Aid Composition, Institutional Quality, and Economic Growth: A Multi-Faceted Examination for Developing Countries.

Abstract

Foreign aid and institutional quality are the crucial aspects of the development process of the developing nations. This paper examines the effect of foreign assistance and institutional quality on the economic growth of 49 developing countries from 1990 to 2020. The Generalized Method of Moment (GMM) technique has been used for the analysis. Two types of aid, namely project based aid and total aid have been used in the analysis. The overall institutional quality and quality of economic, political and legal institutions have been used in the analysis. The study found that aid without institutional quality has no significant impact on growth. While aid when interacted with institutional quality has a significant impact. It shows that if institutional quality improves in a country than aid will have significant impact on country’s economic growth.