Economic Growth and the Volatility of Foreign Aid

Tinbergen Institute Discussion Paper 10-002/2

37 Pages Posted: 14 Jan 2010

See all articles by Michal Chervin

Michal Chervin

University of Amsterdam - Faculty of Economics and Business (FEB)

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: January 5, 2010

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.

Keywords: foreign aid, volatility, economic growth

JEL Classification: O4, O11, O19

Suggested Citation

Chervin, Michal and van Wijnbergen, Sweder, Economic Growth and the Volatility of Foreign Aid (January 5, 2010). Tinbergen Institute Discussion Paper 10-002/2. Available at SSRN: https://ssrn.com/abstract=1531565 or http://dx.doi.org/10.2139/ssrn.1531565

Michal Chervin

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Sweder Van Wijnbergen (Contact Author)

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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