Official Development Assistance and Economic Growth in Iran

Document Type: Original Research


1 Ph.D Student in Economics, Islamic Azad University, Isfahan (Khorasgan) Branch, Iran

2 Professor in Economics Department, Islamic Azad University of Khorasgan, Isfahan, Iran


Foreign aid is one of the most important policy tools that rich countries use for helping poor countries to improve population well-being and facilitate economic and institutional development. The concept of foreign aid orofficial development assistance (ODA) is widely used and accepted as a flow of financial resources from developed countries to developing countries on development grounds. However, the role and effects of foreign aid in the economic growth of developing countries have been and are controversial issues. This paper investigates the relationship between foreign aid and growth in per capita GDP using annual data from the 1980 to 2012 period for a sample of Iran. Three time series techniques (CCR, FMOLS and DOLS) were utilized to estimate the co-integrating equations. The results show that in long-run, effect of foreign aid on economic growth is positive, statistically significant, and sizable. Therefore, aid is more productive than domestic resources and other capital inflows.


Boone P. (1996). Politics and the effectiveness of foreign aid. European Economic Review 40: 289– 329.
Brautigam, D. A. and S. Knack (2004), Foreign aid, institutions, and governance in Sub-Saharan Africa,” Economic Development and Cultural Change, vol.13, p.255-285.
Burnside, C. and D. Dollar (2000), "Aid, policies, and growth," American Economic Review, vol.90, p.847–868.
Dalgaard, C. J., Hansen, H. and F. Tarp (2004), "On the empirics of foreign aid and growth", Economic Journal, vol.114, p.191–216.
Doucouliagos, H. and M. Paldam (2009), "Conditional aid effectiveness: a meta-analysis,", Journal of International Development, vol.21, no.7, p.1582-1601.
Dowling, M. and U. Hiemenz (1982), "Aid, Savings and Growth in the Asian Region," Economic Office Report Series 3, Asian Development Bank: Manila.
Gupta, K. L. and M. A. Islam (1983), Foreign Capital, Savings and Growth—An International Cross-Section Study, Reidel Publishing Company: Dordrecht.
Gomanee, K., Girma, S. and O. Morrisey (2005), "Aid and growth in Sub-Saharan Africa: accounting for transmission mechanisms," Journal of International Development, vol.17, no.8, p.1055–1075.
Hansen H, Tarp F. (2000). Aid effectiveness disputed. Journal of International Development 12: 375–398.
Hudson J. 2004. Introduction: aid and development. Economic Journal 114: F185–F190.
Jensen, P. S., M. Paldam (2003), "Can the New Aid-Growth Models Be Replicated?," Working Paper No.2003–17, Institute for Economics: Aarhus.
Karras, G. (2006). "Foreign aid and long-run economic growth: empirical evidence for a panel of developing countries," Journal of International Development, vol.18, no.7, p.15–28.
McGillivray, M., Feeny, S., Hermes, N. and R. Lensink (2006), "Controversies over the impact of development aid: it works; it doesn’t; it can, but that depends," Journal of
International Development, vol. 18, no.7, p.1031–1050.
Morrissey, O. (2001). "Does aid increase growth?," Progress in Development Studies, vol.1, no.1, p.37-50.
Mosley, P. (1980), "Aid, savings and growth revisited," Oxford Bulletin of Economics and Statistics, vol.42, no.2, p.79–95.
Mosley, P. Hudson, J. and S. Horrell (1987). "Aid, the public sector and the market in less developed countries," Economic Journal, vol.97, no.387, p.616–641.
Obstfeld M. (1999). Foreign resource inflows, saving, and growth. In The Economics of Saving and Growth: Theory, Evidence, and Implications for Policy, Schmidt-Hebbel K, Serven L (eds). Cambridge University Press: Cambridge; 107–146.
Organization for Economic Co-operation and Development (2014). DAC Members. Organization for Economic Co-operation and Development. http://www.o ers.htm
Papenek, G.F. (1973a). "Aid, Foreign Private Investment, Savings and Growth in
Less Developed Countries", Journal of Political Economy, Feb. 1973.
Phillips, P., and Hansen, B. (1990). Statistical inferences in instrumental variables
regression with I(1) processes, Review of Economic Studies, 57, 99-125.
Park, J. (1992). Canonical canonical regressions, Econometrica, 60, 119-143.
Stock, J. H. and Watson, M.W. (1993) A simple estimator of cointegrating vectors
in higher order integrated systems, Econometrica, 61, 783-820.