Aid and Growth at the Regional Level

September 3, 2015

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Axel Dreher, and Steffen Lohmann. Aid and Growth at the Regional Level, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper brings the aid effectiveness debate to the sub-national level. We hypothesize the nonrobust results regarding the effects of aid on development in the previous literature to arise due to the effects of aid being insufficiently large to measurably affect aggregate outcomes. Using geocoded data for World Bank aid to a maximum of 2,221 first-level administrative regions (ADM1) and 54,167 second-level administrative regions (ADM2) in 130 countries over the 2000-2011 period, we test whether aid affects development, measured as nighttime light growth. Our preferred identification strategy exploits variation arising from interacting a variable that indicates whether or not a country has passed the threshold for receiving IDA's concessional aid with a recipient region's probability to receive aid, in a sample of 478 ADM1 regions and almost 8,400 ADM2 regions from 21 countries. Controlling for the levels of the interacted variables, the interaction provides a powerful and excludable instrument. Overall, we find significant correlations between aid and growth in ADM2 regions, but no causal effects.

Subject: Agroindustries, Banking, Economic sectors, Foreign aid, National accounts, Personal income, Population and demographics, Population growth

Keywords: Africa, Agroindustries, Aid Effectiveness, Aid-growth regression, Central Asia, Effect of aid, Geo-coding, Global, Growth OLS, IDA threshold, IDA-threshold effect, Level of significance, Personal income, Population growth, Rainfall growth, South Asia, Term growth-effect, World Bank, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/196
Stock No:

WPIEA2015196
ISBN:

9781513514437
ISSN:

1018-5941

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