A re-examination of the savings displacement hypothesis

This paper re-examines the savings displacement hypothesis. It uses a new dataset that disaggregates aid into project aid, financial programme aid, technical assistance grants and programme food aid. When considering the whole sample of 97 countries, results obtained from estimating a savings function using the GMM-System approach to dynamic panel suggest that project aid flows are the only type of aid exerting a negative effect on domestic savings. The results also show that the effects of the different categories of aid on domestic savings vary across regions, thus highlighting the importance of regional disaggregation in cross-country studies. The author would like to thank Jean-Louis Grolleau at the OECD Credit Reporting System for his helpful advice and his encouragements during the construction of the disaggregated aid database used in this paper.