Growth effect of foreign aid and volatility in South Asia
International Journal of Development Issues
ISSN: 1446-8956
Article publication date: 20 September 2011
Abstract
Purpose
South Asia has been an important destination of foreign aid over the past decades. Since a large part of aid is disbursed for social and economic infrastructure development in South Asian countries, and the volume of aid has tremendously increased in recent years, the purpose of this study is to investigate how far various categories of foreign aid affects economic growth rate in these countries. In addition, as the trend of each category of aid transfer appears to have been volatile, this study also investigates whether the volatilities inhibit growth rate in these countries.
Design/methodology/approach
In this study, South Asia refers to India, Bangladesh, Pakistan and Sri Lanka. The Random effects approach is employed incorporating panel data for the period of 1995‐2008. The aggregate foreign aid is classified into various categories to have a comprehensive investigation.
Findings
Foreign aid positively associated with growth whereas the volatility of aid hurts it. Long‐impact aid promotes growth more than short‐impact aid does. The volatility of short‐impact aid hurts growth, whereas the volatility of long‐impact aid has no effect on it. Pure aid and its volatility have no effect on growth.
Originality/value
This study has identified the structure of foreign aid disbursed in these countries, and explored how far each category and respective volatility affects growth. These findings would be useful to the scholars and policy makers in the recipient countries as well as donors, to make foreign aid much more effective in future.
Keywords
Citation
Bhavan, T., Xu, C. and Zhong, C. (2011), "Growth effect of foreign aid and volatility in South Asia", International Journal of Development Issues, Vol. 10 No. 3, pp. 204-213. https://doi.org/10.1108/14468951111165340
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited