Official Development Assistance and Economic Growth in Iran

Foreign aid is one of the most important policy tools that rich countries use for helping poor countries to improve population well-being and facilitate economic and institutional development. The concept of foreign aid or official development assistance (ODA) is widely used and accepted as a flow of financial resources from developed countries to developing countries on development grounds. However, the role and effects of foreign aid in the economic growth of developing countries have been and are controversial issues. This paper investigates the relationship between foreign aid and growth in per capita GDP using annual data from the 1980 to 2012 period for a sample of Iran. Three time series techniques (CCR, FMOLS and DOLS) were utilized to estimate the co-integrating equations. The results show that in long-run, effect of foreign aid on economic growth is positive, statistically significant, and sizable. Therefore, aid is more productive than domestic resources and other capital inflows.