Aid to agriculture, economic growth and poverty reduction
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The link between foreign aid, economic growth and poverty reduction has been a controversial issue with no consensus so far. In this dissertation, I disaggregate the aid variable into several categories, including aid given to the agricultural sector, to investigate the response of both economic growth and a poverty indicator to changes in sector-specific foreign aid. Using the Generalized Method of Moments estimation technique on cross sectional time series country data, I find that aid given to the agricultural sector is positively and significantly related to growth. Using the estimates of aid impact, a country with the average level of aid would have a per capita GDP growth rate that is 0.76 to 2 percentage points higher than a country receiving zero agricultural aid over a four year period. I also find that aid given to the agricultural sector affects poverty both directly and indirectly through increased pro-poor expenditure. A 1 percentage point increase in agricultural aid’s share in GDP will result in a 0.17 percentage point decrease in the poverty headcount ratio directly, and a 0.09 percentage point decrease through increases in pro-poor expenditures.