Content area
Full Text
ABSTRACT
This paper investigates the impact of foreign aid on human development as measured by the human development index (HDI). We apply quantile regression approach for the data from 124 developing countries covering the period 1980 to 2013. The findings show that in general, aid is positively associated with the human development index. The impact is much greater in countries with low level of human development. Similarly, we find statistically positive impact of aid on HDI income, health, and education indices. The results imply that since aid is positively related with HDI, and HDI is universally accepted as a quantitative measure of human development, then aid can significantly contribute to promoting human welfare.
JEL Classification: O40, F21, F35
Key words: Foreign aid, Human development index, Quantile regression
(ProQuest: ... denotes formulae omitted.)
1.INTRODUCTION
For a number of decades, foreign aid has been considered as an important tool rich countries can use for helping to promote better living condition in developing countries. It is argued that aid is an important tool in promoting growth, alleviating poverty, and improving welfare. The majority of studies have empirically examined the effectiveness of aid in promoting economic growth in recipient countries (e.g., Papanek, 1973; Boone, 1996; Burnside and Dollar, 2000; Gomanee, Girma and Morrissey, 2005; Burke and Ahmadi-Esfahani, 2006). However, limited work has been done to assess the effectiveness of aid in promoting human development in recipient countries. We believe that the utmost importance of foreign aid should be to improve the standard of living in recipient countries. Based on this viewpoint, we are interested in exploring how lives are improved when foreign aid is received. We use the human development index (HDI) to capture the quality of human life in terms of life expectancy, education level and income level. These are the most important factors in determining the standard of living. Therefore, it is more important to consider HDI rather than just looking at economic growth in analyzing the effectiveness of foreign aid.
Aid can be linked with human development because of its role in supplementing the domestic resource gap thereby financing public investment in social services directly linked with life of the people. For instance, foreign aid can be used to finance investment in the education and...