Date of Award

12-2009

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Dr. Eskander Alvi

Second Advisor

Dr. Debasri Mukherjee

Third Advisor

Dr. Ajay Gupta

Abstract

This dissertation studies how foreign aid impacts poverty and economic growth and addresses three interrelated issues: whether aid reduces poverty, how aid affects economic growth, and whether the poverty mitigating role of aid depends on the levels of poverty.

The first essay, "Does Foreign Aid Reduce Poverty?" examines the direct effects of foreign aid on poverty in developing countries using dynamic panel estimation techniques. The results suggest that aid has a significant poverty reducing effect even after controlling for average income. The findings are robust to model specification and estimation techniques. The policy implication is that poverty reduction can be enhanced by concentrating on the direct channels via which aid alleviates poverty. We also find that the composition of aid matters—multilateral aid reduces poverty whereas bilateral aid does not, and grants do better in reducing poverty compared to loans.

The second essay, titled "Foreign Aid and the Sources of Growth," evaluates the effects of aid on sources of growth; capital accumulation and total factor productivity (TFP). This approach is different in that it focuses on efficiency changes resulting after the disbursement of aid. Interestingly, we find contradictory effects of aid; while aid boosts investments, it adversely affects TFP. These findings suggest that despite the strong positive association between aid and investment, the efficiency losses resulting from aid undermine the overall effects of aid on growth.

In the third essay, "Foreign Aid, Growth and Poverty Relationship: Quantile Regression Approach," we extend the analysis of the aid-growth-poverty relationship by using quantile regression, which enables us to estimate the impact of growth and growth enhancing policies at different points in the distribution of poverty. We find that the response of poverty reduction to growth in average income and other growth enhancing policies decreases at higher levels of poverty. These results are robust to the consideration of endogeneity of aid and use of alternative measures of poverty, poverty gap and squared poverty gap.

Access Setting

Dissertation-Open Access

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