Does Foreign Aid Help?

Djankov, Simeon; Garcia-Montalvo, Jose; Reynal-Querol, Marta

doi:10.2139/ssrn.896550

Does Foreign Aid Help?

28 Pages Posted: 18 Apr 2006

See all articles by Simeon Djankov

Simeon Djankov

London School of Economics & Political Science (LSE); Peter G. Peterson Institute for International Economics

Jose Garcia-Montalvo

Universitat Pompeu Fabra - Department of Economics and Business (DEB)

Marta Reynal-Querol

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; World Bank - Development Research Group (DECRG)

Date Written: March 2006

Abstract

Recently, Sachs et al. (2004) have argued in favor of a massive increase in foreign aid to Africa in order to escape from a poverty trap. They propose to increase the capital stock in one step, through a large, well-targeted infusion of foreign assistance. In this article we show that foreign aid has a negative impact on the democratic stance of developing countries, and on economic growth by reducing investment and increasing government consumption. Therefore, our empirical findings do not support the Sachs proposal.

Keywords: Foreign aid, development

JEL Classification: O10, O19

Suggested Citation: Suggested Citation

Djankov, Simeon and Garcia-Montalvo, Jose and Reynal-Querol, Marta, Does Foreign Aid Help? (March 2006). Available at SSRN: https://ssrn.com/abstract=896550 or http://dx.doi.org/10.2139/ssrn.896550