nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2007‒03‒17
one paper chosen by
Iulia Igescu
Global Insight, GmbH

  1. The Allocation of volatile aid and economic growth: Evidence and a suggestive theory By Kyriakos C. Neanidis; Dimitrios Varvarigos

  1. By: Kyriakos C. Neanidis (Economics, University of Manchester); Dimitrios Varvarigos (Dept of Economics, Loughborough University)
    Abstract: We present evidence on the effects of aid transfers and their degree of volatility on economic growth and show that these effects can be categorised in relation to the allocation of foreign aid between productive and non-productive purposes. Using a stochastic endogenous growth model, we provide a theoretical rationalisation for our empirical evidence. Both the empirical and the theoretical analyses generate a pertinent conclusion: situations in which aid actually inhibits the recipient’s growth rate may appear if and only if aid is volatile. As a result, we conclude that it is only in conjunction with the presence of aid variability that aid allocation decisions determine whether aid hurts or promotes trend growth.
    Keywords: Foreign aid; Growth
    JEL: F35 O41 O47
    Date: 2007–03

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