In 2012, the top-flight Economic Journal published an article by my former CGD colleagues about the impact of foreign aid on economic growth in receiving countries. It is called Counting Chickens When They Hatch: Timing and the Effects of Aid on Growth (ungated version on cgdev.org). The journal’s publisher, the Royal Economic Society, awarded the authors its annual prize for best article. I think you’ll see why, if you read the paper. It’s sharply written and firmly argued, yet judicious in its conclusions.
Those conclusions are that “aid inflows are systematically associated with modest, positive subsequent growth”; and that “the most plausible explanation is that aid causes some degree of growth in recipient countries, although the magnitude of this relationship is modest, varies greatly across recipients and diminishes at high levels of aid.”
One of my first projects at CGD was to assist Bill Easterly and Ross Levine in replicating and questioning (ungated) an older paper favoring the theory that aid causes growth. Perhaps this baptism into econometrics permanently converted me to skepticism. Perhaps it merely reinforced my distrust as a mathematician of a structural tendency in the social sciences to use equations full of Greek letters to claim objectivity and superior insight. At any rate, I’ve doubted such aid-growth studies ever since.
Here is a comment that explains why I’m not persuaded by “Counting Chickens.” A version of this comment has been accepted for the new replication section of the Public Finance Review. Here is the code needed to reproduce the results. It runs off the CRBB data sets.
Perhaps the authors of “Counting Chickens” will respond. And perhaps they will change my mind. For now, this paper represents the state of my understanding.