Aid, Institutions, and Growth: Building Institutions Matters for Development Effectiveness

抄録

This study aims to revisit the controversial discussion of development effectiveness. I conducted a series of cross-country analyses of the impact of aid on growth, using sector level data of economic aid and social aid (unbalanced panel data of 183 growth spells in 60 countries during the late 1990s to the 2000s), in comparison with aggregate aid data. The originality of this study is its focus on institutional quality, and capacity in particular, as a key factor for aid effectiveness, unlike the exposition of previous studies, which emphasized the importance of policies as prerequisite conditions. Given the evidence that economic aid indeed promotes growth independent from policy or institutional conditions, this paper argues that past literatures often underestimated the impact of aid by using aggregate aid data. This study also reveals that impact of aid is significant in countries, whose institutional quality is improving, while the impact of aid is not necessarily depending on the initial conditions of institutional quality of a recipient country. These findings imply that even a country with low institutional quality has a possibility to achieve high growth, unlike the continuing debates on policy conditions for aid effectiveness. With emphasis on improvements in institutional quality, this study suggests providing aid packages with institution and capacity building schemes or projects would increase development effectiveness.