The Macro-Micro Paradox of Aid and Volatility

This thesis investigates the efficiency of aid to see whether aid has an effect on the economic performance of a recipient country. Scholars have over the years found that aid flows do not have an effect on a recipient‟s macroeconomic performance. This research replicates those results.However, this research finds that on the microeconomic level aid flows do have an effect on the death rate and mobile phone and internet subscriptions. There is thus a macro-micro paradox of aid. Furthermore, aid volatility is found to have a negative effect on both macroeconomic and microeconomic performance of a recipient. The effect on the macroeconomic level is dependent on whether a country is aid dependent or not. Geographical location is also determining factor. On the microeconomic level aid volatility has a negative effect, even when volatility is a positive deviation from the aid trend.