Aid and Growth at the Regional Level

This paper brings the aid effectiveness debate to the sub-national level

From:
Department for International Development
Published
9 December 2015
Document Type:
Journal Article
Theme:
Economic Growth
Authors:
Dreher, A., Lohmann, S.

Abstract

This paper brings the aid effectiveness debate to the sub-national level. The authors 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. Their 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, they find significant correlations between aid and growth in ADM2 regions, but no causal effects.

This work is part of the ‘Macroeconomics in Low-income countries’ programme

Citation

  • Dreher, A.; Lohmann, S. Aid and Growth at the Regional Level. International Monetary Fund, Washington DC, USA (2015) 29 pp. [IMF Working Paper 15/196]

  • Axel Dreher, Steffen Lohmann, Aid and growth at the regional level, Oxford Review of Economic Policy, Volume 31, Issue 3-4, AUTUMN-WINTER 2015, Pages 420–446, https://doi.org/10.1093/oxrep/grv026

Published 9 December 2015
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