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What can the fiscal impact of aid tell us about aid effectiveness

Briefing/policy papers

Most development economists believe that aid fosters economic growth, and thus poverty reduction. This belief is founded on repeated econometric studies on panel data sets which show that aid makes a positive contribution, after controlling for other non-policy factors. The question of whether good policies are required
to make aid effective is controversial. Hansen and Tarp (2000), Lensink and White (2001) and Morrissey (2001) find that aid assists growth independently of policies, contradicting Burnside and Dollar (2000) who found that aid was only effective in interaction with policy.