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Analysis: New research suggests that development aid does foster growth—but at what cost?

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The Economist 27 August 2014

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A study by the World Institute for Development Economics Research has reviewed all peer-reviewed papers on aid and growth published since 2008. It concludes that the evidence that aid boosts growth is itself growing rapidly.

Whether that extra growth constitutes good value for money is another question. Unfortunately, there have been few studies of the cost-effectiveness of aid. A forthcoming analysis by Chris Doucouliagos of Deakin University and Martin Paldam of Aarhus University of 141 studies published between 1970 and 2011 finds that the average estimated effect of aid on growth is positive and statistically significant, but so small that it may not be terribly meaningful. Advocates of freer trade or more liberal immigration regimes contend that the economic benefits of such measures for poor countries far outweigh those of aid. Supporters of the 0.7% target can take comfort in the growing evidence that aid boosts growth; but they have more work to do to demonstrate that it boosts it by more, and at lower cost, than the alternatives.


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