The effect of aid on growth: evidence from a Quasi-experiment

By Sebastian Galiani, Stephen F. Knack, Lixin Colin Xu, Benteng Zou. Journal of economic growth (Boston), 2014

231 citations recorded by the source corpus.

The literature on aid and growth has not found a convincing instrumental variable to identify the causal effects of aid. This paper exploits an instrumental variable based on the fact that, since 1987, eligibility for aid from the International Development Association (IDA) has been based partly on whether or not a country is below a certain threshold of per capita income. The paper finds evidence that other donors tend to reinforce rather than compensate for reductions in IDA aid following threshold crossings. Overall, aid as a share of gross national income (GNI) drops about 59 % on average after countries cross the threshold. Focusing on the 35 countries that have crossed the income threshold from below between 1987 and 2010, a positive, statistically significant, and economically sizable effect of aid on growth is found. A 1 percentage point increase in the aid to GNI ratio from the sample mean raises annual real per capita growth in gross domestic product by approximately 0.35 percentage points.

Subfields: Development, Economics and Econometrics, Safety Research

View Paper: https://www.semanticscholar.org/paper/d4babf890b7897f731eb663abebff996cf754f6b

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Citations in the corpus

Making Progress on Foreign Aid (2015, unknown): “Recently, Galiani et al (2014) improved on the identification of older papers with a strategy similar to a regression discontinuity.”
Food security and conflict: Empirical challenges and future opportunities for research and policy making on food security and conflict (2019, background): “18 and the context, results range widely from very negative to very positive impacts of aid on conflict (see e.g. Galiani et al., 2016).8 The statistically most robust and most direct evidence on conflict outcomes stems from a few recent studies that use new high-quality data and exploit natural or…”
Aid and growth: New evidence using an excludable instrument (2020, unknown): “Galiani et al. (2017) instrument aid flows with the International Development Association’s (IDA) threshold for receiving concessional aid.”
Aid, China, and Growth: Evidence from a New Global Development Finance Dataset (2023, methodology): “Our specification deviates from the extant literature on aid and growth in a number of ways (e.g., Clemens et al. 2012, Galiani et al. 2017, Dreher and Langlotz 2020).23 First, we analyze ODA and OOF as separate regressors in addition to investigating them in concert.”
Aid and Growth at the Regional Level (2015, unknown): “35Of course, to the extent that aid-dependent countries are less likely to cross the threshold – “cooking their books” – it might well be endogenous to aid; see Kerner et al. (2014) and Galiani et al. (2014) who come to opposite conclusions on whether or not manipulation takes place.”