Aid, Government Expenditure, and Aggregate Welfare

This paper tests the hypothesis that aid contributes to increasing aggregate welfare, measured by infant mortality and the Human Development Index (HDI), in recipient countries. Estimation is based on data for 104 countries over the period 1980-2000, and for subsamples of low-income and middle-income countries. Fixed effect estimates provide robust evidence that aid is associated with improved values of the welfare indicators, and this effect appears to be greater in low-income countries. Aid appears to increase welfare either directly or through the effect on growth, and there is no evidence that aid operates through public spending.