Aid and Growth: Have We Come Full Circle?

UNU-WIDER 10/2009; DP/005

Posted: 26 Nov 2014

See all articles by Channing Arndt

Channing Arndt

United Nations - World Institute for Development Economics Research (UNU/WIDER)

Sam Jones

University of Copenhagen - Department of Economics

Finn Tarp

University of Copenhagen - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2009

Abstract

The micro-macro paradox has been revived. Despite broadly positive evaluations at the micro and meso-levels, recent literature has turned decidedly pessimistic with respect to the ability of foreign aid to foster economic growth. Policy implications, such as the complete cessation of aid to Africa, are being drawn on the basis of fragile evidence. This paper first assesses the aid-growth literature with a focus on recent contributions. The aid-growth literature is then framed, for the first time, in terms of the Rubin Causal Model, applied at the macroeconomic level. Our results show that aid has a positive and statistically significant causal effect on growth over the long run with point estimates at levels suggested by growth theory. We conclude that aid remains an important tool for enhancing the development prospects of poor nations.

Keywords: foreign aid, growth, aid effectiveness, causal effects

JEL Classification: O1, O4, F35, C21

Suggested Citation

Arndt, Channing and Jones, Sam and Tarp, Finn, Aid and Growth: Have We Come Full Circle? (October 2009). UNU-WIDER 10/2009; DP/005. Available at SSRN: https://ssrn.com/abstract=2530968

Channing Arndt (Contact Author)

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6 B
Helsinki, FI‐00160
Finland

Sam Jones

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Finn Tarp

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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