The Impact of Development Aid on Education and Health: Survey and New Evidence for Low-income Countries from Dynamic Models

Abstract

This paper has four messages. First, a literature review shows that panel data models including lagged dependent variables lead to statistically significant, favourable results for at least one form of aid unless only commitment data are used. Second, in our own analysis, we find that growth rates or levels of aid per capita have statistically significant, favourable effects on growth rates rather than on levels of life expectancy and illiteracy. Third, for the growth rate of illiteracy, we find a strong role of polynomial distributed lags, helping to explain the great diversity of aid results found in the literature. Fourth, in simulations, both effects are small in terms of growth rates in the short run but cumulate over time to non-negligible amounts. Copyright © 2016 John Wiley & Sons, Ltd.

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