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Development Aid

“Izandla ziyagezana” - “Hands Wash Each Other”

the recipient's political connections to their donors (e.g. Bjørnskov 2013). None of these
strategies meets their goals.

Political motives of donors and aid
As we explain in Dreher et al. (2014), there are reasons to assume that the motive for

giving aid affects the outcome. Among them, favoured countries get approval for aid
projects of low quality that would not have been approved otherwise. What is more,
political interests can reduce the motivation of the donor and recipient to invest in

projects to make them most successful and to enforce the conditions that had been
attached to the aid.

The effect of aid in a difference-in-difference setting
The fourth, more recent group of studies tries to estimate the causal effect of aid in a

difference-in-difference setting. These studies predict aid based on a combination of
variables that affect the amount of aid a donor gives at a particular time and the
probability that such aid is allocated to a particular recipient country (netting out the

effect of aid amounts and the probability of receiving aid themselves). Werker et al.
(2009), for instance, make use of oil price fluctuations that substantially

increase the aid budgets of oil-producing Arab donors, in particular to Muslim countries.
Nunn and Qian (2012) use weather variation in the US and its effect on US-food

production as an exogenous shock on the domestic 'overproduction' that is being sent to
developing countries as food aid.

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Following the study by Nunn and Qian (2012), we proxy this probability with the share of

years a country has received aid over the sample period. We thus compare the effect of
aid on growth in regular and irregular recipients of aid as donor fractionalisation changes.
Our results show no effect of aid on growth. We provide a number of explanations.

 First, aid might simply not affect growth
 Second, aid or growth might not be measured precisely enough to capture the
relation between the two.

 Third, the effects of aid might be spread over different horizons, and the four-year
averages used in our analysis might be inadequate to capture these effects.

 Fourth, aid might be effective in some groups of countries but not in others, and
our pooled sample could hide such effects.
And finally, aid might be effective in raising growth in the specific sub-national regions the
aid is given to, but this development might be insufficiently large to affect growth at the

country-level.

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