Aid, Policy And Growth

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Larry L. Day Aid, Policy and Growth: The Case of St. Lucia Abstract This paper takes a look at aid, policy and growth literature using data from St. Lucia, a country that received $24,000,000 US dollars in 2014. Our findings suggest that aid, in the presence of sound economic policy, does not contribute to growth in St. Lucia. However, this study does find statistical evidence to suggest that democratic governance and openness and monetary policy does impact the effectiveness of aid in St. Lucia. Politics, Governance and institutions in St. Lucia Saint Lucia is a Commonwealth realm; Queen Elizabeth II is the Head of State, represented on the island by a Governor-General. Executive power, however, is in the hands…show more content…
Today, there is a tremendous amount of literature on the relationship between aid and growth (Hudson, 2004). McGilivray provides a recent comprehensive survey of the theoretical and empirical literature on foreign aid and growth. (McGillivray, 2006) A study conducted by McGillivray demonstrates how aid to African countries not only increases growth but also reduces poverty. Furthermore, the author points out the important fact that continuously growing poverty, mainly in sub-Saharan African countries, compromises the MDGs (Millennium Development Goals) main target of dropping the percentage of people living in extreme poverty to half the 1990 level by 2015. His research econometrically analyzes empirical, time series data for 1968-1999. The paper concludes that the policy regimes of each country, such as inflation and trade openness, influence the amounts of aid received. (McGillivray, 2006). Ouattara (Ouattara, 2006) analyzes the effects of aid flows on key fiscal aggregates in Senegal. The paper utilizes data over the period of 1970 – 2000 and primarily focuses on the interaction between aid and debt. The author determined three main outcomes of his study. First, that a large portion of aid flows, approximately 41%, are used to finance Senegal’s debt and 20% of the government’s resources are
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