Aid Effectiveness: Opening the Black Box
UNU-WIDER 08/2011; WP/44.
Posted: 26 Nov 2014
Date Written: August 2011
Controversy over the aggregate impact of foreign aid has focused on reduced form estimates of the aid-growth link. The causal chain, through which aid affects developmental outcomes including growth, has received much less attention. We address this gap by: (i) specifying a structural model of the main relationships; (ii) estimating the impact of aid on a range of final and intermediate outcomes; and (iii) quantifying a simplied representation of the full structural form, where aid impacts on growth through key intermediate outcomes. A coherent picture emerges: aid stimulates growth and reduces poverty through physical capital investment and improvements in health.
Keywords: growth; foreign aid; aid effectiveness; simultaneous equations
JEL Classification: C23, O1, O2, O4
Suggested Citation: Suggested Citation