Does foreign aid distort incentives and hurt growth? Theory and evidence from 75 aid-recipient countries

Public Choice

Volumn 134, Issue 3-4, 2008, Pages 463-488

  Economides, George ^a   Kalyvitis, Sarantis ^a   Philippopoulos, Apostolis ^a,b,c  

^a ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS   (Greece)

^b UNIVERSITY OF GLASGOW   (United Kingdom)

^c CESIFO   (Germany)

Author keywords

Foreign aid; Growth; Incentives

Indexed keywords

EID: 38749146335     PISSN: 00485829     EISSN: None     Source Type: Journal    
DOI: 10.1007/s11127-007-9239-9     Document Type: Article

References (57)

1. Aghion, P., & Williamson, J. (1998). Growth, inequality and globalization. Cambridge: Cambridge University Press.
2. Alesina, A., & Weder, B. (2002). Do corrupt governments receive less foreign aid. American Economic Review, 92, 1126-1137.
3. Angelopoulos, K., & Philippopoulos, A. (2007). The growth effects of fiscal policy in Greece 1960-2000. Public Choice, 131, 157-175.
4. Barro, R. (1990). Government spending in a simple model of economic growth. Journal of Political Economy, 98, S103-S125.
5. Barro, R., & Sala-i-Martin, X. (2004). Economic growth (2nd ed.). Cambridge: MIT.
6. Baumol, W. (1990). Entrepreneurship: Productive, unproductive, and destructive. Journal of Political Economy, 98, 893-921.
7. Bhagwati, N. J. (1982). Directly unproductive, profit-seeking (DUP) activities. Journal of Political Economy, 90, 988-1002.
8. Boone, P. (1996). Politics and the effectiveness of foreign aid. European Economic Review, 40, 289-329.
9. Burnside, C., & Dollar, D. (2000). Aid, policies and growth. American Economic Review, 90, 847-868.
10. Chang, C., Fernandez-Arias, E., & Serven, L. (1998). Measuring aid flows: A new approach. Working paper. Development Research Group, World Bank.
11. Chatterjee, S., Sakoulis, G., & Turnovsky, S. (2003). Unilateral capital transfers, public investment and economic growth. European Economic Review, 47, 1077-1103.
12. Clemens, M. A., Radelet, S., & Bhavnani, R. (2004). Counting chickens when they hatch: The short-term effect of aid on growth. Center for Global Development, Working paper No. 44.
13. Collier, P., & Dollar, D. (2004). Development effectiveness: What have we learned? Economic Journal, 114, F244-F271.
14. Collier, P., & Hoeffler, A. (2005). Democracy and resource rents. Working paper. University of Oxford.
15. Conlon, R. J., & Pecorino, P. (2004). Policy reform and the free-rider problem. Public Choice, 120, 123-142.
16. Dalgaard, C. J., & Hansen, H. (2001). On aid, growth and good policies. Journal of Development Studies, 37, 17-41.
17. Dalgaard, C. J., Hansen, H., & Tarp, F. (2004). On the empirics of foreign aid and growth. Economic Journal, 114, F191-F216.
18. Drazen, A. (2000). Political economy in macroeconomics. Princeton: Princeton University Press.
19. Easterly, W. (2001). The elusive quest for growth. Cambridge: MIT.
20. Easterly, W., & Levine, R. (1997). Africa's growth tragedy: Policies and ethnic divisions. Quarterly Journal of Economics, 112, 1203-1250.
21. Fredriksson, P. G., & Svensson, J. (2003). Political instability, corruption and policy formation: The case of environmental policy. Journal of Public Economics, 87, 1383-1405.
22. Grossman, H., & Mendoza, J. (2003). Scarcity and appropriative competition. European Journal of Political Economy, 19, 747-758.
23. Hansen, H., & Tarp, F. (2001). Aid and growth regressions. Journal of Development Economics, 64, 547-570.
24. Heston, A., Summers, R., & Aten, B. (2002). Penn world table, Version 6.1. Center for International Comparisons at the University of Pennsylvania (CICUP).
25. Jensen, P. S., & Paldam, M. (2006). Can the two new aid-growth models be replicated? Public Choice, 127, 147-175.
26. Knack, S. (2001). Aid dependence and the quality of governance. Southern Economic Journal, 68, 310-329.
27. Knack, S., & Keefer, P. (1995). Institutions and economic performance: Cross-country tests using alternative institutional measures. Economics and Politics, 7, 207-227.
28. Knack, S., & Keefer, P. (1997). Does social capital have an economic payoff? A cross-country investigation. Quarterly Journal of Economics, 112, 1251-1287.
29. Krueger, A. (1974). The political economy of the rent seeking society. American Economic Review, 64, 291-303.
30. Leite, C., & Weidmann, J. (2002). Does mother nature corrupt? Natural resources, corruption and economic growth. In G. Abed & S. Gupta (Eds.), Governance, corruption and economic performance. Washington: International Monetary Fund.
31. Lensink, R., & White, H. (2001). Are there negative returns to aid? Journal of Development Studies, 37, 42-63.
32. Mauro, P. (1995). Corruption and growth. Quarterly Journal of Economics, 110, 681-712.
33. Mauro, P. (1998). Corruption and the composition of government expenditures. Journal of Public Economics, 69, 263-279.
34. Mauro, P. (2002). The persistence of corruption and slow economic growth. IMF Working Paper 02/213, Washington, DC.
35. Mehlum, H., Moene, K., & Torvik, R. (2006). Institutions and the resource curse. Economic Journal, 116, 1-20.
36. Mohtadi, H., & Roe, T. (1998). Growth, lobbying and public goods. European Journal of Political Economy, 14, 453-473.
37. Mohtadi, H., & Roe, T. (2003). Democracy, rent seeking, public spending and growth. Journal of Public Economics, 87, 445-466.
38. Moreira, S. (2003). Evaluating the impact of foreign aid on economic growth: A cross-country study (1970-1988). Paper presented at the 15th Annual Meeting on Socio-Economics.
39. Morrison, M. K. (2007). Natural resources, aid, and democratization: A best-case scenario. Public Choice, 131, 365-386.
40. Mosley, P., Hudson, J., & Horrell, S. (1987). Aid, the public sector and the market in less developed countries. Economic Journal, 97, 616-641.
41. Mosley, P., Hudson, J., & Verschoor, A. (2004). Aid, poverty reduction and the 'new conditionality'. Economic Journal, 114, F217-F243.
42. Murphy, K., Shleifer, A., & Vishny, R. (1991). The allocation of talent: Implications for growth. Quarterly Journal of Economics, 106, 503-530.
43. Neeman, Z., Paserman, D., & Simhon, A. (2003). Corruption and openness. CEPR Discussion Paper, no. 4057, London.
44. Park, H., & Philippopoulos, A. (2003). On the dynamics of growth and fiscal policy with redistributive transfers. Journal of Public Economics, 87, 515-538.
45. Park, H., Philippopoulos, A., & Vassilatos, V. (2005). Choosing the size of the public sector under rent-seeking competition from state coffers. European Journal of Political Economy, 21, 830-850.
46. Persson, T., & Tabellini, G. (2000). Political economics: Explaining economic policy. Cambridge: MIT.
47. Persson, T., & Tabellini, G. (2003). The economic effects of constitutions. Cambridge: MIT.
48. Rodrik, D. (1998). Why do more open economies have bigger governments? Journal of Political Economy, 106, 997-1032.
49. Svensson, J. (1999). Aid, growth and democracy. Economics and Politics, 11, 275-297.
50. Svensson, J. (2000). Foreign aid and rent-seeking. Journal of International Economics, 51, 437-461.
51. Svensson, J. (2003). Why conditional aid does not work and what can be done about it? Journal of Development Economics, 70, 381-402.
52. Tanzi, V. (2002). Corruption around the world: Causes, consequences, scope and cures. In G. Abed & S. Gupta (Eds.), Governance, corruption and economic performance. Washington: International Monetary Fund.
53. Tanzi, V., & Schuknecht, L. (2000). Public spending in the 20th century: A global perspective. Cambridge: Cambridge University Press.
54. Tavares, J. (2003). Does foreign aid corrupt? Economics Letters, 79, 99-106.
55. Torsvik, G. (2005). Foreign economic aid: should donors cooperate? Journal of Development Economics, 77, 503-515.
56. Tullock, G. (1980). Efficient rent-seeking. In J. Buchanan, R. Tollison & G. Tullock (Eds.), Towards a theory of the rent-seeking society (pp. 97-112). College Station: Texas A&M University Press.
57. World Bank. (1998). Assessing aid: What works, what doesn't, and why. New York: Oxford University Press.