Foreign Assistance and Consumption Inequality: Does the Structure of Aid Matter?
a Kyiv School of Economics, Kyiv, Ukraine
Abstract

This paper uses a dataset of 75 countries covering 1960-2010 to examine whether foreign aid has any effect on consumption inequality. The variable of assistance is split into grants and loans – the central hypothesis being different non-linear impact of each on inequality – with the impact of loans being hump-shaped and grants “U”-shaped. The results corroborate the direction and the type of impact that foreign assistance has on inequality. In addition, the outcomes for quartile data subsets show that the relationships between foreign assistance and inequality differ depending on a country’s GDP per capita. However, the hypothesis regarding the influence of coup d’états hasn’t been confirmed.

3535
views
2140
downloads
Full Text
Citation
Cite as: Cheryba, N. (2020). Foreign Assistance and Consumption Inequality: Does the Structure of Aid Matter?. Visnyk of the National Bank of Ukraine, 249, 50-70. https://doi.org/10.26531/vnbu2020.249.04
Citation Format

Metrics
References

Aghion, P., Bolton, P. (1997). A theory of trickle-down growth and development. The Review of Economic Studies, 64(2), 151-172. https://doi.org/10.2307/2971707

Alesina, A., Rodrik, D. (1994). Distributive politics and economic growth. The Quarterly Journal of Economics, 109(2), 465-490. https://doi.org/10.2307/2118470

Arndt, C., Jones, S., Tarp, F. (2010). Aid, growth, and development have we come full circle? WIDER Working Paper Series, 96. Helsinki: UNU-WIDER. Retrieved from https://www.wider.unu.edu/sites/default/files/wp2010-96.pdf

Bandyopadhyay, S., Lahiri, S., Younas, J. (2013). Financing growth: foreign aid vs. foreign loans: nonlinearities and complementarities. Working Paper Series, 2013-031A. St. Louis: Federal Reserve Bank of St. Louis. https://doi.org/10.20955/wp.2013.031

Barro, R. J., Lee, J. W. (2013). A new data set of educational attainment in the world, 1950-2010. Journal of Development Economics, 104, 184-198. https://doi.org/10.1016/j.jdeveco.2012.10.001

Basu, K., Stiglitz, J. E. (2016). Inequality and growth: Patterns and policy. Concepts and Analysis, 1. International Economic Association Series. Palgrave Macmillan. http://hdl.handle.net/10986/24983

Bjørnskov, C. (2009). Do elites benefit from democracy and foreign aid in developing countries? Journal of Development Economics, 92(2), 115-124. https://doi.org/10.1016/j.jdeveco.2009.03.001

Boone, P. (1996). Politics and the effectiveness of foreign aid. European Economic Review, 40(2), 289-329. https://doi.org/10.1016/0014-2921(95)00127-1

Bourguignon, F., Levin, V., Rosenblatt, D. (2009). International redistribution of income. World Development, 37(1), 1-10. https://doi.org/10.1016/j.worlddev.2008.06.008

Bulow, J., Rogoff, K. (2005). Grants versus loans for development banks. American Economic Review, 95(2), 393-397. https://doi.org/10.1257/000282805774669727

Burnside, A. C., Dollar, D. (1998). Aid, the incentive regime, and poverty reduction. World Bank Policy Research Working Paper, 1937.

Chani, M. I., Jan, S. A., Pervaiz, Z., Chaudhary, A. R. (2014). Human capital inequality and income inequality: testing for causality. Quality & Quantity: International Journal of Methodology, 48(1), 149-156. https://doi.org/10.1007/s11135-012-9755-7

Chenery, H. B., Carter, N. G. (1973). Foreign assistance and development performance, 1960-1970. The American Economic Review, 63(2), 459-468. https://www.jstor.org/stable/1817109

Chong, A., Gradstein, M., Calderon, C. (2009). Can foreign aid reduce income inequality and poverty? Public Choice, 140(1), 59–84. https://doi.org/10.1007/s11127-009-9412-4

Collier, P., Dollar, D. (2001). Can the world cut poverty in half? How policy reform and effective aid can meet international development goals. World Development, 29(11), 1787-1802. https://doi.org/10.1016/S0305-750X(01)00076-6

Feenstra, R., Inklaar, R., Timmer, M. P. (2015). The next generation of the Penn World Table. American Economic Review, 105(10), 3150-3182. https://doi.org/10.1257/aer.20130954

Fiala, N. (2018). Returns to microcredit, cash grants, and training for male and female microentrepreneurs in Uganda. World Development, 105(C), 189-200. https://doi.org/10.1016/j.worlddev.2017.12.027

Fielding, D., McGillivray, M., Torres, S. (2006). A wider approach to aid effectiveness: Correlated impacts on health, wealth, fertility, and education. WIDER Working Paper Series, 023. http://hdl.handle.net/10419/63372

Galbraith, J. K. (2010). Inequality and economic and political change: a comparative perspective. Cambridge Journal of Regions, Economy and Society, 4(1), 13-27. https://doi.org/10.1093/cjres/rsq014

Gupta, S., Clements, B., Pivovarsky, A., Tiongson, E. (2004). Foreign aid and revenue response: Does the composition of aid matter? in Helping Countries Develop: The Role of Fiscal Policy by S. Gupta, B. Clements G. Inchauste, 385-406. Washington DC: International Monetary Fund.

Haggard, S., Kaufman, R. R. (2012). Inequality and regime change: Democratic transitions and the stability of democratic rule. American Political Science Review, 106(3), 495-516. https://doi.org/10.1017/S0003055412000287

Hansen, H., Tarp, F. (2000). Aid effectiveness disputed. Journal of International Development, 12(3). https://doi.org/10.1002/(SICI)1099-1328(200004)12:3<375::AIDJID657>3.0.CO;2-M

Hansen, H., Rants, L. L., Buhl-Wiggers, J. (2009). Do elites benefit from democracy and foreign aid in developing countries?: Comment. CREDIT Research Paper, 9(6). Nottingham: Centre for Research in Economic Development and International Trade. Retrieved from https://www.nottingham.ac.uk/credit/documents/papers/09-06.pdf

Herzer, D., Nunnenkamp, P. (2012). The effect of foreign aid on income inequality: Evidence from panel cointegration. Kiel Working Papers, 1762. Kiel: Kiel Institute for the World Economy (IfW). http://hdl.handle.net/10419/56382

Houle, C. (2016). Why class inequality breeds coups but not civil wars. Journal of Peace Research, 53(5), 680-695. https://doi.org/10.1177/0022343316652187

IFIAC. (2000). International financial institutions reform: report of the International Financial Institution Advisory Commission. Washington DC.

Keeley, B. (2012). From aid to development: The global fight against poverty. Paris: OECD Publishing.

Layton, T., Nielson, D. (2008). Aiding inequality: The effect of foreign aid on income inequality. Brigham Young University.

Lee, J.-W., Lee, H. (2018). Human capital and income inequality. ADBI Working Papers, 810. Japan: Asian Development Bank Institute. Retrieved from https://www.adb.org/publications/human-capital-and-income-inequality59

Masaki, T. (2016). Coups d’etat and foreign Aid. World Development, 79, 51-68. https://doi.org/10.1016/j.worlddev.2015.11.004

Morrissey, O., Islei, O., M'Amanja, D. (2006). Aid loans versus aid grants: Are the effects different? CREDIT Research Paper, 06/07. Nottingham: Centre for Research in Economic Development and International Trade.

Mosley, P., Hudson, J., Horrell, S. (1987). Aid, the public sector and the market in less developed countries. The Economic Journal, 97(387), 616-641. https://doi.org/10.2307/2232927

OECD. (2006). Promoting pro-poor growth. Key Policy Messages. Paris: Organisation for Economic Co-operation and Development. Retrieved from https://www.oecd.org/greengrowth/green-development/43514554.pdf

Pham, T. H. H. (2015). Income inequality and foreign aid. Working Papers, hal-01158240. https://hal.archives-ouvertes.fr/hal-01158240

Piketty, T., Saez, E. (2003). Income inequality in the United States, 1913-1998. The Quarterly Journal of Economics, 118(1), 1-41. https://doi.org/10.1162/00335530360535135

Psacharopoulos, G. (1994). Returns to investment in education: A global update. World Development, 22(9), 1325-1343. https://doi.org/10.1016/0305-750X(94)90007-8

Ravallion, M. (2014). Income inequality in the developing world. Science, 344, 6186, 851-855. https://doi.org/10.1126/science.1251875

Rosenstein-Rodan, P. N. (1961). International aid for underdeveloped countries. Review of Economics and Statistics, 43(2), 107-138. https://doi.org/10.2307/1928662

Sanford, J. E. (2002). World Bank: IDA loans or IDA grants? World Development, 30(5), 741-762. https://doi.org/10.1016/S0305-750X(02)00003-7

Shafiullah, M. (2011). Foreign aid and its impact on income inequality. International Review of Business Research Papers, 7(2), 91-105.

Stiglitz, J. E. (2012). The Price of Inequality: How Today's Divided Society Endangers Our Future. New York: W. W. Norton & Company.

UN. (2005). The millennium development goals. Progress Report. New York: United Nations. Retrieved from https://unstats.un.org/unsd/mi/pdf/MDG%20Book.pdf

World Bank. (2006). Equity and development. World Development Report. New York: The World Bank and Oxford University Press. Retrieved from http://documents1.worldbank.org/curated/en/435331468127174418/pdf/322040World0Development0Report02006.pdf

Rights and Permissions
This work is licensed under a Creative Commons Attribution 4.0 International License. The images or other third party material in this article are included in the article’s Creative Commons license, unless indicated otherwise in the credit line; if the material is not included under the Creative Commons license, users will need to obtain permission from the license holder to reproduce the material.
Submit Your Paper