The Effect of Foreign Aid on Poverty

This paper explores the relationship between foreign aid and poverty. A fuzzy Regression Discontinuity Design is applied in a quasi-experimental setting by exploiting the arbitrary threshold set by the International Development Association when determining a country’s eligibility for aid. The sample includes 31 countries which at some point crossed the Gross National Income per capita threshold between 1987 and 2010. Total aid is found to decrease by approximately 41 percent after crossing the threshold. Following, this paper however fails to detect any significant relationship between aid and poverty. This result holds to a series of empirical validity and robustness tests.