Does Foreign Aid Help?
28 Pages Posted: 18 Apr 2006
Date Written: March 2006
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