Aid and Growth: What Does the Cross-Country Evidence Really Show?

You only have to look at the eastern part of Germany to see that even with very helpful institutions and a transfer of resources that was equal to the value of the western German economy at the time of unification in 1990, there has been a struggle for the eastern part of the country to reach the level of output of the western part of the country.

Aid and Growth: What Does the Cross-Country Evidence Really Show?: "We examine the effects of aid on growth--in cross-sectional and panel data--after correcting for the bias that aid typically goes to poorer countries, or to countries after poor performance. Even after this correction, we find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings, which relate to the past, do not imply that aid cannot be beneficial in the future. But they do suggest that for aid to be effective in the future, the aid apparatus will have to be rethought. Our findings raise the question: what aspects of aid offset what ought to be the indisputable growth enhancing effects of resource transfers? Thus, our findings support efforts under way at national and international levels to understand and improve aid effectiveness. "