Aid, Protestants and Growth

William Roberts Clark (University of Michigan)

John Doces (Bucknell University)

Robert Woodberry (University of Texas, Austin)

If Foreign Aid can’t do it, who can?

• Sachs/Bono: “Meet millenial goals” and support NGO’s– Would meeting millenial goals help?

“probably not”– Do NGO’s help?

• Highly decentralized, multitudinous micro projects

– That may be why they help, but it makes them hard to asses

Historically,

Much “citizen to citizen” development has been by church groups.This is still true– digging wells, – building Aids clinics, orphanages– schools, etc.

These are likely to count, but how do we count them?

Woodberry dissertation:

• Protestant missionaries in the 19th and early twentieth century – encouraged mass education (and

therefore, human capital accumulation), – Greater trade-openess – Greater equality– the growth of a middle class– and democratization

Question

• Have protestant missionaries been good for economic development, and, if so, has it been directly, or by providing an environment in which other forms of Aid have a catalytic effect?

The Conditional effect of Aid on Growth

git=yity aita pitp ait pitap zitzgt at it

git is the growth rate in country i at time t

yit is initial level of income

ait is flow of offical foreign assistance

pit is measure of “sound policies” (f(budget, TO, govt. consuption)

ait pitis interaction term

zit is vector of control variable

Evaluating conditional effects of Aid

∂git/∂ait = a pitap

If “sound” policies are necessary and sufficient to render aid catalytic for growth, then

a=0

a pitap>0 …when pit is “large”

Table 1

Using B&D sample, Aid is associated with growth only when policy is fantastic

So, Aid is associated with growth if

• Policy score is above 2– Nearly 80% of the observations in the

sample have policy score below 2– If a country has to be a super star to get

Aid, is Aid the answer for Sub-Saharan Africa?

Is Aid endogenous?

• If BDR are correct and Aid is associated with growth only under some policy conditions, treating Aid as endogenous amounts to assuming that we, the analysts know something our subjects do not.

• IOW - wouldn’t donors condition their giving based on past policy effectiveness and, therefore, expected (I.e. current) growth rates?

Using B&D instruments, Policy is never good enough for Aid to have an effect on growth

B&D love that the coefficient on the interaction term is unchanged after “controlling for” endogeneity…

But they fail to notice that the negative coefficient on Aid is 16 time larger

At any rate…

• ELR expand the sample size by 20 percent and things go from bad to worse…

Aid is + but indistinguishable from zero whe Policy = 0

And interaction term is negative

But, Is Aid Conditioned

on Instituions?

• But, maybe aid is conditioned on instituions?

Pos coefficient on Aid, and positive and sig effect on interaction term are encouraging! … but only in B&D sample

Aid is related to growth when: Polity score is very high and BDR sample is used

polities

But, what about endogeniety?

If Aid only has catalytic effect when target is a “democracy”, wouldn’t donors only give where they thought “democracy” was going to lead to higher growth rates? If so, then its likely that

growth -> aid

Using B&D’s instruments Aid is never associated with increased growth…

TSLS using B&D sample and

instruments and Polity

Neg coefficient on interaction effect