The Effect of Grants and Loans on the Economic Growth of Asian Countries

Abstract

Purpose - This paper investigates the effect of grants and loans on the economic growth of Asian countries during the period from 2000-2014 and, it disaggregates the panel data into East and South Asian (ESA) countries and Central Asian (CA) countries. Design/methodology/approach - This study examines the Barro-type growth framework using dynamic and static panel data techniques including the System Generalized Method of Moments (GMM-SYS) and the Fixed Effect (FE) model. Findings - The estimation results indicate that neither grants nor loans have a statistically significant impact on economic growth in the Asian countries as well as the CA countries during the sample period. However, for the ESA countries, grants have a positive and significant effect on growth, while loans do not have a statistically significant effect. Grants are effective particularly in the ESA countries with a high degree of civil liberties. Research implications or Originality - This empirical result implies that the growth effect of grants in the ESA countries differs depending on the level of civil liberties (CL), which supports the Fiodendji and Evlo (2013) hypothesis.