INEQUALITY, AID AND GROWTH: MACROECONOMIC IMPACT OF AID GRANTS AND LOANS IN LATIN AMERICA AND THE CARIBBEAN

Aid effectiveness in Latin America and the Caribbean (LAC) has been little studied, despite the fact that it is the developing region receiving foreign aid with the highest per capita income and inequality levels. This paper uses a growth regression model to analyze the impact of Official Development Assistance (ODA) in LAC. We evaluate ODA effectiveness in relation to the growth rate of an 'inequality-adjusted GDP per capita' in order to precisely define the desired impact of aid in a region with high levels of inequality. The estimation produces three main results: aid is effective, in aggregated terms, once we deal with the effect of income inequalities; the impact of concessional loans seems to be greater than the impact of grants; and, aid may be more effective in less corrupt countries.