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WP/2014/089 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 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 that the return to aid falls in ranges commonly accepted for public investments and there is little to justify the view that aid has a significant pernicious effect on productivity.
Publisher:
UNU-WIDER
Series:
WIDER Working Paper
Volume:
2014/089
Title:
WP/2014/089 What is the aggregate economic rate of return to foreign aid?
Authors:
Channing Arndt, Sam Jones, and Finn Tarp
Publication date:
May 2014
ISBN 13 Web:
978-92-9230-810-0
Copyright holder:
© UNU-WIDER
Copyright year:
2014
Keywords:
foreign aid, rate of return, heterogeneity, simulation
JEL:
C63, F35, O4
Sponsor:
UNU-WIDER gratefully acknowledges specific programme contributions from the governments of Denmark (Ministry of Foreign Affairs, Danida) and Sweden (Swedish International Development Cooperation Agency—Sida) for ReCom. UNU-WIDER also gratefully acknowledges core financial support to its work programme from the governments of Denmark, Finland, Sweden and the United Kingdom.
Format:
online
 
This is an expanded version of the paper uploaded on 22 May 2014.
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