Long Run Effects of Foreign Aid on Economic Growth

Abstract

This paper finds evidence of long run effects on a country’s per capita Gross Domestic Product (GDP) growth using a panel data set of 57 countries that received Official Development Aid (ODA) between 1970 and 2017. The results suggest a statistically significant “multiplier effect” that is sizable. Looking at foreign aid per capita the results suggests that policy makers can achieve a permanent 1% increase in per capita GDP growth by increasing per capita ODA by approximately $110. Similar results are found when using an alternative measure—ODA per Gross National Income—of foreign aid.