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Abstract

Does external aid have an impact on economic growth, if so, through what channels? Does the domestic policy environment matter? In the past ten years, these questions have been the subject of a large number of empirical studies. This article surveys these studies and identifies the areas where there is consensus and those where there is not. It is argued that to move forward, empirical work must be based more explicitly on structural models of the link between aid and growth, notably by incorporating relationships between aid, government fiscal responses, private sector investment, and economic growth.

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