Does Development Aid Help Poor Countries Catch Up?

Aid flows are included into the standard cross-country catch-up relation. Robustness of the result is tested by changing time periods and by adding extra variables. The main results are: Absolute convergence and absolute aid effectiveness are both rejected. While conditional convergence is accepted, conditional aid effectiveness is found to be weak. The two relations are largely independent. However, aid has a clear activity effect in the short run. Finally, we try to divide the countries into an A-group where aid is effective and a B-group where it harms. Several criteria of division were explored, but none were very successful – the most satisfactory is the one that divides countries according to their level of development.

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