EMPIRICS OF FINANCIAL AID AND GROWTH
EMPIRICS OF FINANCIAL AID AND GROWTH

Summary/Abstract: In the way to reach millennium goals it was argued that aid should reduce poverty and help countries achieve targets. Aid, growth and good policy relate to distinguished debate for policymakers especially for developing countries (aid receivers) as aid is expected to generate growth. Objective of foreign financial aid is promotion of development and welfare. The study on effectiveness of aid on growth is numerous but with ambiguous results. Why ambiguous empirical results? Is it econometrics? The aim of this study is to examine the effectiveness of aid on growth empirically. Different results namely finding positive, negative or no effect of aid on growth, result because of lack of data and econometrics specifically model specification problems and endogeneity. Different theoretical definitions as well as different estimation techniques may not result with robust results. On grounds of ambiguous theoretical framework, inappropriate econometrics policy conclusions and recommendations are questionable.

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