Aid and Growth in Malawi
Jul 1, 2017
Daniel Chris Khomba, Alex Trew
Khomba, Daniel Chris and Trew, Alex. 2017. Aid and Growth in Malawi. AidData Working Paper #42. Williamsburg, VA: AidData at William & Mary.
We study the impact on local growth of foreign aid flows in Malawi over the period 2000–13. Using household surveys, we show that growth in light density is a good proxy for growth in household consumption. To isolate a causal impact of aid on growth, we employ two exogenous determinants of within-country disbursement: first, the ethnic affinity of a constituency or district with the sitting President; second, the portion of Parliamentarians in a constituency or district that defect to the ruling party. Using these instruments, alone or together, we identify a robust and quantitatively significant role for aid flows in causing higher growth in light density at both constituency and district level. Constituency level regressions suggest a higher effect than district level regressions, suggesting that aid flows cause a relocation of economic activity across space. We find a hump-shaped growth response over the course of three years. Bilateral aid appears to be better in causing growth than multilateral aid while grants have more impact than loans.