Aid and Growth Evidence from Firm-level Data

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