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Does development aid help poor countries converge to our standard of living?

Author

Listed:
  • Herbertsson, Tryggvi Thor

    (Askar Capital, Reykjavík, Iceland)

  • Paldam, Martin

    (School of Economics and Management, University of Aarhus)

Abstract

Aid flows are included in the standard convergence equation and estimated using cross-country, panel and GMM regression. Robustness of the result is tested by changing the model and by adding extra variables. The main results are: that absolute convergence and absolute aid effectiveness are both rejected, and conditional convergence is accepted. Aid has an activity effect in the short run, but conditional aid effectiveness is found to be dubious. Finally, we try to divide the countries into an A-group where aid is effective and a B-group where it harms. Several criteria for division are explored, but none are really successful – the most satisfactory is the one that divides countries according to income.

Suggested Citation

  • Herbertsson, Tryggvi Thor & Paldam, Martin, 2007. "Does development aid help poor countries converge to our standard of living?," Nationaløkonomisk tidsskrift, Nationaløkonomisk Forening, vol. 2007(1), pages 188-214.
    • Handle: RePEc:hhs:jdaecn:0131
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    poverty; aid;

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General

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