Growth effect of aid and its volatility: An individual country study in South Asian economies

Abstract

This paper empirically investigates the growth effect associated with aid and its volatility during the period 1995-2008 in the case of five South Asian economies. The aid is classified into short impact, long impact and humanitarian aid. We obtained results for each of the country by employing two-stage least squares method. The results suggest that gross aid is positively associated with growth rate where as its volatility negatively effects growth rate South Asian countries. Short impact and long impact aid positively effect on growth rate whereas respective aid volatilities have negative affects on all the economies, excluding at least one country in each case. Humanitarian aid and its volatility have mixed results. Thus, we come to a conclusion that, aid and aid volatility have strong association with growth rate in the South Asian countries, but varies considerably from country to country in terms of magnitude of effect and in relation to the growth rates.