Evaluating aid effectiveness against a poverty-reduction criterion (original) (raw)
Related papers
Aid, Pro-Poor Government Spending and Welfare
SSRN Electronic Journal, 2000
Our objective is to test the hypothesis that aid can improve the welfare of the poor. Part of this effect is direct, if aid is targeted on the poor, and part is indirect, via the transmission channel of aid-financed public spending on social services -sanitation, education and health. This indirect part is represented in an index of pro-poor public expenditures (PPE). As comparative data on poverty levels are scarce, we use two indicators of the welfare of the poor, namely infant mortality and the Human Development Index (HDI). We use a residual generated regressor to obtain a coefficient on the aid variable that includes the indirect effects through public expenditure allocation induced by aid. Estimation is based on a pooled panel of 39 countries over the period 1980 to 1998. We obtain results in support of our hypothesis that 'pro-poor' public expenditure is associated with increased levels of welfare, and we find evidence that aid is associated with improved values of the welfare indicators because aid finances pro-poor spending. In this way, aid potentially benefits the poor.
Historically, the economic justification for aid-flows to developing countries is to reduce poverty, which can be applied through direct targeting of the poor or indirectly through economic growth or pro-poor public expenditure. This study investigates whether or not aid has produced the anticipated result in 144 developing economies using panel data analysis. Our variables of choice for measuring aid impact on poverty involve monetary and non-monetary poverty measures. Overall, Aid is good for poverty reduction; more so when institutional quality is controlled for. Secondly, for the analysis studying the poverty impact of aid via Pro-poor Public Expenditure (PPE), PPE was partially analysed as a function of aid, GDP and institutional quality (CPIA) using OLS in first differences. Evidence suggests that increase in aid does not lead to higher pro-poor public spending. In turn, pro-poor public spending is only good for the dollarized poverty measures, but not wellbeing. Consequently, institutional quality and absence of corruption is vital for aid effectiveness.
Poverty and foreign aid: evidence from recent cross-country data
2005
This paper takes a fresh look, from a macro perspective, at the issue of aid effectiveness. An important point of departure for this study is that it adopts poverty reduction, as contrasted from economic growth, as the metric for measuring aid effectiveness. In conducting the empirical investigation, the paper experiments with a number of different regression equations and uses a new panel dataset on poverty.
Foreign Aid Policy and Sources of Poverty: A Quantitative Framework
IMF Staff Papers, 2007
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The econometric literature has been unable to establish a robust association between foreign aid and growth and poverty reduction. In this paper we argue that aid effectiveness must be assessed using methods that go beyond crosscountry regressions. We calibrate a dynamic general equilibrium model that is capable of generating large income gaps between rich and poor countries. The model quantifies three sources of poverty: (i) lack of access to international capital, (ii) low schooling and high fertility (a poverty trap), and (iii) antigrowth domestic fiscal policy. We analyze policies designed to address each source of poverty and estimate and compare the aid cost of implementing the different policies. The policies differ dramatically in the extent and timing of their growth effects, and in the aid cost of their implementation.
Aid, Government Expenditure, and Aggregate Welfare
World Development, 2005
This paper tests the hypothesis that aid contributes to increasing aggregate welfare, measured by infant mortality and the Human Development Index (HDI), in recipient countries. Estimation is based on data for 104 countries over the period 1980-2000, and for subsamples of low-income and middle-income countries. Fixed effect estimates provide robust evidence that aid is associated with improved values of the welfare indicators, and this effect appears to be greater in low-income countries. Aid appears to increase welfare either directly or through the effect on growth, and there is no evidence that aid operates through public spending.
Historically, aid flows from the developed to developing countries have been economically justified for reducing poverty either through directly targeting the poor or indirectly via economic growth. This present study investigates whether or not aid has produced the anticipated results in 12 selected SADC countries using panel data analysis covering a period of nine years (2005-2013). The variable of choice for measuring aid effectiveness in reducing poverty in this present study is the human development index (HDI), a non-monetary poverty measure. Overally, the study finds that aid has a negative and no significant impact on poverty reduction, supporting the works of the public choice hypothesis. The negative and insignificant results could be explained by aid misallocation, misuse and lack of absorptive capacity by recipient countries. Secondly for the analysis of how aid can be made more effective in reducing poverty, empirical evidence suggests that institutional quality, control of corruption and trade openness are vital for aid effectiveness. Economic growth and trade openness have been found to be necessary conditions for poverty reduction.
The Impact of Foreign Aid on Aggregate Welfare Measures: A Panel Data Analysis
SSRN Electronic Journal, 2018
Does foreign aid enhance aggregate human welfare? This paper attempts to answer this question by using a panel of twenty-eight countries, covering the period from 1990 to 2014. It explores intra-country variation by splitting the sample into low-income and middle-income countries. Combined with the fixed effects estimator, these approaches sought to control for the heterogeneity of the effects of aid on welfare measures. Perhaps surprisingly, there was no evidence that foreign aid contributes to the reduction of infant mortality or increase of human development index.
2018
Does foreign aid enhance aggregate human welfare? This paper attempts to answer this question by using a panel of twenty-eight countries, covering the period from 1990 to 2014. It explores intra-country variation by splitting the sample into low-income and middle-income countries. Combined with the fixed effects estimator, these approaches sought to control for the heterogeneity of the effects of aid on welfare measures. Perhaps surprisingly, there was no evidence that foreign aid contributes to the reduction of infant mortality or increase of human development index.
Aid, public spending and human welfare: evidence from quantile regressions
Journal of International Development, 2005
Does aid contribute to human development other than by increasing growth? In doing so, is aid more or less effective in poorer countries (those with low levels of aggregate welfare)? This paper addresses these issues, assessing if there is cross-country aggregate evidence for an effect of aid on welfare levels. We posit that aid can enhance human development by financing public expenditures that increase welfare indicators. Using quantile regressions, we report evidence that aid is associated with higher human development (the Human Development Index) and lower infant mortality (both indicators of aggregate welfare). Where there are differences across quantiles, aid is more effective in countries below the median of the welfare distribution, i.e. with lower levels of human development. Insofar as aggregate welfare is (inversely) correlated with poverty, we find evidence that aid can make a positive contribution to alleviating poverty, and that the effect appears to be greater in countries with lower levels of human development indicators.