Aid modality and growth under post-conflict conditions

• Published in: Review of world economics Vol. 160; no. 2; pp. 657 - 674
• Main Authors: Hur, Yoon S., Han, Baran
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 01.05.2024; Springer Nature B.V
• Subjects: Conflict; Developing countries; Development aid; Development policy; Development programs; Economic development; Economic growth; Economic Policy; Economics; Economics and Finance; Effectiveness; European Integration; Food; GDP; Generalized method of moments; Global economy; Gross Domestic Product; International Economics; LDCs; Macroeconomics/Monetary Economics//Financial Economics; Original Paper; Per capita; Public finance; Technical assistance; F35; O1; Growth; Aid modality; Post-conflict
• ISSN: 1610-2878; 1610-2886
• DOI: 10.1007/s10290-023-00511-7

Amid a massive influx of development assistance, considerable skepticism remains regarding the effectiveness of aid in promoting the development of conflict-affected states under post-conflict conditions. Although the importance of aid modalities and policies for allocating aid to improve aid effectiveness has been the subject of much discussion, there is still limited research on post-conflict countries. The current paper, accordingly, contributes to the aid-development literature by offering an assessment of the effectiveness of specific aid modalities in the context of post-conflict circumstances. We measure the effects of four key aid modalities—financial program aid, project aid, technical assistance, and food aid—on the economic growth of conflict-affected countries employing the system-GMM estimator and using the conflict database of the Uppsala Conflict Data Program and Organization for Economic Co-operation and Development’s Development Assistance Committee aid database. We find that financial program aid, which generally supports national finance and state-led development programs, has a marginally significant positive effect when it is administered in post-conflict conditions, particularly for non-least developed and African countries. In contrast, other aid types—food aid and technical assistance show statistically insignificant or negative effects on the GDP per capita growth under post-conflict conditions. These heterogeneous effects of aid by type depending on a country’s development status and region suggests that the allocation of aid to conflict-affected countries must be strategic, considering the conflict type, development policy, and absorptive capacity of the recipients to be effective.