Impact of Project and Programme Aid on Economic Growth: A CrossCountry Analysis

This study examines the impact of foreign aid instruments, namely Project Aid and Program Aid, on economic growth of 27 aid-receiving countries. The study constructs a system of three equations, i.e. growth, investment and human capital. Using the Generalized Method of Moment estimation technique, the study concludes that while Project Aid has a positive and significant impact on economic growth, Program Aid has an insignificant impact on economic growth. Additionally, the study finds that economic policies do enhance effectiveness of aid at aggregate level. Therefore, the capacity of aid-recipient countries to effectively use their resources for economic development needs due consideration.