Abstract

We investigate the marginal productivity of investment across countries. The aim is to estimate the return on investments financed by foreign aid and by domestic resource mobilization, using aggregate data. Both returns are expected to vary across countries and time. Consequently we develop a correlated random coefficients model, to estimate the average aggregate return on ‘aid investments’ and ‘domestic investments’. Across different estimators and two different sources for GDP and investment data our findings are remarkably robust; the average gross return on ‘aid investments’ is about 20 per cent. This is in accord with micro estimates of the economic rate of return.
Original languageEnglish
Place of PublicationHelsinki, Finland
PublisherUNU-WIDER
Number of pages28
ISBN (Electronic)978-92-9230-942-8
Publication statusPublished - Jun 2015
SeriesUNU WIDER Working Paper Series
Number53

Bibliographical note

JEL Classification: C23, F35, O47

Keywords

  • Faculty of Social Sciences
  • Productivity
  • growth accounting
  • foreign aid
  • random coefficients
  • panel data

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