Aid and growth

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: The Millennium Development Goals were initiated to make countries take action for reduced poverty and better living standards for the poor and vulnerable in the world. One of the goals includes increasing Official Development Assistance to 0.7 percent of GDP. Only a few countries fulfill this and there are doubts whether aid reduces poverty and promotes growth or not. In this paper aid has been analyzed with multiple linear regression by researching the impact of the independent variable Average ODA during 1999-2003 on the dependent variable Average growth in GDP per capita during 2004-2008. The results did not show sufficient evidence that ODA promotes growth, as impact is either very small or not significant. However, results do not show negative impact of aid on growth and it is possible that results will change with increased variables. According to macroeconomic theory ODA should spur growth and research must continue in this field. Official developmental assistance can have positive effects on growth, it should be combined with other types of aid, from for example NGOs and the Millennium Development Goals needs to be taken in to consideration when allocating aid.

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