Aid and Growth in India: Some Evidence from Disaggregated Aid Data

Abstract

The article focuses on the impact of aid on growth by using a new approach in the aid-effectiveness literature related to the composition of foreign aid. We present a model of the impact of aid on growth in an aid-recipient economy to derive a reduced-form growth equation, which is subsequently estimated by using time- series data for India over the period 1970-92. The paper improves upon earlier work in the area of aid effectiveness by focusing on a neglected, though important issue, namely the aid-disaggregation and the way it affects the empirics of aid effec tiveness. Disaggregated aid data has been constructed by the OECD to test the rel evance of the aid-disaggregation hypothesis to aid effectiveness for India. Furthermore, the paper employs modern time-series econometric analysis based on general-to-specific modelling and co-integration to shed more light on a highly debatable topic. The empirical results obtained seem to suggest that the composi tion of aid matters for deriving robust conclusions on aid effectiveness in the case of India; at the same time, they seem to call for further work in this promising area within the context of more individual country studies.