Aid to the rescue
The Economist - 08/14/2014
In a paper published in 2011 Markus Brückner, then of the University of Adelaide, estimates the impact of aid on 47 countries between 1960 and 2000. Donors tend to give less to faster-growing countries, he says, which can produce a negative correlation between growth and aid. By looking at periods when severe weather and dramatic shifts in commodity prices had big impacts on growth, Mr Brückner identified variations in foreign aid that were not driven by changes in income per person. He found that a 1% rise in foreign aid lifted growth in income per person by about 0.1 percentage points.
Osborne Jackson of Northeastern University in Massachusetts looked at instances of donors boosting aid across the board when one of the countries they are assisting suffers a natural disaster (thus, the windfall in countries spared the disaster is not linked to economic growth). He concluded that aid increases household consumption, which spurs growth in the short term, but not in the long run. A study by the World Institute for Development Economics Research has reviewed all peer-reviewed papers on aid and growth published since 2008. It concludes that the evidence that aid boosts growth is itself growing rapidly.