Publication: Aid and Economic Growth: A Robust Approach

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Title Aid and Economic Growth: A Robust Approach
Authors/Editors* Kwabena Gyimah-Brempong, Jeffrey S. Racine
Where published* Working Paper
How published* None
Year* 2007
Volume -1
Number -1
This paper uses panel data and the Local Linear Kernel Estimator (LLKE), a powerful nonparametric estimator to investigate the effects of aid on economic growth in developing countries. Specifically, we investigate the robustness of the relationship between aid and economic performance in Less Developed countries (LDCs). We investigate one mechanism---physical capital investment---through which aid affects economic growth in LDCs. We find that external aid has no significant impact on economic growth given the support of the sample data we use. We find that aid has significant and positive effect on investment in physical capital in LDCs. Finally, we find that ``good'' policy environment increases the effectiveness of aid in LDCs, all things equal. However, the impact of policy environment on growth varies according to how the policy environment is measured. These results are robust to the measurement of aid, the measurement of policy environment, as well as income levels and regions of the world. Our results have implications for aid policy and and research on the effectiveness of aid.
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