Aid and Income: Another Time-Series Perspective
World Development; DOI: 10.1016/j.worlddev.2013.12.015
Posted: 13 Dec 2014
There are 2 versions of this paper
Aid and Income: Another Time-Series Perspective
Aid and Income: Another Time-Series Perspective
Date Written: January 2014
Abstract
This study provides a replication of the empirical results reported by Nowak-Lehmann, Dreher, Herzer, Klasen, and Martínez-Zarzoso (2012) (henceforth NDHKM). We uncover that NDHKM relied on a regression model which included a log transformation of variables that are not strictly positive. This led to nonrandom omission of a large proportion of observations. Furthermore, we show that NDHKM’s use of co-integrated regressions is not a suitable empirical strategy for estimating the causal effect of aid on income. Evidence from a Panel VAR model estimated on the dataset of NDHKM, suggests a positive and statistically significant long-run effect of aid on income.
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