Types of Foreign Aid
Most studies treat aid flows as a unitary concept with a standard result that aid does not affect long-run economic growth or development. This chapter argues that the standard finding may be misleading if different types of aid have different effects. To alleviate this problem, I use factor analysis to separate aid flows into different types observed in the data, interpretable as aid for economic purposes, social purposes, and a smaller category consisting of reconstruction aid; a residual category covering approximately 2% of all aid captures the remaining purposes. Estimating the growth effects of separable types of aid suggests reconstruction aid has direct and sizeable positive effects. Aid for economic, social or residual purposes has no significant effects.
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