Does Foreign Aid Really Raise Per Capita Income? A Time Series Perspective (Est‐Ce Que L’Aide Étrangère Augmente Vraiment Le Revenu Per Capita? Une Approche Par Les Séries Chronologiques)

Posted: 24 Feb 2012

See all articles by Felicitas Nowak‐Lehmann

Felicitas Nowak‐Lehmann

University of Goettingen (Gottingen)

Axel Dreher

Heidelberg University

Dierk Herzer

University of the German Federal Armed Forces - Helmut Schmidt Universität

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Inmaculada Martínez-Zarzoso

University of Goettingen (Gottingen) - School of Law, Economics, Social Sciences; Jaume I University - Department of Economics

Date Written: February 2012

Abstract

We analyze the relationship between per capita income and foreign aid. We employ annual data and five‐year averages and carefully examine the time‐series properties of the data. Panel estimations with dynamic feasible generalized least‐squares (DFGLS) show that aid generally has an insignificant or minute negative significant impact on per capita income (particularly in highly aid‐dependent countries). This holds true for countries with different levels of human development and income, as well as for different regions. We also find that aid has a small positive impact on investment, but a significant negative impact on domestic savings (crowding out) and the real exchange rate (appreciation).

(On analyse la relation entre le revenu per capita et l’aide étrangère. On utilise des données annuelles et des moyennes quinquennales, et on examine les propriétés de ces séries chronologiques. Des estimations d’un modèle dynamique utilisant des données de panel à l’aide de la méthode des moindres carrés quasi‐généralisés montrent que l’aide a généralement un effet négatif minime ou insignifiant sur le revenu per capita (particulièrement dans les pays qui dépendent beaucoup de l’aide étrangère). Ce résultat tient tant pour des pays à divers niveaux de développement et de revenus que pour différentes régions. On découvre que l’aide a un petit effet positif sur l’investissement, mais un effet négatif significatif sur l’épargne (effet d’encombrement) et sur le taux de change réel (appréciation).)

JEL Classification: F35, O11, C23, C51

Suggested Citation

Nowak‐Lehmann, Felicitas and Dreher, Axel and Herzer, Dierk and Klasen, Stephan and Martínez-Zarzoso, Inmaculada, Does Foreign Aid Really Raise Per Capita Income? A Time Series Perspective (Est‐Ce Que L’Aide Étrangère Augmente Vraiment Le Revenu Per Capita? Une Approche Par Les Séries Chronologiques) (February 2012). Canadian Journal of Economics/Revue canadienne d'économique, Vol. 45, Issue 1, pp. 288-313, 2012. Available at SSRN: https://ssrn.com/abstract=2010368 or http://dx.doi.org/10.1111/j.1540-5982.2011.01696.x

Felicitas Nowak‐Lehmann (Contact Author)

University of Goettingen (Gottingen)

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Axel Dreher

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Dierk Herzer

University of the German Federal Armed Forces - Helmut Schmidt Universität ( email )

Holstenhofweg 85
Hamburg, 22008
Germany

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany
+49-551-397303 (Phone)
+49-551-397302 (Fax)

HOME PAGE: www.vwl.wiso.uni-goettingen.de/klasen.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Inmaculada Martínez-Zarzoso

University of Goettingen (Gottingen) - School of Law, Economics, Social Sciences ( email )

Germany

Jaume I University - Department of Economics ( email )

Campus del Riu Sec.
E-12071 Castellon
Spain

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