The Effect of Aid Synergies on Growth

This thesis investigates the impact of synergy effects between non-governmental (NGO) and governmental aid on growth. The hypothesis is that the effectiveness of governmental aid is conditional on whether it is clustered with NGO aid in a recipient country. In theory, NGOs have a comparative advantage for assisting the poor in material and human asset building, whereas governmental aid can foster the implementation of growth promoting policies and institutions at the macro-level. By working together in the same countries NGOs can ensure that the growth opportunities created by governmental aid also benefit the poor. Subsequently, pro-poor growth theory (growth which lowers poverty) suggests that when inequality is reduced higher growth rates can be achieved. This virtuous circle makes the combination of NGO and governmental aid in theory effective at reducing poverty. A new dataset has been constructed for this study, which includes aid expenditures data from 2000 until 2007 from 27 of the largest international NGOs. A random effects panel model is used to empirically determine the possible synergy effects between governmental and NGO aid. The regression results display a significantly positive coefficient for the interaction effect term. This supports the theory that the combination of NGO and governmental aid is more effective at reducing poverty than when these types of aid are given in isolation.