Washington, DC — The Center for Global Development has released a new study that examines the growth effects of short-impact aid - such as infrastructure building, agricultural or industry support, and financial assistance - in developing countries.
"The concept here is to think carefully about what is realistically possible over a four-year time period," said Steven Radelet, the study's lead author, "and not to try to measure the impact of all aid over the four-year period, because a lot of aid can't be measured in that brief period."
The study found a positive, causal relationship between short impact aid and economic growth over a four-year period. In addition, the analysis of growth rates in Sub-Saharan Africa shows that increasing short-impact aid would increase growth by about one percentage point over standard aid flows.
The positive growth impact is large, according to study authors. When looking only at short-impact aid, $1 in aid provides an $8 output in economic measures in a typical country. The study authors argue that past research is flawed because it combines multiple types of aid, without considering different kinds of aid goals.
For example, emergency and humanitarian aid is provided for catastrophic events, and growth will not be present during such events. Instead, countries reeling from conflict or natural disasters usually experience a contraction of the economy.
The study also did not consider long-term aid. Aid provided to enhance democracy - such as training the media or judiciary - are not designed to increase economic growth, and aid provided to the educational system will not produce economic growth until the first students graduate into the workforce.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
When these types of aid are removed from consideration, the results show a strong relationship between short-impact aid and economic growth. However, Radelet cautions policy makers that long-impact aid is not addressed in the study.
"Aid does not work the same in all countries," he said, "and we make no statement on, and do not attempt to measure, any long-run effects of aid."
Additional results show that the impact on growth is somewhat larger in countries with stronger institutions or longer life expectancies, but countries with higher debt payments have less growth. Countries in the tropics appear to have a two percent lower growth rate than other developing nations. The study also found diminishing returns to growth over time and as aid increases.
To read the report in its entirety, please visit the Center for Global Development's website
