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Foreign aid, poverty reduction, and democracy

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  • B. Mak Arvin
  • Francisco Barillas

Abstract

Eradication of poverty is the most pervasive goal of donors' foreign aid programmes. As a result, there has been much research on the degree of correlation between aid and poverty reduction. However, this work to date has shed little light on the direction of causation between the two variables. Using the method of Granger causality, and conditioning aid and poverty on the state of democracy in developing countries, this study asks whether aid flows impact poverty, whether poverty influences aid flows, or whether causality proceeds in both directions simultaneously. While the results identify no causal relationships in some of the sub-samples, they point to the existence of a multitude of relationships across others.

Suggested Citation

  • B. Mak Arvin & Francisco Barillas, 2002. "Foreign aid, poverty reduction, and democracy," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2151-2156.
    • Handle: RePEc:taf:applec:v:34:y:2002:i:17:p:2151-2156
    DOI: 10.1080/00036840210136718
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    References listed on IDEAS

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    1. Collier, Paul & Dollar, David, 2001. "Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet International Development Goals," World Development, Elsevier, vol. 29(11), pages 1787-1802, November.
    2. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    3. Burnside, Craig & Dollar, David, 1998. "Aid, the incentive regime, and poverty reduction," Policy Research Working Paper Series 1937, The World Bank.
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    Cited by:

    1. Simplice A. Asongu & Jacinta C. Nwachukwu, 2017. "Foreign Aid and Inclusive Development: Updated Evidence from Africa, 2005–2012," Social Science Quarterly, Southwestern Social Science Association, vol. 98(1), pages 282-298, March.
    2. Munyanyi, Musharavati Ephraim & Awaworyi Churchill, Sefa, 2022. "Foreign aid and energy poverty: Sub-national evidence from Senegal," Energy Economics, Elsevier, vol. 108(C).
    3. Simplice Asongu, 2016. "Reinventing Foreign Aid For Inclusive And Sustainable Development: Kuznets, Piketty And The Great Policy Reversal," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 736-755, September.
    4. Dhahri, Sabrine & Omri, Anis, 2020. "Foreign capital towards SDGs 1 & 2—Ending Poverty and hunger: The role of agricultural production," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 208-221.
    5. Asongu, Simplice, 2014. "A brief clarification to the questionable economics of foreign aid for inclusive human development," MPRA Paper 64458, University Library of Munich, Germany.
    6. Simplice A. Asongu, 2014. "Reinventing foreign aid for inclusive and sustainable development: a survey," Research Africa Network Working Papers 14/033, Research Africa Network (RAN).
    7. Arvin, B. Mak & Kayani, Zafar, 2009. "Donor Motivation of Inter-Temporal Foreign Assistance to Nepal," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 5(1-2), pages 1-10, March.
    8. Ma. Cecilia Calderón & Alberto Chong, 2006. "¿Contribuye la ayuda extranjera a reducir la desigualdad del ingreso?," Research Department Publications 4438, Inter-American Development Bank, Research Department.
    9. Pedrosa-Garcia, Jose Antonio, 2016. "Does Foreign Aid Reduce Poverty? Evidence from Niger," MPRA Paper 91753, University Library of Munich, Germany.
    10. Simplice A. Asongu & Joseph I. Uduji & Elda N. Okolo-Obasi, 2020. "Foreign aid volatility and lifelong learning," International Journal of Education Economics and Development, Inderscience Enterprises Ltd, vol. 11(4), pages 370-406.
    11. Calderón, María Cecilia & Chong, Alberto E. & Gradstein, Mark, 2006. "Foreign Aid, Income Inequality, and Poverty," IDB Publications (Working Papers) 1939, Inter-American Development Bank.
    12. Herzer, Dierk & Nunnenkamp, Peter, 2012. "The effect of foreign aid on income inequality: Evidence from panel cointegration," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 245-255.
    13. Asongu Simplice, 2014. "The Evolving Debate on the Effect of Foreign Aid on Corruption and Institutions in Africa," Working Papers of the African Governance and Development Institute. 14/009, African Governance and Development Institute..
    14. Furqan Sikandar & Vasilii Erokhin & Hongshu Wang & Shafiqur Rehman & Anna Ivolga, 2021. "The Impact of Foreign Capital Inflows on Agriculture Development and Poverty Reduction: Panel Data Analysis for Developing Countries," Sustainability, MDPI, vol. 13(6), pages 1-22, March.
    15. Simplice A. Asongu Ph.D & Joseph Nnanna, . "Foreign Aid And Sustainable Inclusive Human Development In Africa," Journal of Economic and Sustainable Growth 2, Office Of The Chief Economist, Development Bank of Nigeria.
    16. Ahmed Raza ul MUSTAFA* & Mohammad NISHAT**, 2017. "ROLE OF SOCIAL PROTECTION IN POVERTY REDUCTION IN PAKISTAN: A Quantitative Approach," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 27(1), pages 67-88.
    17. Sabrine Dhahri & Anis Omri, 2020. "Does foreign capital really matter for the host country agricultural production? Evidence from developing countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(1), pages 153-181, February.
    18. Lukasz Marc, 2014. "The Causal Links between Aid and Government Expenditures," Tinbergen Institute Discussion Papers 14-012/V, Tinbergen Institute.
    19. Sèna Kimm Gnangnon, 2022. "Does Poverty Matter for Tax Revenue Performance in Developing Countries?," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 7-38, June.
    20. B. Mak ARVIN & Zafar KAYANI & Marisa A. SCIGLIANO, 2009. "Environmental Aid and Economic Development in the Third World," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 9(1).
    21. Edmore Mahembe & Nicholas Mbaya Odhiambo, 2021. "Does foreign aid reduce poverty? A dynamic panel data analysis for sub-Saharan African countries," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(4), pages 875-893, December.
    22. Edmore Mahembe & Nicholas Mbaya Odhiambo, 2019. "Foreign aid, poverty and economic growth in developing countries: A dynamic panel data causality analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1626321-162, January.
    23. Ma. Cecilia Calderón & Alberto Chong, 2006. "Does Foreign Aid Help Reduce Income Inequality?," Research Department Publications 4437, Inter-American Development Bank, Research Department.
    24. Sabrine Dhahri & Anis Omri, 2020. "Are international capital flows really matter for achieving SDGs 1 and 2: ending poverty and hunger?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(4), pages 731-767, November.

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