Foreign Aid and Economic Development

This literature review focuses on research studies that correlate the effects of aid on the macroeconomic development of countries in the third world. I undertake the review to assess whether researchers have strongly established, based on empirical evidence, that there is any link, whether positive or negative, between aid and economic growth. The Introduction section provides a more detailed rationale for this review. In the subsequent sections, I provide a short description of the econometric models commonly used by researchers in establishing the relationship between aid and growth. I also discuss the body of research that I have looked into, their basic features, general conclusions and some key criticisms against them. I devote a separate section identifying the gaps I observed in the current research and finally conclude that although there is a wealth of research done on the impact of foreign aid on growth, these appear to be inconclusive due to methodological problems.