Official Development Assistance and Economic Growth in Iran

Foreign aid is one of the most important policy tools that rich countries usefor helping poor countries to improve population well-being and facilitateeconomic and institutional development. The concept of foreign aid or officialdevelopment assistance (ODA) is widely used and accepted as a flow offinancial resources from developed countries to developing countries ondevelopment grounds. However, the role and effects of foreign aid in theeconomic growth of developing countries have been and are controversialissues. This paper investigates the relationship between foreign aid and growthin per capita GDP using annual data from the 1980 to 2012 period for a sampleof Iran. Three time series techniques (CCR, FMOLS and DOLS) were utilizedto 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 andother capital inflows.

Keywords:

Foreign Aid , Economic Growth , Co-integration Techniques