Aid and Growth. Evidence from Firm-Level Data

Abstract

This paper explores the impact of foreign aid on firms growth for a panel of 5,640 firms in 29 developing countries, 11 of which in Africa. Using the World Bank Enterprise Surveys data and controlling for firms fixed effects, we find a positive impact of foreign aid on sales growth. This result is robust to various checks, notably to the instrumentation of aid. We then identify the main infrastructure obstacles to firms growth and examine whether foreign aid contributes to relaxing those constraints. We find that electricity and transport are perceived as important constraints which tend to decrease the growth rate of firms, as well as the utilization of their productive capacity. Evidence on the impact of aid on infrastructure obstacles suggests that total aid and aid to the energy sector tend to decrease electricity obstacles. We also show that transport aid projects, geo-localized at the region level, tend to decrease the transport obstacles.

How do Climate Shocks Affect the Impact of FDI, ODA and Remittances on Economic Growth?

“…We estimated these models with data from 64 low and middle-income countries ( 25 (Chauvet and Ehrhart, 2018).…”

Macroeconomic Effect of Foreign Aid

“…Other than the available statistics indicting foreign aids against development in Nigeria, empirical investigations into this issue have produced a mixed result. While findings from the works of Burnside and Dollar (2000); Chauvet and Ehrhart (2018); Harb and Hall (2018) present that foreign aid positively motivate growth and development, evidences from works of Djankov et al (2008) claim that foreign aid has a negative effect on institution and development in general. In fact, they assert that foreign aid is a bigger curse than oil in developing countries.…”