Aid and Growth in the Pacific Islands

18 Pages Posted: 8 Oct 2006

See all articles by Vlad Pavlov

Vlad Pavlov

Queensland University of Technology - School of Economics and Finance

Craig Sugden

Australian National University (ANU) - Crawford School of Public Policy; Focus Economics

Abstract

The literature on the aid-growth relationship has recently been reinvigorated through the application of growth equations that seek to explain growth as a function of institutions, policies and aid. This approach has generally led to the conclusion that aid has contributed to growth, albeit with decreasing returns. Some studies have found that there is only a positive relationship between aid and growth when there is a favourable policy environment - a finding that has been used to provide a reason for the reallocation of aid to better-performing countries and an increased emphasis by donors on aid conditionality. It is unclear whether these conclusions apply to the Pacific island countries given their unusual features: notably, small populations, remote locations and a high level of aid. This paper draws on the recent literature in examining the aid-growth relationship in seven Pacific island countries. A positive relationship between aid and growth is identified, although it is subject to decreasing returns. The study is unable to provide an adequate explanation for the role of institutions and policy in growth in the countries studied, or determine whether aid only contributes to growth when favourable policy environments are in place.

Suggested Citation

Pavlov, Vlad and Sugden, Craig, Aid and Growth in the Pacific Islands. Asian-Pacific Economic Literature, Vol. 20, No. 2, pp. 38-55, November 2006, Available at SSRN: https://ssrn.com/abstract=935690 or http://dx.doi.org/10.1111/j.1467-8411.2006.00182.x

Vlad Pavlov (Contact Author)

Queensland University of Technology - School of Economics and Finance ( email )

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Craig Sugden

Australian National University (ANU) - Crawford School of Public Policy

Crawford Building
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Focus Economics

Brisbane
Australia

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