Revisiting Effects and Strategies of Official Development Assistance (ODA), a Panel Analysis

Abstract

Since the 1960s there have been disputes among economists and international relations experts about the contribution of official development assistance (ODA) to recipient countries` economic development. Under the circumstances, this paper attempts to empirically examine the effects of ODA on the economic development of developing countries. To this end, this paper conducted a panel data analysis of 117 countries categorized as aid recipients since 1980 under the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD). Among several models, the best fitmodel (a fixed effects model with autocorrelation) was identified. The model shows what factors affect the relationship between ODA and economic development. Further, the interaction between ODA and national transparency reveals an interesting finding: once national transparency rises over a certain level (i.e., critical level 2.288 in the analysis of this study) in a recipient nation, ODA`s effect on the nation`s economic development reaches its upper limit. This paper also examined the ODA`s economic effectiveness according to the income levels of recipient nations. For example, for middle-income nations, ODA, national transparency, and education level were all found to positively influence national economic development. Moreover, this study categorized aid recipient countries into four groups according to their levels of national transparency and income, and suggested differentiated ODA approaches for each type.

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