A new working paper from the National Bureau of Economic Research (NBER), entitled Aid and Growth: What Does the Cross-Country Evidence Really Show? (NBER Working Paper No. 11513), finds little evidence that foreign aid has ever stimulated economic growth in the recipient country.

[C]o-authors Raghuram Rajan and Arvind Subramanian conclude that regardless of the situation — for example, in countries that have adopted sound economic policies or improved government institutions — or the type of assistance involved, aid does not appear to stimulate growth over the short or long term. They point out that their exhaustive analysis should not be taken as an argument that aid cannot ever help the growth of countries that receive it, only that there is no discernible robust impact of aid on growth, positive or negative in the past.

The authors looked at data from the period 1960 through 2000. They analysed the data by decade, kind of aid (food, sector-targeted, etc.), source of aid (bi-lateral or multi-lateral), socio-economic policies adopted in the recipient country, etc.

In all of these analyses, Rajan and Subramanian were unable to find a consistent, discernible impact of aid on economic conditions in the recipient country. The authors emphasise that their findings do not mean that aid cannot be beneficial in the future, only that this does not seem to have been the case in the past. They call for further research into why aid has not proven effective and how aid effectiveness can be improved.

This post is based on the extended non-technical summary in the February 2006 issue of the NBER Digest. The full paper costs US$5 for an electronic copy.