Searching for Aid Threshold Effects

CREDIT Research Paper No. 03/15

37 Pages Posted: 20 Jan 2004

See all articles by Karuna Gomanee

Karuna Gomanee

Liverpool University

Sourafel Girma

Nottingham University Business School

Oliver Morrissey

University of Nottingham - Development Economics

Date Written: September 2003

Abstract

Is aid subject to diminishing returns? This paper addresses this issue, thereby contributing to the literature on effective allocation of aid. We test the hypothesis of diminishing returns to aid. Using an appropriate econometric technique for detecting thresholds, we find that aid only becomes effective (in contributing to growth) beyond a critical level (two per cent of GNP), and we find no evidence of diminishing returns to aid. Indeed, aid appears to be most effective when the level is high in countries with relatively low levels of human capital, suggesting that aid is more effective in countries at lower levels of development.

Keywords: Aid Effectiveness, Growth, Threshold models and quantile regressions

JEL Classification: O10, O40, F35

Suggested Citation

Gomanee, Karuna and Girma, Sourafel and Morrissey, Oliver, Searching for Aid Threshold Effects (September 2003). CREDIT Research Paper No. 03/15. Available at SSRN: https://ssrn.com/abstract=482461 or http://dx.doi.org/10.2139/ssrn.482461

Karuna Gomanee

Liverpool University ( email )

Chatham Street
Liverpool, L69 7ZA
United Kingdom

Sourafel Girma

Nottingham University Business School ( email )

Jubilee Campus
Nottingham, NG8 1BB
United Kingdom
+44 0 115 8466656 (Phone)

HOME PAGE: http://www.nottingham.ac.uk/~lizsmg/

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)

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