A Sensitivity Analysis Approach on the Effect of Foreign Aid on Growth

There is a huge body of literature on the relationship between aid and economic growth using all kinds of econometric techniques, however, little work is done on whether these econometric results are robust to changes in critical parameters included in the model or changes in model specifications. The empirical evidence that foreign aid helps or hurts economic growth is dubious at best despite the intuitive reasoning of both proponents and opponents of foreign aid. Whatever cogent theoretical reasons may be given in support of one perspective or another, the empirical results do not clarify the issue one way or the other. The ambiguity and the inconclusiveness of the empirical results demand a new approach. Using a robust approach and a novel econometric practice, this paper adds a new dimension into the current debate and tries to address the shortcomings of the literature and the nature of the conflicting findings in the literature. [PUBLICATION ABSTRACT]