Galiani, SebastianKnack, StephenXu, Lixin ColinZou, Ben2014-05-142014-05-142014-05https://hdl.handle.net/10986/18338The literature on aid and growth has not found a convincing instrumental variable to identify the causal effects of aid. This paper exploits an instrumental variable based on the fact that since 1987, eligibility for aid from the International Development Association (IDA) has been based partly on whether or not a country is below a certain threshold of per capita income. The paper finds evidence that other donors tend to reinforce rather than compensate for reductions in IDA aid following threshold crossings. Overall, aid as a share of gross national income (GNI) drops about 59 percent on average after countries cross the threshold. Focusing on the 35 countries that have crossed the income threshold from below between 1987 and 2010, a positive, statistically significant, and economically sizable effect of aid on growth is found. A one percentage point increase in the aid to GNI ratio from the sample mean raises annual real per capita growth in gross domestic product by approximately 0.35 percentage points. The analysis shows that the main channel through which aid promotes growth is by increasing physical investment.en-USCC BY 3.0 IGOABSOLUTE VALUEAFRICAN DEVELOPMENT BANKAGGREGATE LEVELAIDAID ALLOCATIONAID FLOWSANNUAL GROWTHANNUAL RATEAVERAGE ANNUALAVERAGE GROWTHAVERAGE GROWTH RATEAVERAGE LEVELAVERAGE SHAREBANKING CRISISBENCHMARKBILATERAL AIDBILATERAL DONORSCIVIL LIBERTIESCONDITIONAL CONVERGENCECOUNTRY CHARACTERISTICSCOUNTRY DUMMYCOUNTRY LEVELCOUNTRY NAMECOUNTRY SPECIFICCOUNTRY-SPECIFIC EFFECTSCROSS COUNTRYCROSS-SECTIONAL DATADATA MODELDEBTDENSITY FUNCTIONDEPENDENT VARIABLEDEVELOPED COUNTRIESDEVELOPING COUNTRIESDEVELOPMENT AIDDEVELOPMENT ASSISTANCEDEVELOPMENT COOPERATIONDEVELOPMENT ECONOMICSDEVELOPMENT INDICATORSDEVELOPMENT ISSUESDEVELOPMENT POLICYDEVELOPMENT RESEARCHDYNAMIC PANELDYNAMIC PANEL MODELSECONOMETRIC MODELSECONOMETRICSECONOMIC GROWTHECONOMIC REVIEWECONOMIC STUDIESECONOMICSEMPIRICAL GROWTH MODELEMPIRICAL LITERATUREEMPIRICAL MODELEMPIRICAL RESEARCHEMPLOYMENT EQUATIONSENDOGENOUS VARIABLEENDOGENOUS VARIABLESERROR TERMERROR TERMSESTIMATED COEFFICIENTESTIMATED COEFFICIENTSEXCHANGE RATESEXOGENOUS CHANGESEXPLANATORY VARIABLEFIXED EFFECTSFIXED EFFECTS ESTIMATORFOOD AIDFOREIGN AIDFUNCTIONAL FORMGDPGDP DEFLATORGDP PER CAPITAGROSS DOMESTIC PRODUCTGROWTH DETERMINANTSGROWTH EQUATIONGROWTH LITERATUREGROWTH MODELSGROWTH RATEGROWTH RATESGROWTH REGRESSIONSHISTORICAL DATAHUMAN DEVELOPMENTHUMANITARIAN AIDIDA ELIGIBILITYINCOME DATAINCOME DISTRIBUTIONINCOME LEVELINCOME LEVELSINCOMESINFLATIONINFLATION RATESINTERNATIONAL DEVELOPMENTINVENTORYINVESTMENT RATELAGGED DEPENDENTLAGGED VALUELAGGED VALUESLESS DEVELOPED COUNTRIESLONG RUNLOW-INCOME COUNTRIESMACROECONOMICSMARGINAL EFFECTMEASUREMENT ERRORMEASUREMENT ERRORSMONEY SUPPLYNATIONAL ACCOUNTSNATIONAL INCOMENEGATIVE GROWTH0 HYPOTHESISOFFICIAL DEVELOPMENT ASSISTANCEPER CAPITA GROWTHPER CAPITA GROWTH RATEPER CAPITA INCOMEPOINT ESTIMATEPOINT ESTIMATESPOLICY DISCUSSIONSPOLICY RESEARCHPOLITICAL RIGHTSPOOR COUNTRIESPOSITIVE EFFECTPOSITIVE EFFECTSPOSITIVE IMPACTPOSITIVE SHOCKSPOWER PARITYPRIMARY SCHOOL ENROLMENTPRIVATE SECTORPURCHASING POWERREAL GDPREGRESSION SAMPLESENSITIVITY ANALYSISSERIAL CORRELATIONSIGNIFICANT DIFFERENCESSIGNIFICANT EFFECTSIGNIFICANT EVIDENCESTANDARD DEVIATIONSTRUCTURAL ADJUSTMENTSTRUCTURAL CHANGEWEALTHWORLD DEVELOPMENT INDICATORS10.1596/1813-9450-6865