Does Aid Work? New Evidence from Recent Empirical Studies

29 Pages Posted: 31 Mar 2006  

Niels Hermes

University of Groningen - Faculty of Economics and Business

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Date Written: May 2004

Abstract

The main message of the Assessing Aid report of the World Bank (1998) is that aid is effective in stimulating economic growth, but only when the government policies of the recipient country are good. Donor countries have picked up this message and have used it to become more selective when making countries eligible for aid. We review the empirical literature that has contested the main conclusions of the report. According to our review, the critics convincingly show that the conclusions are based on fragile econometric evidence. Moreover, they criticise the measurement of good policy by the World Bank. The critics also come up with alternative explanations of the effectiveness of aid, such decreasing returns of aid and the importance of geographical or climate-related circumstances. Based on our review, we conclude that donors that have based their policies on the results of the Assessing Aid report should reconsider their policies of aid selectivity and use other criteria than good policy.

Keywords: development aid, effectiveness, economic growth

JEL Classification: F35, O40

Suggested Citation

Hermes, Niels and Lensink, Robert, Does Aid Work? New Evidence from Recent Empirical Studies (May 2004). Available at SSRN: https://ssrn.com/abstract=893020 or http://dx.doi.org/10.2139/ssrn.893020

Niels Hermes (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

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