Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/204722 
Year of Publication: 
2009
Series/Report no.: 
SITE Working Paper No. 11
Publisher: 
Stockholm School of Economics, Stockholm Institute of Transition Economics (SITE), Stockholm
Abstract: 
Despite a voluminous literature on the topic, the question of whether foreign aid leads to growth is still controversial. To observe the pure effect of aid, researchers used instruments that must be exogenous to growth and explain well aid flows. This paper argues that instruments used in the past do not satisfy these conditions. We propose a new instrument based on predicted aid quantity and argue that it is a significant improvement relative to past approaches. We find a significant and relatively big effect of aid: a one standard deviation increase in received aid is associated with a 1.6 percentage points higher growth rate.
Subjects: 
Foreign aid
growth
instrumental variables
GMM
JEL: 
F35
O11
Document Type: 
Working Paper

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