1. Aid, Policies and Growth Craig Burnside and David Dollar The American Economic Review September, 2000 AZIRIA Lemya & EL MALLAKH Nelly

2. Outline I. Introduction II. Empirical Model III. Data Sources IV. Regression Results V. Conclusion AZIRIA Lemya & EL MALLAKH Nelly

3. Introduction Objective : Examine the relationships among foreign aid, economic policies and growth of per capita GDP. New hypothesis about aid: Aid affects growth but its impact is conditional on the same policies that affect growth. Key questions: Is the effect of aid on growth conditional on economic policies? Do donor governments and agencies allocate more aid to countries with good policies? AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

4. Empirical Investigation: New database of foreign aid developed by the World Bank. 3 sets of equations: Growth equation Aid equation (as share of GDP) Government consumption equation (as share of GDP) Main Results: Aid might have more impact on growth in the developing world if allocated toward good policy environment. However donors were not favoring good policy environments in their allocations. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

5. Empirical Model AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion Litterature review: Keith Griffin (1970), Thomas E. Weisskopf (1972), Hollis B. Chenery and Moises Syrquin (1975), Paul Mosley et al. (1987), and Victor Levy (1988): on the impact of aid on savings, investment and growth in developing countries. New contribution of Burnside and Dollar : introduction of the interaction term between aid and policies.

6. Growth equation: Captures convergence effects. Captures the effect of macroeconomic policy  Dummy for trade openness developed by Sachs and Warner (1995).  Inflation as a measure of monetary policy developed by Fischer (1993).  Two Fiscal variables suggested by Easterly and Rebelo (1993): budget surplus and government consumption. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

7. Captures the effect of institutional and political factors  A measure of institutional quality developed by Stephen Knack and Phillip Keefer (1995).  A measure of ethnologistic fractionalization developed by Easterly and Levine (1997).  Measure of civil unrest by the assassinations variable.  Proxy for the development of financial system, level of broad money (M2) over GDP, developed by G. King and Levine (1993). Dummies for sub-Saharan Africa and East Asia. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

8. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion Aid equation : It also includes a number of other variables:  The logarithm of population.  Group of variables that capture donors' strategic interests. dummy variables for sub- Saharan Africa, the Franc zone, Egypt and Central American countries.  Measure of arms imports relative to total imports lagged one period.

9. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

10. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion Data Sources: The World Bank Debt Reporting System that contains all the official loans received by the developing countries from multilateral and bilateral sources. Data is converted into constant 1985 dollars using the unit value of imports price index from International Financial Statistics. Divide the aid by real GDP in constant 1985 prices from the Summers and Heston (1991). All : 56 countries, 270 observations. Low income : 40 countries, 189 observations.

11. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion Summary Statistics:

12. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion Results:

13. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

14. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

15. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

16. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

17. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

18. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion

19. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion On average aid has had a little impact on growth. Aid had a more positive impact on growth in good policy environment. No significant tendency for total aid or bilateral trade to favor good policy. Aid managed multilaterally (one third of the total) is allocated in favor of good policy. Bilateral aid is stronly positively correlated with government consumption.

20. AZIRIA Lemya & EL MALLAKH Nelly Introduction Empirical Model Data Sources Regression Results Conclusion Making aid conditional on the quality of policies would increase its impact on developing countries growth. Marked trend toward better policy among poor countries. Thus the climate for effective aid is improving while the amount of aid diminishes.

21. Thank you! AZIRIA Lemya & EL MALLAKH Nelly