dimpy.handa
Dimpy Handa
Foreign aid is usually associated with official development assistance, which in turn is a subset of the official development finance, and normally targeted to the poorest countries (World Bank,1998).
How does foreign aid affect the economic growth of developing countries? This is a question which has drawn the attention of many scholars over time. Papanek (1972) finds a positive relation between aid and growth. Fayissa and El-Kaissy (1999) show that aid positively affects economic growth in developing countries. Singh (1985) also finds evidence that foreign aid has positive and strong effects on growth when state intervention is not included. Snyder (1993) shows a positive relation between aid and growth when taking country size into account. Burnside and Dollar (1997) claim that aid works well in the good-policy environment, which has important policy implications for donors community, multilateral aid agencies and policymakers in recipient countries. Developing countries with sound policies and high-quality public institutions have grown faster than those without them, 2.7% per capita GDP and 0.5% per capita GDP respectively. One percent of GDP in assistance normally translates to a sustained increase in growth of 0.5% per capita. Some countries with sound policies received only small amount of aid yet still achieved 2.2% per capita growth. The good-management, high-aid groups grew much faster, at 3.7% per capita GDP.
How does foreign aid affect the economic growth of developing countries? This is a question which has drawn the attention of many scholars over time. Papanek (1972) finds a positive relation between aid and growth. Fayissa and El-Kaissy (1999) show that aid positively affects economic growth in developing countries. Singh (1985) also finds evidence that foreign aid has positive and strong effects on growth when state intervention is not included. Snyder (1993) shows a positive relation between aid and growth when taking country size into account. Burnside and Dollar (1997) claim that aid works well in the good-policy environment, which has important policy implications for donors community, multilateral aid agencies and policymakers in recipient countries. Developing countries with sound policies and high-quality public institutions have grown faster than those without them, 2.7% per capita GDP and 0.5% per capita GDP respectively. One percent of GDP in assistance normally translates to a sustained increase in growth of 0.5% per capita. Some countries with sound policies received only small amount of aid yet still achieved 2.2% per capita growth. The good-management, high-aid groups grew much faster, at 3.7% per capita GDP.