Foreign aid and economic growth in the developing countries - a  (Page 6/21)

In a recent paper, Easterly, Levine and Roodman (2003) conduct a new test on the previous work of Burnsideand Dollar (1997). With a larger sample size (1970 to 1997 compared to BD’s 1970-1993), they find that the result is not as robust asbefore and therefore claim that the question of aid effectiveness is still inconclusive.

In short, the results of research on the relation between aid and growth vary depending upon the models,data and countries of analysis. Therefore, the debate over the impact of aid on growth is on-going and left open to furtherstudy.

Chapter III

Sampled Countries and Regional Characteristics

In my data set, there are 39 countries from different regions of various continents. Among them, there are 5countries from East Asia, 3 from South Asia, 2 from Europe and Central Asia, 13 from Latin America&the Caribbean, 5 from Middle East&North Africa, and 11 from Sub-Saharan Africa. Moreover, 7 out of these 39 countries are inland (or landlocked)ones, namely Benin, Bolivia, Botswana, Jordan, Mali, Paraguay and Rwanda. Appendix 2 and Appendix 3 provide brief regional profileand country information respectively.

Developing countries share the following common characteristics (i) low standards of living, characterizedby low incomes, large inequality, poor health, and inadequate education (ii) low levels of productivity (iii) high rate ofpopulation growth and dependency burdens (iv) substantial dependence on agricultural production and primary-product export(v) prevalence of imperfect market and limited information and (vi) subordination, dependence and vulnerability in internationalrelations (Todaro and Smith, 2003). Appendix 1 shows the percentage of population living below the poverty line (US$1 per day) indifferent regions of the developing world from 1987 to 1998. South Asia and the Sub-Saharan Africa account for the largest proportionof poor people in the world, 40.0% and 46.3% respectively in 1998. East Asia&the Pacific and South Asia performed very well in poverty reduction over this period, while Sub-Saharan and LatinAmerican countries made very little improvements.

Geography, along with economic and political institutions, really matters for economic development. Each regionhas characteristics that contribute to its economic performance. Europe and East Asia have benefited from their favorable climateand population distribution. Sub-Saharan Africa has a high concentration of land in the tropics, high population in theinterior and low population in coastal regions. South Asia, Eastern Europe and the former Soviet Union have more population in theinterior than along the coasts. South Asia is partly tropical and the most densely populated region in the world whereas thetransition economies are non-tropical and least densely populated. Latin America is highly tropical with low population density andmoderately coastal population. Inland countries are traditionally believed to grow slower than other countries due to thedisadvantages in transportation and international trade access. Nowadays railroads, automobiles, air transport andtelecommunications have reduced the advantages of coastlines relative to hinterlands, but the advantages of sea-based traderemain (Gallup, Sachs and Mellinger, 1999). Therefore, it is interesting to examine how the geographical features affect theaid-growth relation in developing countries.