What Is the Aggregate Economic Rate of Return to Foreign Aid?

In recent years, academic studies have been converging towards the view that foreign aid promotes aggregate economic growth. We employ a simulation approach to: (i) validate the coherence of empirical aid-growth studies published since 2008; and (ii) calculate plausible ranges for the rate of return...

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Bibliographic Details
Published in:The World Bank economic review 2016-01, Vol.30 (3), p.446-474
Main Authors: Arndt, Channing, Jones, Sam, Tarp, Finn
Format: Article
Language:English
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Summary:In recent years, academic studies have been converging towards the view that foreign aid promotes aggregate economic growth. We employ a simulation approach to: (i) validate the coherence of empirical aid-growth studies published since 2008; and (ii) calculate plausible ranges for the rate of return to aid. Our results highlight the long run nature of aid-financed investments and the importance of channels other than accumulation of physical capital. We find the return to aid lies in ranges commonly accepted for public investments and there is little to justify the view that aid has had a significant pernicious effect on productivity.
ISSN:0258-6770
1564-698X
1564-698X
DOI:10.1093/wber/lhv033