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DECTI Trade Seminar: On the Simultaneity Problem in the Aid and Growth Debate

 
Location:   MC2-436
Begins:   Oct 19, 2010 09:30
Ends:   Oct 19, 2010 11:00
Contact Person:   Yasmin D Souza

SpeakerMarkus Brueckner, Pompeu Fabra University

Abstract: This paper shows that foreign aid has a signicant positive average effect on real per capita GDP growth if, and only if, the quantitatively large negative reverse causal effect of per capita GDP growth on foreign aid is adjusted for in the growth regression. Instrumental variables estimates yield that a 1 percentage point increase in GDP per capita growth decreased foreign aid by over 4 percent. Adjusting for this quantitatively large, negative reverse causal effect of economic growth on foreign aid yields that a 1 percent increase in foreign aid increased real per capita GDP growth by around 0.1 percentage points.




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