Aid and Growth. Evidence from Firm-Level Data

52 Pages Posted: 18 Jul 2015

See all articles by Lisa Chauvet

Lisa Chauvet

Université Paris Dauphine; Université Paris Dauphine - PSL Research University

Helene Ehrhart

Banque de France

Date Written: July 2015

Abstract

This paper explores the impact of foreign aid on firm growth for a panel of 4,342 firms in 29 developing countries, 11 of which are in Africa. Using the World Bank Enterprise Surveys data and controlling for firm fixed effects, we find a positive impact of foreign aid on firms' sales growth. This result is robust to several checks, notably to the instrumentation of aid and to estimations on various sub-samples. We then provide evidence that the positive effect of aid is especially strong for firms operating in sectors that are intensive in infrastructure and external finance, suggesting that aid may improve firm performance through the alleviation of infrastructure and financing constraints in developing countries.

Keywords: Foreign aid, Firm growth, Infrastructure constraint, Financing constraint

JEL Classification: F35, O16, O50

Suggested Citation

Chauvet, Lisa and Ehrhart, Helene, Aid and Growth. Evidence from Firm-Level Data (July 2015). Banque de France Working Paper No. 563, Available at SSRN: https://ssrn.com/abstract=2631611 or http://dx.doi.org/10.2139/ssrn.2631611

Lisa Chauvet

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Université Paris Dauphine - PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris cedex 16, 75775
France

Helene Ehrhart (Contact Author)

Banque de France ( email )

Paris
France

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