This paper examines the link between foreign aid, economic growth, and welfare in a small open economy. External transfers impinge on the recipient's macroeconomic performance by affecting resource allocation decisions and relative prices. The endogeneity of the labor-leisure choice and the...

This paper examines the link between foreign aid, economic growth, and welfare in a small open economy. External transfers impinge on the recipient's macroeconomic performance by affecting resource allocation decisions and relative prices. The endogeneity of the labor-leisure choice and the...

This paper provides new empirical findings on the aid-growth relation. We find evidence for considerable asymmetry in the aid-growth relation; i.e., aid cuts have a large negative impact on economic activity, while increasing aid may be ineffective in promoting growth. Development aid thus...