Aid and income: Another time-series perspective

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Abstract

This study provides a replication of the empirical results reported by Nowak-Lehmann, Dreher, Herzer, Klasen, and Martínez-Zarzoso (2012) (henceforth NDHKM). We uncover that NDHKM relied on a regression model which included a log transformation of variables that are not strictly positive. This led to nonrandom omission of a large proportion of observations. Furthermore, we show that NDHKM’s use of co-integrated regressions is not a suitable empirical strategy for estimating the causal effect of aid on income. Evidence from a Panel VAR model estimated on the dataset of NDHKM, suggests a positive and statistically significant long-run effect of aid on income.

Details

Original languageEnglish
Pages (from-to)19-30
JournalWORLD DEVELOPMENT
Volume69
Publication statusPublished - 2015
MoE publication typeA1 Journal article-refereed

    Research areas

  • foreign aid, growth, time-series, VAR models

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