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Aid and Growth in the Pacific Islands

Author

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  • Vlad Pavlov
  • Craig Sugden

Abstract

The literature on the aid-growth relationship has recently been reinvigorated through the application of growth equations that seek to explain growth as a function of institutions, policies and aid. This approach has generally led to the conclusion that aid has contributed to growth, albeit with decreasing returns. Some studies have found that there is only a positive relationship between aid and growth when there is a favourable policy environment-a finding that has been used to provide a reason for the reallocation of aid to better-performing countries and an increased emphasis by donors on aid conditionality. It is unclear whether these conclusions apply to the Pacific island countries given their unusual features: notably, small populations, remote locations and a high level of aid. This paper draws on the recent literature in examining the aid-growth relationship in seven Pacific island countries. A positive relationship between aid and growth is identified, although it is subject to decreasing returns. The study is unable to provide an adequate explanation for the role of institutions and policy in growth in the countries studied, or determine whether aid only contributes to growth when favourable policy environments are in place. Copyright © 2006 The Authors Journal compilation © 2006 Crawford School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd..

Suggested Citation

  • Vlad Pavlov & Craig Sugden, 2006. "Aid and Growth in the Pacific Islands," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 20, pages 38-55, November.
    • Handle: RePEc:bla:apacel:v:20:y:2006:i::p:38-55
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    Cited by:

    1. Mohammed Elhaj Mustafa Ali & Manal Mahagoub Elshakh & Ebaidalla Mahjoub Ebaidalla, 2018. "Does Foreign Aid Promote Economic Growth in Sudan? Evidence from ARDL Bounds Testing Analysis," Working Papers 1251, Economic Research Forum, revised 13 Nov 2018.
    2. Bah, El-hadj M. & Ward, Jeremy, 2011. "Effectiveness of foreign aid in Small Island Developing States," MPRA Paper 32062, University Library of Munich, Germany.
    3. Balli, Faruk & Balli, Hatice O., 2011. "Income and consumption smoothing and welfare gains across Pacific Island Countries: The role of remittances and foreign aid," Economic Modelling, Elsevier, vol. 28(4), pages 1642-1649, July.
    4. Yongzheng Yang & Hong Chen & Shiu raj Singh & Baljeet Singh, 2013. "The Pacific Speed of Growth: How Fast Can It Be and What Determines It?," IMF Working Papers 2013/104, International Monetary Fund.
    5. Matthew Dornan & Jonathan Pryke, 2017. "Foreign Aid to the Pacific: Trends and Developments in the Twenty-First Century," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 4(3), pages 386-404, September.
    6. Patrick Guillaumont & Catherine Korachais & Julie Subervie, 2008. "Growth Oriented Macroeconomic Policies for Small Islands Economies: Lessons from Singapore," WIDER Working Paper Series RP2008-47, World Institute for Development Economic Research (UNU-WIDER).
    7. Terence Wood & Sabit Otor & Matthew Dornan, 2022. "Why are aid projects less effective in the Pacific?," Development Policy Review, Overseas Development Institute, vol. 40(3), May.
    8. Feeny, Simon & Iamsiraroj, Sasi & McGillivray, Mark, 2014. "Growth and Foreign Direct Investment in the Pacific Island countries," Economic Modelling, Elsevier, vol. 37(C), pages 332-339.
    9. Letasi Iulai, 2014. "Aid Volatility: Is It a Problem in Tuvalu?," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 1(2), pages 379-394, May.

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