This paper investigates the macroeconomic challenges created by a surge in aid inflows. It develops an analytical framework for examining possible policy responses to increased aid, in terms of absorption and spending of aid - where the central bank controls absorption through monetary policy...

This paper surveys 50 years of empirical research on the macroeconomic impact of aid, looking mainly at studies examining the link between aid and growth. It argues that studies dating until the late 1990s produced either contradictory or inconclusive results. Aid either worked, or it didn’t,...

The paper contributes to the empirics of aid and growth by taking a fresh look at the aid-policies-growth nexus emanating from the very influential but also debatable paper on the subject by Burnside and Dollar: ‘Aid, Policies and Growth’. We employ three different datasets (including the...

This study econometrically evaluates the short-run impact of aid in small developing countries (SDCs) by applying a VAR model to study aid's impact on 'absorption' (increasing import demand) and 'spending' (increased domestic demand) across countries. Whilst our approach allows parameters to...

The ultimate measure of aid effectiveness is how aid affects the lives of poor people in developing countries. The huge literature on aid’s macroeconomic impact has remarkably little to say on this topic, and less still in terms of practical advice to government officials and aid...