The Effect of Aid on Growth: Evidence from a Quasi-Experiment
Sebastian Galiani, Stephen Knack, Lixin Colin Xu and Ben Zou
,
Working Paper
March
2015
Abstract
The literature on aid and growth has not found a convincing instrumental variable to identify the causal effects of aid. In this paper we exploit an instrumental variable based on the fact that since 1987, a major criterion for IDA (International Development Association) eligibility has been whether or not a country is below a certain threshold of per capita income. We find evidence that other donors tend to reinforce rather than compensate for reductions in IDA aid following threshold crossings.