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Aid is good for the poor

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  • Hirano, Yumeka
  • Otsubo, Shigeru

Abstract

Aid is good for the poor. This paper uses detailed aid data spanning 60 developing countries over the past two decades to show that social aid significantly and directly benefits the poorest in society, while economic aid increases the income of the poor through growth. This new and unequivocal finding distinguishes the current study from past studies that only utilized aggregate aid data and returned ambiguous results. The paper also confirms that none of the elements of globalization (trade, foreign direct investment, remittances), policies (government expenditure, inflation management), institutional quality, nor other plausibly pro-poor factors have systematic effects on the poor or any other income group, beyond their effects on average incomes. The paper finds that trade and foreign direct investment tend to benefit the richest segments of society more than other income groups. Therefore, the presented evidence suggests that aid can play a crucial role in enabling the poor to benefit more from globalization. These discoveries underscore the need to assist developing countries to find the mix of economic and social aid that jointly promotes the participation of the poor in the development process under globalization. In this manner, aid can make greater strides in spurring development.

Suggested Citation

  • Hirano, Yumeka & Otsubo, Shigeru, 2014. "Aid is good for the poor," Policy Research Working Paper Series 6998, The World Bank.
    • Handle: RePEc:wbk:wbrwps:6998
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    References listed on IDEAS

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    2. 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.
    3. Waśniewski, Krzysztof, 2014. "The future of aid is in building legitimation," MPRA Paper 60071, University Library of Munich, Germany.
    4. Philip Akrofi Atitianti & Samuel Kofi Asiamah & Benedict Arthur & John Archison Duku, 2024. "Does Aid Improve Local Wealth? Micro‐Level Evidence from Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(5), pages 2372-2392, July.
    5. 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.
    6. Kristine Hermanrud & Indra de Soysa, 2017. "Lazy thinking, lazy giving? Examining the effects of Norwegian aid on forests in developing countries," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 20(1), pages 19-41, March.

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