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Ethnic Fractionalization and Aid Effectiveness

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  • Roland Hodler & David S. Knight
Abstract
We test the hypothesis that the effect of foreign aid on economic growth is positive in ethnically homogenous countries, but decreasing in ethnic fractionalization. Using panel data covering 114 aid recipient countries over the period 1962 to 2001, and employing two-stage least squares and GMM estimation techniques, we find strong support for this hypothesis. Our estimates suggest that foreign aid may have retarded economic growth in many fractionalized countries, most of which are located in Sub-Saharan Africa.

Suggested Citation

  • Roland Hodler & David S. Knight, 2009. "Ethnic Fractionalization and Aid Effectiveness," Department of Economics - Working Papers Series 1082, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1082
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    References listed on IDEAS

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    Cited by:

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    2. Jinyang Cai & Zuting Zheng & Ruifa Hu & Carl E. Pray & Qianqian Shao, 2018. "Has International Aid Promoted Economic Growth in Africa?," African Development Review, African Development Bank, vol. 30(3), pages 239-251, September.
    3. Yonatan Dinku & Dereje Regasa, 2021. "Ethnic Diversity and Local Economies," South African Journal of Economics, Economic Society of South Africa, vol. 89(3), pages 348-367, September.

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    More about this item

    Keywords

    Foreign aid; ethnic fractionalization; economic growth;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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