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Aid Effectiveness Theory

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2.2.4 Theories
A large number of studies on aid effectiveness exists and continues to emerge as the topic is by no means a new one. These studies have presented strong contradictions over the years but serve as an important step in clarifying the issue on aid effectiveness. The literature on aid-growth linkages started during the 1960s with the rising question of whether aid works is it beneficial and under what conditions is aid expected to be beneficial. “There are some periods when assessing aid effectiveness becomes particularly intensive which coincide with cycles of doubt on the efficacy of aid as an instrument of foreign development” (Kanbur, 2003, p 15).

The most influential work along these lines is the one by Burnside and Dollar …show more content…

However, some evidence that aid has had positive effects when the policy environment has been conducive to growth. Regarding the relationships between aid and the main channels through which its impact on growth could flow - investment and domestic saving – the evidence is mixed, with some indication that aid has had a positive impact where adjustment efforts have been sustained. In a World Bank (1998) study that sorted 56 aid receiving countries by the quality of their economic management, it was found that those with good policies (low inflation, a budget surplus and openness to trade) and good institutions (little corruption, strong rule of law, effective bureaucracy) benefited from the aid they received. Those with poor policies and institutions did not. (Aryeetey, …show more content…

Whether elite exists or not is yet to be proven, however, Boone (1996) and Adam and O.Connell (1999) used a similar theoretical framework to show that an "elitist" political regime will waste foreign aid, meaning that it will allocate aid to consumption instead of investment. In the models of Svensson (2000) and Economides et al. (2004), vaguer outcomes are present where the rent-seeking behavior of parts of the population increases when the amount of funds that can be appropriated is enlarged by aid funds. This shifts meaningful resources away from productive use and is likely to result in a net loss for the

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