Aid, policies, and growth: Bauer was right

By the end of Peter Bauer's life he had convinced many in the economics profession that it is simply untrue that developing countries can break out of the poverty trap only by receiving foreign aid from the more prosperous industrial nations. The motivation for the present study is the hugely i...

Full description

Saved in:
Bibliographic Details
Published in:The Cato journal 2003-10, Vol.23 (2), p.167-174
Main Author: Brumm, Harold J
Format: Article
Language:English
Subjects:
Bauer, Peter
Burnside, Craig
Business cycles
Developing Countries
Development economics
Dollar, David
Econometric Analysis
Econometrics
Economic assistance
Economic Development
Economic growth
Economic Policy
Economic research
Economic theory
Error of Measurement
Foreign Aid
Growth rate
Indexes (Measures)
Measurement errors
Per capita
Poverty
Statistics
Studies
Trade policy
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:By the end of Peter Bauer's life he had convinced many in the economics profession that it is simply untrue that developing countries can break out of the poverty trap only by receiving foreign aid from the more prosperous industrial nations. The motivation for the present study is the hugely influential study done by Rurnside and Dollar (2000), which purports to provide empirical evidence demonstrating that foreign aid has a positive effect on recipients' economic growth, provided that those countries have sound economic policies. A key variable in their analysis is a proxy for economic policy. Because this proxy almost certainly is afflicted with measurement error, the OLS regression results reported in Burnside and Dollar (2000) are suspect. This study makes use of analysis of covariance structures, an econometric methodology specifically designed to tackle the measurement error that surely contaminates the economic policy proxy. The empirical results reported here suggest that foreign aid negatively affects economic growth even for recipient nations with sound economic policies.
ISSN:0273-3072
1943-3468