Aid,institutions and economic growth in sub‐Saharan Africa: Heterogeneous donors and heterogeneous responses

This study contributes to the aid‐effectiveness debate using panel data from 43 sub‐Saharan African countries over the period 1980–2013. Its novelty lies in assessing the intermediary role of institutions and the importance of recipient and donor heterogeneity. The long‐run growth effect of (aggregate) aid from “traditional” donors is robustly non‐positive, and the indirect effect is negative. Disaggregation reveals donor heterogeneity. Chinese aid outperforms aggregate aid from traditional donors with respect to growth; however, it has a negative institutional effect. Recipient heterogeneity is largely a short‐run phenomenon, with only a few countries showing some deviations from shared long‐run parameter sets. Comparing donor behavior suggests that the future of aid would benefit more from focusing on quality – particularly, specialization and donor alignment.