeep Roy

Georgetown University; Economic Policy Institute (DC)

Date Written: June 2007

Abstract

Regressions in a number of recent papers written by staff members of the World Bank and the IMF rely on an interaction variable (IAV) to establish the effects of foreign aid on economic growth or the reduction of poverty. The common assumption in these papers is that if the coefficient of this IAV is statistically significant, then both of its components have a significant effect on the dependent variable. That assumption is not justified in its generality, and this paper develops two techniques that show a high probability that in at least two of the three studies analyzed one of the components of the IAV may not have a significant effect.

Keywords: Working Paper, Development assistance, Economic growth, Poverty

Suggested Citation

Pattillo, Catherine and Polak, Jacques and Roy, Joydeep, Measuring the Effect of Foreign Aid on Growth and Poverty Reduction or the Pitfalls of Interaction Variables (June 2007). IMF Working Papers, Vol. , pp. 1-13, 2007. Available at SSRN: https://ssrn.com/abstract=1007894

Catherine Pattillo (Contact Author)

International Monetary Fund (IMF) - Research Division ( email )

700 19th Street NW
Washington, DC 20431
United States

Jacques Polak

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Joydeep Roy

Georgetown University ( email )

Washington, DC 20057
United States

Economic Policy Institute (DC) ( email )

1660 L Street NW, Suite 1200
Washington, DC 20036
United States

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