Do Economic Policies Determine the Effectiveness of Foreign Aid?: An Empirical Review with Revised Data and Models

Thesis advisor: Robert G. MurphyEach year increasing levels of development assistance are provided to promote growth and reduce poverty in less developed countries. This is done, however, despite unresolved debates about the effectiveness of foreign aid. Investigating a new approach to the topic in 1999, Burnside and Dollar introduced a conceptual framework in which the effectiveness of aid is contingent on the economic and political policies of the countries receiving it. With its strong intuitive appeal, this hypothesis has attracted widespread attention, and yet the questions surrounding aid's effectiveness remain controversial. While the debate remains open-ended, this study reexamines Burnside and Dollar's specification with new and updated data and builds on their model with new econometric estimation techniques. Getting even a little closer to determining the true effects of foreign aid on developing countries is timely and valuable as calls and commitments for help are continuously rising.Thesis (BA) — Boston College, 2006.Submitted to: Boston College. College of Arts and Sciences.Discipline: International Studies.Discipline: College Honors Program