Natural Disasters, Foreign Aid, and Economic Growth

60 Pages Posted: 24 Sep 2013 Last revised: 19 Feb 2014

See all articles by Osborne Jackson

Osborne Jackson

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: February 19, 2014

Abstract

This paper explores the impact of foreign aid on economic growth using variation in aid inflows from natural disasters. Because using a country's own disaster exposure as an instrument for aid inflows violates exogeneity assumptions, I instead use the disaster exposure of a country's "aid neighbors," defined as its competitors for aid from donors. Using aid neighbor droughts to instrument for aid, I show that aid inflows significantly increase per capita GDP growth in the short to medium run due to increased household consumption, while physical capital investment actually falls. I find no evidence of any long-run aid-growth effects.

Keywords: Foreign aid, growth, natural disasters, instrumental variables

JEL Classification: F35, O19, O43, O47, Q54

Suggested Citation

Jackson, Osborne, Natural Disasters, Foreign Aid, and Economic Growth (February 19, 2014). Available at SSRN: https://ssrn.com/abstract=2329404 or http://dx.doi.org/10.2139/ssrn.2329404

Osborne Jackson (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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