Tied aid A major proportion of aid from donor nations is tiedmandating that a receiving nation spend on products and expertise originating only from the donor country. For example, the World Bank presses poor nations to eliminate subsidies for fertilizer even while many farmers cannot afford them at market prices. However, after the government changed policy and subsidies for fertilizer and seed were introduced, farmers produced record-breaking corn harvests in and as production leaped to 3.
The voluminous literature on the effects of foreign aid on growth has generated little evidence that aid has any positive effect on growth. This seems to be true regardless of whether we focus on different types of aid social versus economicdifferent types of donors, different timing for the impact of aid, or different types of borrowers see here for details.
But the absence of evidence is not evidence of absence. Perhaps we are just missing something important or are not doing the research correctly. One way to ascertain whether absence of evidence is evidence of absence is to go beyond the aggregate effect from aid to growth and look for the channels of transmission.
One such channel is the impact of aid on manufacturing exports. Manufacturing exports has been the predominant mode for escape from underdevelopment for many developing countries, especially in Asia. So, what aid does to manufacturing exports can be one key piece of the puzzle in understanding the aggregate effect of aid.
In this paper forthcoming in the Journal of Development Economics, Raghuram Rajan and I show that aid tends to depress the growth of exportable goods. This will not be the last word on the subject because the methodology in this paper, as in much of the aid literature, could be improved.
But the innovation in this paper is not to look at the variation in the data across countries which is what almost the entire aid literature does but at the variation within countries across sectors. We categorize goods by how exportable they could be for low-income countries, and find that in countries that receive more aid, more exportable sectors grow substantially more slowly than less exportable ones.
The numbers suggest that in countries that receive additional aid of 1 percent of GDP, exportable sectors grow more slowly by 0. We also provide suggestive evidence that the channel through which this effect is felt is the exchange rate.
In other words, aid tends to make a country less competitive reflected in an overvalued exchange rate which in turn depresses the prospects of the more exportable sectors.
That vital channel for long run growth should not be impaired by foreign aid.3 would disqualify many countries as recipients of foreign aid. The effects of corruption on support for foreign aid can potentially be diminished by various understandings of. EVALUATING THE IMPACT OF FOREIGN AID ON ECONOMIC GROWTH 27 accumulation is known to affect growth.
Therefore, according to many authors, the Harrod-Domar growth model and the Chenery and Strout two-gap model are. The voluminous literature on the effects of foreign aid on growth has generated little evidence that aid has any positive effect on growth.
This seems to be true regardless of whether we focus on different types of aid (social versus economic), different types of donors, different timing for the impact of aid, or different types of borrowers.
The Implications of Foreign Aid Fungibility for Development Assistance * impact of foreign aid on public expenditures in recipient countries. Public expenditures have long 3In the literature on the effects of intergovernmental aid in federal systems, this is known as having no.
Theses and Dissertations--Public Policy and Administration Martin School of Public Policy and Administration "A Study of Corruption, Foreign Aid, and Economic Growth" ().Theses and Dissertations--Public Policy and Administration. 5. Estimating Effects of Corruption and Foreign Aid.
Foreign Aid and Human Development: The Impact of Foreign Aid to the Health Sector of foreign aid for economic development without a general consensus on the role of foreign Two contrasting hypotheses have emerged.
One is a public • Department of Economics, West Virginia University, P.O. Box , Morgantown, WV , USA; E-.