An Examination of the Empirical Literature of Aid Effectiveness and Government Fiscal Behavior

Scholarly Essay from the year 2010 in the subject Politics - Miscellaneous, , language: English, abstract: The issue behind the effectiveness of external finance has been studied from diverse perspectives. The question of whether external finance assists poor nations to develop in a sustained manner is still mired in controversy. Development assistance may be given to governments; but the effectiveness will crucially rely on their fiscal response. The relationship between the fiscal activities of the government and foreign aid is however, not straight forward, for the reason that some part of the development assistance is fungible. The preponderance proof from empirical literature on the effectiveness of aid proposes that external finance has not had a noteworthy influence on growth in most receiving nations. However, there are some proofs that external finance has had some significant impacts on development in most conducive policy climates. Most of the evidence concerning the correlation between aid and the key channels via which its influence on growth could flow on domestic saving and investment is mixed. This is because some indication shows that aid has had significant influence on investment and domestic saving in nations where adjustment efforts have been sustained.