Limits to the Effectiveness of Foreign Aid: Conflicts, Debt Overhangs, and Epidemics

This dissertation examines how conflicts, debt overhangs, and epidemics can impact the effectiveness of foreign aid with respect to economic growth. The literature has been mixed on whether aid, proxied by official development assistance (ODA), has been effective in promoting growth. These three factors are used to assess whether the impact of aid is estimated properly because they are excluded in aid effectiveness studies. This dissertation uses system-GMM to determine whether the inclusion of these factors affect the coefficient of ODA. The findings provide some evidence that including conflicts, debt overhangs, and epidemic would result in a more robust analysis on the impact of foreign aid on GDP growth per capita. Conflicts and debt overhangs are found to have a negative impact on the effectiveness of aid on growth. These findings build on existing research that suggests the impact of foreign aid is small. The results of this dissertation have not only implications on better understanding the effectiveness of aid but also on the provision of aid.