FOREIGN AID, GROWTH, POLICY AND REFORM

Whether good macroeconomic policy facilitates aid effectiveness in generating growth is a highly debated topic. In this paper we investigate if economic reform has a favorable effect on the aid-growth relation—specifically, if reform enhances the effect of aid on growth. In doing so, we also construct a new policy index and examine the robustness of the Burnside and Dollar (2000) ‘policy view'. The results indicate that although our new policy index and reform are both growth enhancing, they do not increase aid-effectiveness and aid seem to play no positive role in the picture.