Foreign financial aid, government policies and economic growth: Does the policy setting in developing countries matter?
Date
2005
Authors
Tashrifov, Mohammad-Yusuf
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Crawford School of Economics and Government, The Australian National University
Abstract
Does foreign aid contribute to economic growth? If so, is the impact of aid conditional on good policies? This is a controversial issue. While the World Bank (1998) contends that the aid is effective only if recipient governments have good policies, others refute this view and argue that aid enhances economic growth regardless of the type of policies. This paper proposes new measures of policy that are more directly controlled by recipient governments. Using data from the World Bank, five panels of four-years covering the period 1974-1993 for 56 aid-receiving developing countries examine whether any significant relationship exists between foreign aid, government policies and economic growth. It is revealed that foreign aid has a positive impact on real growth per capita and this effect is not contingent upon the type of economic policies adopted by the recipient countries. It is also revealed that the log of the initial level of income is statistically significant, thus indicating conditional convergence among the countries in the sample, which contradicts the general findings of previous studies.
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Tashrifov, Y. (2005). Foreign financial aid, government policies and economic growth: Does the policy setting in developing countries matter?. International and Development Economics Paper 05-10. Canberra, ACT: Crawford School of Economics and Government, The Australian National University.
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Open Access
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