Are There Negative Returns to Aid? A Comment

Abstract

Amid controversies surrounding aid effectiveness, an increasing number of empirical studies find support for the idea that aid can spur growth and that the aid-growth relationship is nonlinear. Lensink and White propose a model to illustrate the possible existence of what has been labeled an "aid Laffer curve." This short paper highlights the model`s weaknesses and suggests that the model does not fulfill the purpose of illustrating the possible existence of negative returns to aid.

Keywords: Foreign aid, economic growth, poverty

JEL Classification: F35, I30, O40