NBER WORKING PAPER SERIES

NEW DATA, NEW DOUBTS:

A COMMENT ON BURNSIDE AND DOLLARS
AID, POLICIES, AND GROWTH (2000)
William Easterly
Ross Levine
David Roodman
Working Paper 9846
http://www.nber.org/papers/w9846
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
July 2003

We are grateful to Craig Burnside for supplying data and assisting in the reconstruction of previous results,
without holding him responsible in any way for the work in this paper. Thanks also to Francis Ng and
Prarthna Dayal for generous assistance with updating the Sachs-Warner openness variable, and to 3
anonymous referees, Craig Burnside, and Henrik Hansen for helpful comments. The views expressed herein
are those of the authors and not necessarily those of the National Bureau of Economic Research
2003 by William Easterly, Ross Levine, and David Roodman. All rights reserved. Short sections of text
not to exceed two paragraphs, may be quoted without explicit permission provided that full credit including
notice, is given to the source.

New Data, New Doubts: A Comment on Burnside and Dollars Aid,

Policies, and Growth (2000)
William Easterly, Ross Levine, and David Roodman
NBER Working Paper No. 9846
July 2003
JEL No. F35, O40, O11, O23
ABSTRACT
The Burnside and Dollar (2000, AER) finding that aid raises growth in a good policy environment
has had an important influence on policy and academic debates. We conduct a data gathering
exercise that updates their data from 1970 -93 to 1970 -97, as well as filling in missing data for the
original period 1970 -93. We find that the Burnside and Dollar (2002, AER) finding is not robust
to the use of this additional data.
William Easterly
New York University
Center for Global Development
and Institute for International Economics
william.easterly@nyu.edu

David Roodman
Center for Global Development
droodman@cgdev.org

Ross Levine
Finance Department, Room 3-257
Carlson School of Management
University of Minnesota
321 19th Avenue South
Minneapolis, MN 55455
and NBER
rlevine@csom.umn.edu

I. Introduction
In an extraordinarily influential paper, Burnside and Dollar (2000, p. 847) find that
aid has a positive impact on growth in developing countries with good fiscal, monetary, and
trade policies but has little effect in the presence of poor policies. This finding has enormous
policy implications. The Burnside and Dollar (2000, henceforth BD) result provides a role and
strategy for foreign aid. If aid stimulates growth only in countries with good policies, this
suggests that (1) aid can promote economic growth and (2) it is crucial that foreign aid be
distributed selectively to countries that have adopted sound policies. International aid agencies,
public policymakers, and the press quickly recognized the importance of the BD findings.1

This paper reassesses the links between aid, policy, and growth using more data. The BD
data end in 1993. We reconstruct the BD database from original sources and thus (1) add
additional countries and observations to the BD dataset because new information has become
available since they conducted their analyses and (2) extend the data through 1997. Thus, using
the BD methodology, we reexamine whether aid influences growth in the presence of good
policies.

Given our focus on retesting BD, we do not summarize the vast pre-BD literature on aid
and growth. We just note that there was a long and inconclusive literature that was hampered by
limited data availability, debates about the mechanisms through which aid would affect growth,
and disagreements over econometric specification (See, Papanek, 1972; Cassen, 1986; Mosley et
al., 2001; Boone, 1994, 1996; and Hansen and Tarps 2000 review).

See, for instance, the World Bank (1998, 2002a, b), the U.K. Department for International Development (2000),

President George W. Bushs speech (March 16, 2002), the announcement by the White House on creating the
Millennium Challenge Corporation (White House 2002), as well as the Economist (March 16, 2002), a Washington
Post editorial (February 9, 2002), and a Financial Times column by Alan Beattie (March 11, 2002).

Since BD found that aid boosts growth in good policy environments, there have been a
number of other papers reacting to their results, including Collier and Dehn (2001), Collier and
Dollar (2001), Dalgaard and Hansen (2001), Guillaumont and Chauvet (2001), Hansen and Tarp
(2001), and Lensink and White (2001). These papers conduct useful variations and extensions
(some of which had already figured in the pre-BD literature), such as introducing additional
control variables, using non-linear specifications, etc. Some of these papers confirm the message
that aid only works in a good policy environment, while others drive out the aid*policy
interaction term with other variables. This literature has the usual limitations of how to choose
the appropriate specification without clear guidance from theory, which often means there are
more plausible specifications than there are data points in the sample.
We differentiate our paper from these others by NOT deviating from the BD
specification. Thus, we do not test the robustness of the results to an unlimited number of
variations, but instead maintain the BD methodology. This paper conducts a very simple
robustness check by adding new data that were unavailable to BD. Thus, we expand the sample
used over their time period and extend the data from 1993 to 1997.
II. Robustness checks on the aid-policy-growth relationship
BDs preferred specification is a growth regression with several control variables
common to the literature, plus terms for the amount of international aid provided to a country
(Aid), an index of the quality of the policy environment (Policy), and an aid-policy interaction
term (Aid*Policy). As control variables, BD include the logarithm of initial Gross Domestic
Product per capita (Log initial GDP), a measure of ethnic fractionalization (Ethnic), the rate of
political assassinations (Assassinations), the interaction between ethnic fractionalization and
political assassinations (Ethnic*Assassinations), regional dummy variables for Sub-Saharan
Africa and fast-growing East Asian countries (Sub-Saharan Africa and Fast-growing E. Asia
respectively), an index of institutional quality (Institutional Quality), and a measure of financial
depth (M2/GDP lagged). The BD policy index, Policy, is constructed from measures of budget
balance, inflation, and the Sachs-Warner openness index. This specification corresponds to
2

regression 5 (all developing countries) and 8 (low income countries only) in the BD paper. In
Table 1, we first show regression 5 from BD using ordinary least squares (OLS). The sample
here is middle-income and low-income developing countries, and five outliers are omitted. These
are the five outliers omitted by BD. We reproduce exactly their results in column (1).
Since BD exclude observations that they consider outliers and since we want to follow
the BD methodology as closely as possible, we adopt the Hadi method for identifying and
eliminating outliers as we add new data. The Hadi method measures the distance of data points
from the main body of data and then iteratively reduces the sample to exclude distant data points.
Critically, when we apply the Hadi method to the BD data, we confirm their results. We will
continue to use the Hadi procedure in all the regressions in this paper except where we explicitly
note otherwise. In the spirit of the original BD methodology, we choose a Hadi significance level
of 0.05 that excludes only a handful of outliers (between 5 and 11). (See Table 2.) Note,
however, that keeping the outliers in the regressions does not change this papers conclusion.
To test the robustness of the BD results, we undertook an extensive data gathering
exercise. We collected annual data on all the variables in the BD sample. We went back to the
original sources and reconstructed the entire database and extended the data through 1997. As
part of this exercise, we updated the Sachs and Warner openness index. To construct the policy
index, we follow the BD regression procedure and we always include the budget balance,
inflation, and Sachs-Warner openness as components of Policy. In addition to extending the
sample through to 1997, we were able to expand the original BD data. For example, we found
broader coverage on International Country Risk Guide institutional quality for 1982 by using the
original source of the data. Considering both the cross-section and the time series expansion, we
have increased the sample size from their original 275 observations in 56 countries to 356
observations in 62 countries (before excluding outliers). An appendix describing the
methodology is presented below. The data are available at www.cgdev.org. Although our data
did not match up exactly with theirs (there are inevitably data revisions, where values change,
new data become available, and some values are reclassified as missing), the correlations are all
above 0.95 within their sample, except for budget balance, which is 0.92., and institutional
3

quality, which is 0.90. Moreover, we were able to reproduce their results with our data when
we restrict the sample to their time period and their countries as discussed below.
The BD results do not hold when we use new data that includes additional countries and
extends the coverage through 1997. The aid*policy interaction term enters insignificantly when
using data from 19701997 (Column 2). Not only that, but the coefficient on the aid*policy term
changes markedly, turning negative, with a t-statistic of 1.09. Figure 1 shows both the partial
scatter plot of the original BD sample between growth and aid*policy and the partial scatter plot
using our new, expanded data. As shown, the positive relationship between growth and
aid*policy vanishes when using new data. In these analyses, we continue to use the Hadi method
for eliminating outliers since this method reproduced the original BD results. However, when we
do not use Hadi and run the results on the full sample, we again find that the aid*policy variable
enters insignificantly (we will show these results below).
We perform the same exercise with BD regression 8 for the sample of low income
countries (also following them in omitting outliers). BD note that low income countries might be
a preferred sample to detect the effects of aid, and indeed their aid-policy interaction term is
significant in both OLS and two-stage least squares (2SLS) in their regression 8. In order to
check the robustness of the estimates of the instrumental variables estimates, we do the exercise
in two-stage least squares as shown in columns (3) and (4) of Table 1. We use the same set of
instruments as BD. We are again able to reproduce their results with our dataset (see Table 2
below).
The aid*policy term is insignificant in their regression 8 when we simply add all the data
for low-income countries that we can collect for 197093 and the data for 199497 (column 4).
The coefficient not only becomes insignificant, but changes sign. Our sample is 52 observations
larger than the BD sample for regression 8.
The fragile results on aid effectiveness remain evident when varying the sample. For
brevity, table 2 shows only the aid*policy coefficients, t-statistics, and number of observations
4

for OLS and 2SLS for regressions 5 and 8 for various combinations of sample periods, country
samples, and when including and excluding outliers. We reproduce statistical significance when
restricting our data to the Burnside-Dollar sample period and sample of countries, though the
coefficient sizes are larger when using the new data. The significance of the relationship
between growth and the aid*policy interaction term vanishes, however, if we relax either the
sample period constraint or the country selection constraint for either regression 5 or 8 (i.e. the
whole sample and only the low income sample). The significance vanishes for both OLS and
2SLS in either regression, for using their countries but the whole period sample or for their
sample period but all countries, and for samples excluding outliers and for samples including
outliers. Not only does significance vanish, but the magnitude of the coefficient changes greatly
across the different permutations.
The only significant coefficient out of our various permutations was for OLS for
regression 8 (the low income sample) using the Burnside-Dollar countries for the full sample
period. Since this is one significant coefficient at the 5 percent level out of twenty permutations,
we do not think this provides strong support for the robustness of the Burnside-Dollar results.
We tried all of these same exercises for the other aid*policy regressions that BD report in
the paper. Burnside and Dollar found the aid*policy term to be significant and positive when
they did NOT exclude outliers but added another term aid2*policy (which was significant and
negative). Their results were significant in OLS for the whole sample and the low income
sample, but not in 2SLS, so we report only the OLS results. We are able to reproduce their
results with our dataset using their sample period and sample of countries (Table 3). When we
try these specifications with our expanded dataset, the previous pattern holds: the aid-policy
interaction term is not robust to the use of new data, including various permutations of period
and country selection. In our full sample and in some of the other permutations, the coefficients
on the aid*policy and aid2*policy reverse sign from the BD results
Thus, the result of our paper is as follows: adding new data creates new doubts about the
BD conclusion. When we extend the sample forward to 1997, we no longer find that aid
5

promotes growth in good policy environments. Similarly, when we expand the BD data by
using the full set of data available over the original BD period, we no longer find that aid
promotes growth in good policy environments. Our findings regarding the fragility of the aidpolicy-growth nexus is unaffected by excluding or including outliers.
We also experimented with alternative definitions of aid and good policies, as well as
trying different period lengths (from annual data all the way up to the cross-section for the full
sample). These exercises (available upon request) did not change our conclusion about the
fragility of the aid*policy term the aid-policy term is not robust to alternative equally plausible
definitions of aid and policy, or to alternative period lengths.

III. Conclusions
This paper reduces the confidence that one can have in the conclusion that aid promotes
growth in countries with sound policies. The paper does not argue that aid is ineffective. We
make a much more limited claim. We simply note that adding additional data to the BD study of
aid effectiveness raises new doubts about the effectiveness of aid and suggests that economists
and policymakers should be less sanguine about concluding that foreign aid will boost growth in
countries with good policies. We believe that BD should be a seminal paper that stimulates
additional work on aid effectiveness, but not yet the final answer on this critical issue. We hope
that further research will continue to explore pressing macroeconomic and microeconomic
questions surrounding foreign aid, such as whether aid can foment reforms in policies and
institutions that in turn foster economic growth, whether some foreign aid delivery mechanisms
work better than others, and what is the political economy of aid in both the donor and the
recipient.

Table 1: Testing the robustness of Burnside and Dollar panel regressions 5 and 8 to
more data (dependent variable: growth of GDP/capita)
Regression
1
2
3
4
All developing countries,
Only low income countries,
Sampling universe:
outliers omitted
outliers omitted
Burnside-Dollar
Regression:
Regression 5, OLS
Regression 8, 2SLS
new data
set, full
BD data, BD new data set,
BD data, BD
sample,
Right-hand side
sample,
sample, 1970
full sample,
197097
variable:
197093
93
197097
Aid
-0.02
0.20
-0.24
-0.16
(-0.26)
(0.13)
(0.75)
(-0.89)
Aid * policy
0.19**
-0.15
0.25*
-0.202
(-0.65)
(2.61)
(-1.09)
(1.99)
Log initial GDP per
capita
-0.60
-0.40
-0.83
-1.214*
(-2.02)
(-1.02)
(-1.06)
(-1.02)
Ethnic
-0.42
-0.01
-0.67
-0.745
(-0.82)
(-0.57)
(-0.02)
(-0.76)
Assassinations
-0.45
-0.37
-0.76
-0.693
(-1.68)
(-1.68)
(-1.43)
(-1.63)
Ethnic *
Assassinations.
0.79
0.18
0.63
0.69
(0.78)
(1.74)
(0.29)
(0.67)
Sub-Saharan Africa
-1.87*
-1.68**
-2.11**
-1.204
(-1.79)
(-2.41)
(-3.07)
(-2.77)
Fast-growing E. Asia
1.31*
1.18*
1.46
1.009
(1.40)
(2.19)
(2.33)
(1.95)
Institutional quality
0.69**
0.31*
0.85**
0.375*
(2.46)
(3.90)
(2.53)
(4.17)
M2/GDP lagged
0.01
0.00
0.03
0.014
(1.00)
(0.84)
(0.16)
(1.39)
Policy
0.71**
1.22**
0.59
1.613**
(2.93)
(3.63)
(5.51)
(1.49)
Observations
270
345
184
236
R-squared
0.39
0.33
0.47
0.35
* indicates that the coefficient is significant at the 5% level and ** indicates significance at the 1% level.
T-statistics are given in parentheses. The regressions omit outliers, either as described in Burnside and
Dollar (2000) or using the Hadi method as discussed in the text. Variable definitions: Aid is Development
Assistance/GDP, Policy is a regression-weighted average of macroeconomic policies described in BD,
Ethnic is ethnic fractionalization from Easterly and Levine 1997, Assassinations is per million population,
Sub-Saharan Africa and Fast-growing E. Asia are dummy variables, Institutional quality is from Knack and
Keefer (1995). Other data sources are described in the data appendix available at www.cgdev.org

Table 2: Coefficient on aid*policy in alternative regressions for growth of GDP/capita

Burnside and Dollar original

observations
ELR data, BD countries, 1970-93
observations
ELR data, full sample, 1970-93
observations
ELR data, BD countries, 1970-97
observations
ELR data, full sample, 1970-97
observations
ELR data, full sample, outliers included, 1970-93
observations
ELR data, full sample, outliers included, 1970-97
observations

5/OLS 5/2SLS 8/OLS 8/2SLS

0.19** 0.18
0.27** 0.25*
(2.61)

-1.63

(2.97)

(1.99)

270

270

184

184

0.34*

0.56** 0.38*

0.56*

(2.41)

(2.87)

(2.36)

(2.28)

268

268

178

178

-0.08

0.11

-0.13

0.01

(-0.65) (0.52)

(-0.9)

(0.05)

291

291

199

199

0.30

0.38

0.40*

0.47

(1.96)

(0.75)

(2.38)

(1.52)

310

310

207

207

-0.15

0.01

-0.20

-0.20

(-1.09) (0.05)

(-1.26) (-0.65)

345

345

236

236

0.05

0.07

0.00

-0.06

(0.82)

(0.86)

(0.03)

(-0.52)

300

300

205

205

0.05

0.06

-0.01

-0.08

(0.81)

(0.79)

(-0.06) (-0.73)

356

356

244

244

Note: ELR data refers to dataset constructed for this paper as described in text. All
regressions omit outliers, either in the original Burnside and Dollar results as described
in their paper, or in the ELR results using the Hadi method, except where otherwise
noted. T-statistics are in parentheses. The number of observations is given below the
t-statistics. *indicates significant at 5% level **indicates significant at 1% level.

Table 3: Testing Burnside-Dollar specification of growth of GDP/capita

regressions adding aid squared*policy (t-statistics in parentheses,
observations below t-statistic)
4/OLS 7/OLS
0.20* 0.27*
aid*policy
(2.07)

Burnside and Dollar original

aid^2*policy
Observations
aid*policy

ELR data, BD countries, 1970-93

aid^2*policy
Observations
aid*policy

ELR data, full sample, 1970-93

aid^2*policy
Observations
aid*policy

ELR data, BD countries, 1970-97

aid^2*policy
Observations
aid*policy

ELR data, full sample, 1970-97

aid^2*policy

(2.03)

-0.02* -0.02*
(-2.22) (-2.45)

275
0.31*

189
0.28

(2.30)

(1.81)

-0.05* -0.05*
(-2.35) (-2.41)

274
-0.11

183
-0.27

(-1.10) (-1.94)
0.02 0.03*
(1.92)

(2.34)

300
0.20

205
0.15

(1.64)

(1.11)

-0.03

-0.03

(-1.58) (-1.56)

322
-0.14

216
-0.27

(-1.31) (-1.89)
0.03* 0.03*
(2.25)

(2.35)

Observations
356
244
Note: ELR data refers to dataset constructed for this paper as described in text.
*significant at 5% level **significant at 1% level.

Figure 1: Partial scatter plots of growth against aid*policy

Top graph: Burnside-Dollar original results
Bottom graph: Results using new dataset
GAB3

11.967

CMR4

SYR3
DOM2
EGY5
NGA2
PRY4

Growth of GDP/capita

EGY3
ECU2 GAB2

ZMB6
ZMB7

MEX4
SYR7
BRA2
SYR4
LKA5
PAK5 NGA7
ARG7
TTO4 KEN2
EGY4
KOR6
BOL5
PAK4
URY6
BRA6
IDN7
SEN5
URY4
KOR5
CMR5
SLV7
THA6
NGA6
NGA3
DOM6
PAK6
LKA7
ARG3
TUR7
IND6
KEN6
ETH6
MAR5
SOM3
MAR3
NIC3
TUN5
CMR3
GAB5
IDN4
CHL7
THA7
SLE4
IND5
ZWE5
GUY3
PRY3
PER4
HTI4 PAK7
NER4
NGA5
KOR7
BRA5
ZAR5
GMB3
COL4
GTM2
IDN6
ZWE6
GTM3
TZA5 TGO4
GAB7
KEN4
IDN5
SLV5
CHL6
MWI5
CRI2
ZAR2
PHL4
LKA4
CHL4 GMB5
MYS7
ARG6 ARG5
URY3
COL2
BRA3
LKA6
MEX2
COL5
TTO3KOR3
SLV3
GHA4
COL7 TZA6
GHA2
PHL6
ARG2
BOL7
SLE6
COL6VEN7
PHL3 GHA7GHA6
KOR2
PER7
DOM4
LKA3
URY7
MAR4
TUN7
THA5
HND4
SEN3
HND6
EGY6
PRY2
SLE7
SLE2
BOL3
KEN5
SYR2
IND7
DZA3
DOM3
PER2
GUY4
MYS4
PHL2
GTM4
HND2
PER3
ZAR6
TGO3
HND3
IDN3
MEX5
ZMB2
DZA2
HND7
ARG4
PER6
BRA4
HND5
SLV2
MDG6
PRY6
TGO6
PAK2
HTI3
GHA5
GUY2
DOM5
CRI7
NIC5
CRI3
MAR6
GTM6
ZWE7
MEX3
SLE5
ECU5
GTM7
KOR4
SLV6
BRA7
IDN2
DOM7
COL3
MYS5
MWI4
ZMB4
IND4
PAK3
GAB6
HTI5
ECU7
HTI2
TTO2
JAM5
THA4
TGO5EGY7
PER5
ECU4
IND3
LKA2
MWI7
MAR2
ECU6
KEN3
MYS2
VEN3
MEX7ECU3
GMB4
BOL4
NIC2
CRI6KEN7
GUY6
ZMB5
MYS6
MWI6
CRI5
BOL2VEN2
TUN6
BOL6
SEN2
CRI4
SLE3
URY2
ZAR4
ZMB3
GUY5 SOM4
VEN6
HTI6
PRY5
MYS3
THA2
GMB2
PRY7 GTM5
MDG7
JAM4
CIV4 CHL2
MDG2
NER3
THA3
NGA4
MEX6
PHL7
VEN5
TTO5
SYR6
MAR7
SEN4
IND2
CHL5
MDG3
CMR6
CHL3 PHL5
GHA3
ZAR3
URY5
SLV4

BWA4
MLI6

BWA5
BWA6

VEN4
TTO6

JAM3

CMR7
GAB4
NIC4
ETH5

-10.7188
-8.01298

SYR3

Growth of GDP/capita

8.2642

ZMB6

9.7002

Aid policy
NGA2

CMR4
GAB2 DOM2
ARG7
PRY4
EGY3
BWA4
TGO8
IRN7
EGY5
SYR4
MEX4
CMR5
BWA5
ECU2
SYR7
IRN5
BWA6
KEN2
BWA3
KOR6
TTO4
UGA6
ZWE8
URY6
PAK5 ZWE4
UGA8
THA6
TUR7PAK4
UGA7
PNG7
CHL7
MMR8
MAR3
URY4
ARG3
EGY4
IND8
KOR5
GTM4
IND6
NGA6
LKA7
NGA7
SEN5
MAR5
KEN6
PAK6
CMR3
SLV7
IND5
LKA5
TUR5
PER8 THA7
ETH6
ETH8
CHL6
IDN7
TTO3BOL5
TGO4
URY7
SYR8
CHL8
SLE6
CHL4
MWI7
PAK7
DOM6
GMB3
KOR7
TUR6
BFA5
PRY3
MMR4
KEN4
IDN4
GTM2
CIV8
MWI5
BRA5
NGA3
BFA8
CRI2
ARG8
MMR5
MMR7
HTI4
SLE4
TUR3
KOR8
LKA8
COL4
LKA4
NIC3
MYS7
URY3
IRN8
ZWE6
UGA5
URY8
COL2
DOM8
BRA8
ARG6
IDN8
GMB5 TGO3 VEN7
EGY6
TUN5
IDN6
PHL6
BFA7
IND7
TUR8
COL6
GHA8
JAM7
GTM3
COL8
KOR3
PER4
NER4
COL7
EGY8
BFA6
MYS8
LKA6
TTO5
GAB5
PER6
PER7 GHA6
HND7 IDN2 GHA7
SLV5
ZAR5
MEX2
GMB4
MLI8JOR5
BRA4
ZWE5
GTM7
MAR6TUN7
PRY2
ARG2
PAK8
SLV3
ARG5
GHA2
TGO6
SYR2
NGA8 ARG4
CRI7
GHA4
SLE2
IDN5
SEN3
HND6
GAB7
COL5KOR2
DOM3
DOM4
ZAR2
SLV6
MDG6
DZA8
MLI6
HND4
BWA8
EGY7
THA8
LKA3
PRY6
KEN5
ETH7
PHL4
TTO8GTM8
BOL8
MYS4
ZAR6
THA5
SLV8
MMR3
CRI3
TUN8
PHL2
BOL7
ZWE7
BWA7
HND2
CRI6
PAK2
PHL3
GTM6
SLE5
THA4
MEX7 MEX8
HND3
BOL3
TTO2
MEX5
IDN3
MEX3
TUR2
HTI3
KEN8
GHA5
MAR4
TUR4
DOM5
ECU7
MAR2
MAR8 KEN7
NIC8
COL3
ECU3
IND4
IND3
VEN6
MWI4
KEN3
KOR4
PAK3
COG7
NGA5ZAR8
PER2
HND5
NIC5
MYS2
PHL8
SLV2
GAB6
ZAF8VEN3
ECU4
HND8
JAM5
PER3
NER3
MWI6
HTI8
CRI8
HTI2
ECU6
VEN2
MEX6
LKA2
BOL2
URY2
MYS6
TGO5
THA2
GMB2
MDG8
MLI7
JOR7
MYS5
PER5CMR8
BOL6
MYS3
VEN8
CRI5
NIC2
CRI4
TUN6
JOR8
THA3
CIV6
SEN2
ECU5
DOM7
ZAR4
SLE3
CHL2
CIV4
HTI5
BOL4
HTI6
SYR6
ECU8
MDG7
CHL3
JAM4
TTO7
MAR7
PNG5
MMR2
PNG4 PRY7
MDG2
PRY5
GTM5
JAM8
SEN4
CIV5
CHL5 VEN5
MDG3
GHA3
IND2
PNG6
CIV7
CMR6
ZAR3
PHL7
HTI7
VEN4
TTO6
NGA4IRN6
ETH5
PHL5 PNG8
URY5
SLE7
ZAR7

COG8
JAM3
MMR6SLV4
GAB4
JOR6
TGO7
CMR7
SLE8

NIC4
IRN4

-10.528
-6.03525

Aid policy

5.0871

Note: These partial scatter plots are from regressions 1 and 3 in Table 1. The partial scatter plot
involves the two-dimensional representation of the relationship between growth and aid*policy controlling
for the other regressors. Thus, we regress growth against the all of the regressors listed in Table 1 except
aid*policy and collect these growth residuals. Then, we regress aid*policy against the same regressors and
collect these aid*policy residuals. The figures plot the growth residuals against the aid*policy residuals
along with the regression line.

10

References

Banks, Arthur. Cross-National Time-Series Data Archive. Bronx, NY: Databanks

International, 2002.
Boone, Peter. Aid and growth. Mimeo, London School of Economics, 1994.
_______. Politics and the Effectiveness of Foreign Aid. European Economic Review,
1996, 40(2), pp. 289329.
Burnside, Craig and Dollar, David. Aid, Policies, and Growth. American Economic
Review, September 2000, 90(4), pp. 84768.
Bush, George W. Speech at Inter-American Development Bank. Washington, DC,
March 16, 2002.
Cassen, Robert. Does Aid Work? Report to an Intergovernmental Task Force. New
York: Oxford University Press, 1986.
Central Intelligence Agency (CIA). World Factbook 2002. Washington, DC: 2002.
Chang, Charles C.; Fernandez-Arias, Eduardo and Serven, Luis. Measuring Aid Flows:
A New Approach. Inter-American Development Bank (Washington, DC)
Working Paper No. 387, December 1998.
Collier, Paul and Dehn, Jan. Aid, Shocks, and Growth. World Bank (Washington, DC)
Working Paper 2688, October 2001.
Collier, Paul and Dollar, David. Aid Allocation and Poverty Reduction. European
Economic Review, September 2002, 45(1), pp. 126.
Currency Data International (CDI), Global Currency Report. Brooklyn, NY: various
years.
Dalgaard, Carl-Johan and Hansen, Henrik. On Aid, Growth and Good Policies.
Journal of Development Studies, August 2001, 37(6), pp. 1741.
Development Assistance Committee Online. Paris: Development Assistance Committee
(DAC), 2002.
Easterly, William and Levine, Ross. Africas Growth Tragedy: Politics and Ethnic
Divisions. Quarterly Journal of Economics, November 1997, 112(4), pp. 1203
50.
Global Development Network. Growth Database. Washington, DC: World Bank, 2001.
http://www.worldbank.org/research/growth/GDNdata.htm

11

Guillaumont, Patrick and Chauvet, Lisa. Aid and Performance: A Reassessment.

Journal of Development Studies, August 2001, 37(6), pp. 6692.
Hansen, Henrik and Tarp, Finn. Aid Effectiveness Disputed. Journal of International
Development, April 2000, 12(3), pp. 37598.
_______. Aid and Growth Regressions. Journal of Development Economics, April
2001, 64(2), pp. 54770.
International Currency Analysts (ICA), Black Market Premia. Brooklyn, NY: various
months.
International Monetary Fund (IMF). International Financial Statistics database.
Washington, DC: July 2002.
Knack, Stephen and Keefer, Philip. Institutions and Economic Performance:
Cross-Country Tests Using Alternative Institutional Measures. Economics and
Politics, November 1995, 7(3), pp. 20727.
Lensink, Robert and White, Howard. Are There Negative Returns to Aid? Journal of
Development Studies, August 2001 37(6), pp. 4265.
Mosley, Paul; Hudson, John and Horrell, Sara. Aid, the Public Sector and the Market in
Less Developed Countries. Economic Journal, September 2001, 97(387), pp.
61641.
Papanek, Gustav F. The Effect of Aid and Other Resource Transfers on Savings and
Growth in Less Developed Countries, Economic Journal, September 1972,
82(327), pp. 93450.
Summers, Robert and Heston, Alan. The Penn World Table (Mark 5): An Expanded Set
of International Comparisons, 195088. Quarterly Journal of Economics, May
1991, 106(2), pp. 32768.
U.K. Department for International Development. Eliminating World Poverty: Making
Globalisation Work for the Poor. White Paper on International Development
Presented to Parliament by the Secretary of State for International Development
by Command of Her Majesty. London: December 2000.
White House. Fact sheet on Millennium Challenge Account. Washington, DC: 2002,
www.whitehouse.gov
U.N. Conference on Trade and Development (UNCTAD). Trade Information and
Analysis (TRAINS) database. Geneva: Spring 2001.

12

U.S. Department of State, World Military Expenditures and Arms Transfers. Washington,
DC: various years.
World Bank. Adjustment in Africa: Reforms, Results, and the Road Ahead. New York:
Oxford University Press, 1994.
_______. Globalization, Growth and Poverty: Building an Inclusive World Economy.
Washington, DC: 2002a.
_______. A Case for Aid: Building a Consensus for Development Assistance. Washington
DC: 2002b.
________. World Development Indicators 2002 database. Washington, DC: 2002c.

13

Appendix: Data set construction

(Data posted at www.cgdev.org)
In assembling a new data set for the present study, we imitated as closely as possible the
process followed by BD, consulting also the authors (although they are of course not
responsible for any errors we make). We collected all data available from standard crosscountry sources. We also collected new data on black market premium. (See Table A1.)
The BD and new data sets differ somewhat. Each contains observations for certain
variables that the other lacks, and the two do not agree perfectly on overlaps. (See Table
A2.) BD have some observations that we were not able to reproduce for 1970-93 with
our more recent data sources, perhaps because data was reclassified as missing in
subsequent updates.
Table A1. Construction of data set
Variable

Code

Correlation Data source

with BD1
0.962 World Bank 2002c

Per-capita GDP
growth
Initial GDP per
capita

GDPG
LGDP

1.000 Summers and Heston

1991, updated using
GDPG

Ethnic
fractionalization

ETHNF

1.000 Easterly and Levine

1997

Assassinations
Institutional
quality

ASSAS
ICRGE

1.000 Banks 2002

0.897 PRS Groups IRIS III
data set (see Knack
and Keefer 1995)

M2/GDP, lagged
one period
Sub-Saharan
Africa

M21

0.967 World Bank 2002c

SSA

1.000 World Bank 2002c

East Asia

EASIA

1.000

Budget surplus

BB

0.918 World Bank 2002c;

IMF 2002
14

Notes2

Natural logarithm of
GDP/capita for first year
of period; constant 1985
dollars
Probability that two
individuals will belong to
different ethnic groups;
based on original Soviet
data
Based on 1982 values,
the earliest available. BD
say they use 1980 values.
Computed as the average
of five variables
Codes nations in the
southern Sahara as subSaharan
Dummy for China,
Indonesia, South Korea,
Malaysia, Philippines,
and Thailand.only
World Bank primary data
source. Additional values

Inflation

INFL

1.000 World Bank 2002c

extrapolated from IMF,

using series 80 and 99b
(local-currency budget
surplus and GDP)
Natural logarithm of 1 +
inflation rate
.Natural logarithm of 1+
black market premium

Global Development
Network database for
all years expect 199495; black market
exchange rate for
1994-95 from ICA,
various editions;
CDI, various
editions; official
exchange rate from
IMF 2002
Sachs-Warner,
SACW
0.962 See Table A-4 below Based on variables
updated
described in Table A-4.
Extended to 1998.
Slightly revised pre-1993
Values available from
AID
0.953 Chang et al. 1998;
Aid (Effective
Chang et al. for 197595.
IMF 2002; DAC
Development
Values for 197074,
2002
Assistance)/
199697, extrapolated
GDP
based on correlation of
EDA with Net ODA.
Converted to 1985
dollars with World
Import Unit Value index
from IMF 2002, series
75. GDP computed like
LGDP above
Population
LPOP
1.000 World Bank 2002c
Natural logarithm
ARMS-1
0.986 U.S. Department of
Underlying source of
Arms
State, various years
World Bank 2002, which
imports/total
BD use
imports lagged
1
For four-year aggregates, restricted within the 275 complete observations in BD. 2All
variables aggregated over time using arithmetic averages.
Black market
premium

LBMP

BD do not
use data on
BMP
because
they take
the SachsWarner
openness
measure
directly

15

Table A2. Differences in Sample between Burnside and Dollar and New Data Set
Burnside and Dollar
Brazil 197073, 197477
Algeria 197073, 197477
Gambia 198689
Guyana 197073, 197477,
197881, 198285,
198689, 199093
Somalia 197477, 197881
Tanzania 198285, 198689
Zambia 197073, 197477,
197881, 198285

New Data Set

Argentina 198285, 198689, 199093
Botswana 197477, 199093
Burkina Faso 198285, 198689, 199093
Congo, Dem. Rep. 199093, 199093
Cote dIvoire 198285, 198689, 199093
Ethiopia 199093
Haiti 199093
Iran 197881, 198285, 198689, 199093
Jamaica 199093
Jordan 197477, 197881, 198285, 198689,
199093
Mali 199093
Myanmar 197073, 197477, 197881,
198285, 198689, 199093
Papua New Guinea 197881, 198285,
198689, 199093
Togo 199093
Trinidad and Tobago 199093
Turkey 197073, 197477, 197881, 198285,
198689
Uganda 198285, 198689, 199093
Zimbabwe 197881

Observations
for 199497

None

Algeria, Argentina, Bolivia, Botswana, Brazil,

Burkina Faso, Cameroon, Chile, Colombia,
Democratic Republic of Congo, Republic of
Congo, Costa Rica, Cote dIvoire, Dominican
Republic, Ecuador, Egypt, El Salvador,
Ethiopia, Ghana, Guatemala, Guyana, Haiti,
Honduras, India, Indonesia, Iran, Jamaica,
Jordan, Kenya, Madagascar, Malaysia, Mali,
Mexico, Morocco, Myanmar, Nicaragua,
Nigeria, Pakistan, Papua New Guinea, Peru,
Philippines, Sierra Leone, South Africa, South
Korea, Sri Lanka, Syria, Thailand, Togo,
Trinidad and Tobago, Tunisia, Turkey, Uganda,
Uruguay, Venezuela, Zambia, Zimbabwe

Number of
observations

275

356

Observations
unique to set

16

Table A-3: Outliers Excluded from Regressions

Regressions
BD data, BD sample, 197093

Outliers
Gambia 1986-89, 1990-93
Guyana 1990-1993
Nicaragua 1986-89, 1990-93
Gabon 1974-77
Gambia 1990-93,
Mali 1990-93
Nicaragua 1986-89, 1990-93
Zambia 1990-93
Brazil 1986-89,1990-93
Gabon 1974-77
Gambia 1990-93
Guyana 1994-97
Jordan 1974-77, 1978-81
Nicaragua 1986-89, 1990-93
Zambia 1990-93, 1994-97

new data set, BD country sample, 197093

new data set, full sample, 197097

17

Updating the Sachs-Warner openness variable

The set of Sachs-Warner values from Harvards Center for International Development
stops in 1992. In order to extend the study period, we updated the Sachs-Warner (1995)
openness variable for 199398 for those countries with otherwise complete observations
for 199497, and for some other countries. The process of updating also led us to revise
pre-1993 values for ten countries.
The Sachs-Warner variable is based principally on five components. When a country is
rated closed on any one of the components, it is rated closed overall. Sachs and Warner
also drew on other sources on an ad hoc basis. Table A4 describes the five components
and how they were updated for countries in the present study.
Table A4. Synopsis of update to Sachs-Warner
Component
Updating method
Black market premium > 20
Global Development Network database for all years expect
percent
1994-95; black market exchange rate for 1994-95 from ICA,
various editions; CDI, various editions; official exchange
rate from IMF 2002. Algeria, Haiti, Iran, Myanmar, Nigeria,
Syria rated closed through 1998. Ethiopia rated closed 1993
96. Kenya and Uganda rated closed 199394. Zambia rated
closed 1993 and 1998.
Export marketing: closed if
government has a purchasing
monopoly on a major export
crop and delinks purchase
prices from international prices.
Sub-Saharan Africa only.

Based on late-1992 status from World Bank 1994, p. 239,

and on late-1990s IMF country reports. Absence of
evidence in IMF documents of such intervention is
interpreted as evidence of absence. Cameroon and Republic
of Congo rated open 199398. Madagascar rated open 1997
98. All other countries in present study unchanged since
1992.

Socialist

Based on CIA 2002. Republic of Congo rated non-socialist

199197 but socialist in 1998. Ethiopia rated non-socialist
199298. Nicaragua rated non-socialist for 199198. All
other countries in study unchanged since 1992.

Own-imported-weighted
average frequency of non-tariff
measures (licenses,
prohibitions, and quotas) on
capital goods and intermediates
> 0.4

Single estimates for late 1990s derived from UNCTAD

2001. Data year for imports: 1999. Data year for non-tariff
measures: varies by country, between 1992 and 2000, mostly
late-1990s. Only Argentina, Bangladesh, China, and India
rated closed.

Own-imported-weighted
average tariff on capital goods
and intermediates > 0.4

Single estimates for late 1990s derived from UNCTAD

2001. Only Pakistan rated closed.

18