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How sustainable is the macroeconomic impact of foreign aid?

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  • Feeny, Simon
  • Fry, Tim R.L.

Abstract

This paper examines how long the impact of foreign aid on growth lasts in recipient countries. An econometric technique is adopted which recognises that the impact of aid in the current year is a function not just of the current aid received but also of the aid received in previous years. Results indicate that foreign aid has a half-life of two years. In other words, half of the total impact of aid on growth is experienced within two years of its disbursement. Aid loans are found to have longer half-lives than their grant counterparts. Policy implications are discussed.

Suggested Citation

  • Feeny, Simon & Fry, Tim R.L., 2014. "How sustainable is the macroeconomic impact of foreign aid?," Journal of Policy Modeling, Elsevier, vol. 36(6), pages 1066-1081.
    • Handle: RePEc:eee:jpolmo:v:36:y:2014:i:6:p:1066-1081
    DOI: 10.1016/j.jpolmod.2014.11.001
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    Cited by:

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    2. Muhammad Athar Nadeem & Zhiying Liu & Haji Suleman Ali & Amna Younis & Muhammad Bilal & Yi Xu, 2020. "Innovation and Sustainable Development: Does Aid and Political Instability Impede Innovation?," SAGE Open, , vol. 10(4), pages 21582440209, November.
    3. Gnangnon, Sèna Kimm & Brun, Jean-François, 2018. "Is the impact of development aid on government revenue sustainable? An empirical assessment," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 311-325.
    4. Annen, Kurt & Batu, Michael & Kosempel, Stephen, 2016. "Macroeconomic effects of foreign aid and remittances: Implications for aid effectiveness studies," Journal of Policy Modeling, Elsevier, vol. 38(6), pages 1136-1146.

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