Aid and Growth: What Does the Cross-Country Evidence Really Show?

73 Pages Posted: 31 Jul 2006 Last revised: 5 Jan 2007

See all articles by Raghuram G. Rajan

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

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Date Written: August 2005

Abstract

We examine the effects of aid on growth in cross-sectional and panel data—after correcting for the possible bias that poorer (or stronger) growth may draw aid contributions to recipient countries. Even after this correction, we find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings suggest that for aid to be effective in the future, the aid apparatus will have to be rethought.

Suggested Citation

Rajan, Raghuram G. and Subramanian, Arvind, Aid and Growth: What Does the Cross-Country Evidence Really Show? (August 2005). NBER Working Paper No. w11513, Available at SSRN: https://ssrn.com/abstract=776001

Raghuram G. Rajan (Contact Author)

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Arvind Subramanian

International Monetary Fund (IMF) ( email )

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Center for Global Development

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