Aid, Pro-Poor Government Spending and Welfare

CREDIT Working Paper No. 03/03

41 Pages Posted: 19 Jun 2003

See all articles by Karuna Gomanee

Karuna Gomanee

Liverpool University

Oliver Morrissey

University of Nottingham - Development Economics

Paul Mosley

University of Sheffield - Department of Economics

Arjan Verschoor

University of East Anglia (UEA)

Date Written: February 2003

Abstract

Our objective is to test the hypothesis that aid can improve the welfare of the poor. Part of this effect is direct, if aid is targeted on the poor, and part is indirected, via the transmission channel of aid-financed public spending on social services - sanitation, education and health. This indirect part is represented in an index of pro-poor public expenditures (PPE). As comparative data on poverty levels are scarce, we use two indicators of the welfare of the poor, namely infant mortality and the Human Development Index (HDI). We use a residual generated regressor to obtain a coefficient on the aid variable that includes the indirect effects through public expenditure allocation induced by aid. Estimation is based on a pooled panel of 39 countries over the period 1980 to 1998. We obtain results in support of our hypothesis that 'pro-poor' public expenditure is associated with increased levels of welfare, and we find evidence that aid is associated with improved values of the welfare indicators because aid finances pro-poor spending. In this way, aid potentially benefits the poor.

Suggested Citation

Gomanee, Karuna and Morrissey, Oliver and Mosley, Paul and Verschoor, Arjan, Aid, Pro-Poor Government Spending and Welfare (February 2003). CREDIT Working Paper No. 03/03. Available at SSRN: https://ssrn.com/abstract=412244 or http://dx.doi.org/10.2139/ssrn.412244

Karuna Gomanee

Liverpool University ( email )

Chatham Street
Liverpool, L69 7ZA
United Kingdom

Oliver Morrissey (Contact Author)

University of Nottingham - Development Economics ( email )

University Park
Nottingham, NG8 1BB
United Kingdom
+44 (0)115 9515475 (Phone)
+44 (0)115 951 4159 (Fax)

Paul Mosley

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

Arjan Verschoor

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

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