Effectiveness of foreign aid in Small Island Developing States

El-hadj Bah and Jeremy Ward

MPRA Paper from University Library of Munich, Germany

Abstract: Global flows of Official Development Assistance are large and there is a large literature devoted to testing the effectiveness of these large flows. While among the poorest and the top recipients of foreign aid, Small Island Developing States (SIDS) are usually left out in the aid effectiveness literature. This paper seeks to remedy this by testing the main conditionality models of the literature using a sample of 37 SIDS. We also specify a new model that best fit the data for these countries. The general result is that aid has a positive and significant effect on growth in a number of specifications. However, we do not find supporting evidence that aid is effective only in countries with good policies or there is a threshold above which it has diminishing returns. Instead, we find, in our preferred specification, that aid is effective in the presence of sufficiently good governmental and social institutions.

Keywords: Foreign aid; Small Island Developing States; Aid effectiveness (search for similar items in EconPapers)
JEL-codes: O11 O19 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-dev
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:32062

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