The Politics of Foreign Aid: A Positive Contribution to Asian Economic Growth?

Abstract

Whether a positive relationship exists between foreign aid and economic development is debatable. Supporters of foreign aid argue that aid money can translate into economic growth, while skeptics suggest that aid cannot lead to prosperity due to poor management of aid funds. In this paper, we examine the effect of foreign aid by investigating 26 developing countries of Asian Development Bank. The quantitative evidences suggest that direct link betweenforeign aid and economic development is weak. However, aid receiving countries in Asia are more likely to realize better economic growth if they areless corruptive and with higher education quality, which increase the likelyhood of using the aid money in a wiser way. In addition, trade liberalization, considered as a critical engine for domestic economic growth seems to dampen the economic development in development countries.