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Notes on Foreign Aid Selectivity Based on Human Capital

by Tanaka, Atsuko

In order to achieve developmental goals more effectively, international communities have paid increasing attention to the pros and cons of "Aid Selectivity." However, the empirical results on the effects of international aid on economic growth in the recipient countries are mixed. This note proposes a theoretical framework to reconcile those mixed findings on aid effectiveness. In particular, I focus on the growth consequences of a poverty-efficient aid allocation in the recipient’s economy, and theoretically illustrate that an important determinant of aid efficacy is the achieved growth of human capital accumulation in recipient countries.

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