The effect of foreign aid on income inequality: Evidence from panel cointegration

This paper examines the long-run effect of foreign aid on income inequality for 21 recipient countries using panel cointegration techniques to control for omitted variable and endogeneity bias. We find that aid exerts an inequality increasing effect on income distribution.

► We examine the long-run effect of foreign aid on income inequality for 21 recipient countries. ► We use panel cointegration techniques. ► Our inequality measure is the Estimated Household Income Inequality (EHII) index. ► The measure of aid is Net Aid Transfers (NAT). ► Our main result is that aid exerts an inequality increasing effect on income distribution.