Does Aid Effectiveness Depend on the Quality of Donors?

Minasyan, Anna; Nunnenkamp, Peter; Richert, Katharina

doi:10.1016/j.worlddev.2017.07.023

Cited by 50 publications

(21 citation statements)

References 23 publications

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“…Some studies have also found that the effect of foreign aid on economic growth is non‐linear and depends on several macroeconomic and institutional indicators. Some papers show that aid is effective under some conditions: good governance (Burnside & Dollar, 2000, 2004; Ikhide, 2004), vulnerability of the recipient country (Chauvet & Guillaumont, 2004; Guillaumont & Chauvet, 2001), export price shocks (Collier & Dehn, 2001), regulatory burden (Harms & Lutz, 2003) and the quality of donors (Minasyan, Nunnenkamp, & Richert, 2017). Other studies have shown that there is a decreasing marginal return to aid (Dalgaard & Hansen, 2001; Gomanee et al., 2003; Guillaumont & Guillaumont‐Jeanneney, 2006a; Lensink & White, 2001).…”

Section: Brief Review Of the Literaturementioning

confidence: 99%

Aid, growth and institutions in Sub‐Saharan Africa: New insights using a multiple growth regime approach

2020

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However, as pointed out by Guillaumont and Guillaumont-Jeanneney (2006a), introducing squared and cubic aid terms could make it difficult to simultaneously treat possible conditional effects of aid. Furthermore, studies employing threshold models assume that the threshold is the same for all countries, which can be problematic given the very specific circumstances of recipient countries (Guillaumont & Guillaumont-Jeanneney, 2006a, 2006b). Moreover, on the interactive variable between foreign and institutional variables, Dalgaard and Hansen (2001) and Easterly (2003) highlighted that this specification does not allow disentangling the effects of aid and institutions on growth given that institutions themselves affect growth. Our paper proposes an innovative view by incorporating the possibility of heterogeneous effects of foreign aid in a general and unspecified way, and then exploring whether the quality of institutions is the source of such unobserved heterogeneity. We assume that there are multiple growth regimes and that the impact of foreign aid on growth differs across regimes. The approach allows us to study the role of governance by estimating whether the quality of governance affects the probability for a country to be in a given growth regime. Previous studies used traditional econometric models (OLS, IV, GMM) which impose a single model in the sample, and thus assume that the effect of foreign aid is constant across the distribution. These models also disregard the possibility that heterogeneity may exist along the distribution of the outcome itself. We employ a finite mixture model, which relaxes the assumption of a single model and allows unobserved heterogeneity in the sample. The finite mixture model incorporates a latent variable to classify countries into different classes or regimes, and enables any possible unobserved heterogeneity that may exist to be incorporated. In this semi-parametric model, countries are sorted into regimes or classes depending on the similarity of the conditional distribution of their growth rates given all the observed explanatory variables (Deb & Gregory, 2016; Konte, 2013). Finite mixture models are formulated to identify heterogeneous effects, if they exist, and characterise that heterogeneity along dimensions of the outcome distribution, observed characteristics and unobserved characteristics. These models are increasingly applied to different topics including health (

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Section: Brief Review Of the Literaturementioning

confidence: 99%

Aid, growth and institutions in Sub‐Saharan Africa: New insights using a multiple growth regime approach

2020

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“…Aid is also often tied, calling for unnecessary (mega) project proliferation, misallocation of resources and neglect of the potential of smaller-scale entrepreneurship in raising living standards. While it is known that higher-quality aid from the donor side leads to better development results, it is the smaller recipient countries, all else being equal, which seem to benefit more from high-quality aid than their larger counterparts (Minasyan et al 2016). Other criteria often included in evaluating aid quality include the level of aid channel politicization, selectivity on projects, provision of global public goods and technical efficiency (Gulrajani 2016).…”

Section: Foreign Aid Donor-created Obstacles On Entrepreneurshipmentioning

confidence: 99%

Caveat Emptor: Foreign Aid and Entrepreneurship

Ovaska

Takashima

2020

Economies

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In the last 60 years, the results of development aid have been mixed. Thus far, it has been mostly the aid recipient countries, which have been held responsible for aid’s shortcomings. That focus is misplaced, however, since the donor countries, through development aid, also export some of their own institutions and values to the recipient countries affecting the recipients’ rate of entrepreneurship and income. This study demonstrates how donor countries vary widely in both the type and quality of their institutions and values, leading to diverging economic outcomes. The results indicate that recipient countries should pay serious attention to who their development partner is. In particular, recipients would want to avoid aid from low institutional quality donors with perceived anti-market attitudes. Finally, it is argued that development aid might become more efficient if it moved away from the bilateral, towards the multilateral, mode.

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“…For example, Minasyan et al (2017) demonstrate that only qualityadjusted aid leads to increasing GDP per capita in recipient countries. The authors base their findings on the donor performance index of the Center for Global Development.…”

Section: Relevant Literaturementioning

confidence: 99%

International Donors and Social Policy Diffusion in the Global South

Dodlova

2020

Global Dynamics of Social Policy

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Does Aid Effectiveness Depend on the Quality of Donors?

Cited by 50 publications

References 23 publications

Aid, growth and institutions in Sub‐Saharan Africa: New insights using a multiple growth regime approach

Aid, growth and institutions in Sub‐Saharan Africa: New insights using a multiple growth regime approach

Caveat Emptor: Foreign Aid and Entrepreneurship

International Donors and Social Policy Diffusion in the Global South

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