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Sanjay Reddy and Ms. Camelia Minoiu
We analyze the growth impact of official development assistance to developing countries. Our approach is different from that of previous studies in two major ways. First, we disentangle the effects of two kinds of aid: developmental and non-developmental. Second, our specifications allow for the effect of aid on economic growth to occur over long periods. Our results indicate that developmental aid promotes long-run growth. The effect is significant, large and robust to different specifications and estimation techniques.
Sanjay Reddy and Ms. Camelia Minoiu

that aid is inherently ineffective and aid budgets should be reduced. On the contrary, an increase in aid and a change in its composition in favor of developmental aid are likely to create sizable returns in the long run. Further, by showing that donor characteristics may matter for aid effectiveness, the study calls into question the trend towards greater aid selectivity based on an exclusive focus on recipient countries’ characteristics (such as institutional characteristics and macroeconomic policies). At a minimum, the quality of the donor-recipient match may