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Wageningen University (2014)

Impact of development and humanitarian aid on economic growth of developing countries

Dagne, S.D.

Titre : Impact of development and humanitarian aid on economic growth of developing countries

Auteur : Dagne, S.D.

Université de soutenance : Wageningen University

Grade : Master of Science (MS) 2014

Résumé
Official Development Assistance (ODA), commonly known as foreign aid comprises resource transfers from developed to developing countries in the form of grants and loans at concessional financial terms. Even though the primary objective of foreign aid is to promote economic development and welfare in aid recipient countries, after decades of capital transfer several studies on the relationship between foreign aid and economic growth find contradicting results. The aim of this thesis is to test the hypothesis that the impact of foreign aid on economic growth per capita may differ between humanitarian and development aid in the short and long run for aid recipient countries. To test this hypothesis, we employ panel and cross sectional regressions and used Ordinary Least Squared (OLS) as well as Two Stage Least Squared (2SLS) estimation methods for 81 aid recipient countries between the time period of 1990 and 2010. The study uses a fixed effect model and regresses humanitarian and development aid on GDP per capita growth separately to observe short and long run impacts. Under the panel OLS estimation method we find that a one percent increase in development aid increases GDP per capita growth by 1.19 percentage-points where as it reduces GDP per capita growth by 6.8 percentage-points under 2SLS estimations. However, in the long run (cross sectional regression), we find this type of aid reduces GDP per capita growth by 0.53 percentage-points under OLS and by 1.13 percent under 2SLS estimation methods. Moreover, a one percent increase in humanitarian aid increases GDP per capita growth by 0.68 percentage-points under OLS estimations in the short (panel) and 0.62 in the long run (cross sectional) regression. The major causes of the difference with other studies are discussed in terms of specification, sample size and instrument used. Given these limitations, this study may contribute to the important debate which continues to surround the aid effectiveness argument. Further research is needed in this field to provide donors and recipients in order to improve development policy.

Mots clés : development aid / humanitarian aid / economic growth / performance / developing countries

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Page publiée le 22 janvier 2015, mise à jour le 13 octobre 2018