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What are the links between aid volatility and growth?

Author

Listed:
  • Anil Markandya
  • Vladimir Ponczek
  • Soonhwa Yi

    (University of Bath, UK
    Sao Paulo School of Economics - EESP/FGV, Brazil
    The World Bank, Singapore)

Abstract

Recent literature has debated possible adverse impacts of aid volatility on a country's economic performance. Our paper adds to this literature in three ways: First it tests the validity of the aid volatility and growth relationship from various aspects: across time horizons, by sources of aid, and by aid volatility interactions with country characteristics. Second, it investigates the relationship by the level of aid absorption and spending. Third, when examining the relationship between IDA aid volatility and growth, it isolates IDA aid volatility due to the recipient country's performance from that due to other sources. Our findings suggest that, in the long run, on average, aid volatility is negatively correlated with real economic growth. But the relationship is not even. It is stronger for sub-Saharan African countries than for other regions and it is not present in middle income countries or countries with strong institutions.

Suggested Citation

  • Anil Markandya & Vladimir Ponczek & Soonhwa Yi, 2011. "What are the links between aid volatility and growth?," Journal of Developing Areas, Tennessee State University, College of Business, vol. 44(2), pages 41-68, January-M.
    • Handle: RePEc:jda:journl:vol.44:year:2011:issue2:pp:41-68
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    Citations

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    Cited by:

    1. Qiaoqiao Liu & Zenggang Li, 2022. "Aid instability, aid effectiveness and economic growth," Development Policy Review, Overseas Development Institute, vol. 40(1), January.
    2. Mark K. Armah, 2024. "The effect of central bank credibility on economic growth and output volatility in inflation targeting regime," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 26(2), pages 619-640, August.
    3. Agénor, Pierre-Richard & Aizenman, Joshua, 2010. "Aid volatility and poverty traps," Journal of Development Economics, Elsevier, vol. 91(1), pages 1-7, January.
    4. Hasanuzzaman Zaman & Mashfique Ibne Akbar, 2013. "Exploring non-traditional sources of development finance: The case of remittance in Bangladesh," Progress in Development Studies, , vol. 13(2), pages 105-116, April.
    5. Pierre-Richard Agénor & Nihal Bayraktar, 2020. "Aid Volatility, Human Capital, and Growth," Journal of Human Capital, University of Chicago Press, vol. 14(3), pages 401-448.
    6. Petr Blizkovsky & Roman Emelin, 2020. "The Impact of Official Development Assistance on the Productivity of Agricultural Production in Ghana, Cameroon and Mali," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 12(2), June.

    More about this item

    Keywords

    Aid; volatility; growth; IDA;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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