Aid, Policies, and Growth: Revisiting the Evidence

36 Pages Posted: 20 Apr 2016

See all articles by A. Craig Burnside

A. Craig Burnside

Duke University - Department of Economics; University of Glasgow - Department of Economics; National Bureau of Economic Research (NBER)

David Dollar

World Bank - Development Economics Group (DEC)

Date Written: March 18, 2004

Abstract

Burnside and Dollar revisit the relationship between aid and growth using a new data set focusing on the 1990s. The evidence supports the view that the impact of aid depends on the quality of state institutions and policies. The authors use an overall measure of institutions and policies popular in the empirical growth literature. The interaction of aid and institutional quality has a robust positive relationship with growth that is strongest in instrumental variable regressions. There is no support for the competing hypothesis that aid has the same positive effect everywhere. The authors also show that in the 1990s the allocation of aid to low-income countries favored those with better institutional quality. This "selectivity" is sensible if aid in fact is more productive in sound institutional and policy environments. The cross-country evidence on aid effectiveness is supported by other types of information as well: case studies, project-level evidence, and opinion polls support the view that corrupt institutions and weak policies limit the impact of financial assistance for development.

This paper - a product of the Development Economics Vice Presidency - is part of a larger effort in the Bank to research aid effectiveness.

Suggested Citation

Burnside, Craig and Dollar, David, Aid, Policies, and Growth: Revisiting the Evidence (March 18, 2004). World Bank Policy Research Working Paper No. 3251. Available at SSRN: https://ssrn.com/abstract=610292

Craig Burnside (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

University of Glasgow - Department of Economics

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David Dollar

World Bank - Development Economics Group (DEC) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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