What is the Aggregate Economic Rate of Return to Foreign Aid?

From:: Department for International Development
Published: 1 January 2014

Document Type:: Working Paper
Theme:: Economic Growth
Authors:: Jones, S., Tarp, F., Arndt, C.

Abstract

Does foreign aid promote aggregate economic growth? In contrast to widespread perceptions, academic studies of this question have been rapidly converging towards a positive answer. We employ a simulation approach to (i) validate the coherence of recent empirics and (ii) calculate plausible ranges for the rate of return to aid. Our results highlight the long-run nature of aid investments and indicate the return to aid falls in ranges commonly accepted for public investments. We find no basis for the view that aid has a pernicious effect on productivity.

Citation

Arndt, C.; Jones, S.; Tarp, F. What is the Aggregate Economic Rate of Return to Foreign Aid? UNU-WIDER, Helsinki, Finland (2014) 29 pp. ISBN 978-92-9230-810-0 [WIDER Working Paper No. 2014/089]