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Aid and Income: Another Time-series Perspective

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  • Lof, Matthijs
  • Mekasha, Tseday Jemaneh
  • Tarp, Finn

Abstract

This study provides a replication of the empirical results reported by Nowak-Lehmann, Dreher, Herzer, Klasen, and Martínez-Zarzoso (2012) (henceforth NDHKM). We uncover that NDHKM relied on a regression model which included a log transformation of variables that are not strictly positive. This led to nonrandom omission of a large proportion of observations. Furthermore, we show that NDHKM’s use of co-integrated regressions is not a suitable empirical strategy for estimating the causal effect of aid on income. Evidence from a Panel VAR model estimated on the dataset of NDHKM, suggests a positive and statistically significant long-run effect of aid on income.

Suggested Citation

  • Lof, Matthijs & Mekasha, Tseday Jemaneh & Tarp, Finn, 2015. "Aid and Income: Another Time-series Perspective," World Development, Elsevier, vol. 69(C), pages 19-30.
    • Handle: RePEc:eee:wdevel:v:69:y:2015:i:c:p:19-30
    DOI: 10.1016/j.worlddev.2013.12.015
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